One of the most significant consequences of the absence of a legally required organ in a joint-stock company or the failure to convene a general meeting is the decision to dissolve the company pursuant to Article 530 of the TCC. Under Article 530 of the TCC, the prolonged absence of a board of directors and/or a general meeting necessitates the dissolution of the company. If one of the company’s legally required bodies has not existed for a long period or the general meeting cannot be convened, upon the request of the shareholders and the company’s creditors, the Commercial Court of First Instance in the location of the company’s headquarters sets a deadline, after hearing the board of directors, for the company to bring its situation into compliance with the law. If the situation is not rectified within this period, the court orders the dissolution of the company .
The absence of an organ may manifest either as the organ not existing at all or as a formally existing organ that is not functioning at all. In both cases, since it is not possible to form and express the will of the joint-stock company, the legislature has deemed the dissolution of the company appropriate.
1. Competent Court and Court of Jurisdiction
According to Article 530 of the Turkish Commercial Code, the competent and jurisdictional court is the “Commercial Court of First Instance where the company’s headquarters is located.” Thus, in the case in question, the court with jurisdiction is the Commercial Court; the competent court is explicitly designated as the Commercial Court where the company’s headquarters is located. However, in cases of dissolution arising from the absence of mandatory organs in joint-stock companies, the courts hear the case as a panel.
2. Who may file this lawsuit
Pursuant to Article 530 of the Turkish Commercial Code, the dissolution of a joint-stock company may be sought by the company’s creditors and shareholders. The right to file a dissolution lawsuit is granted separately to each of these parties.
3. Against whom is this lawsuit filed?
In a lawsuit for the dissolution of a joint-stock company, the legal entity of the company is the defendant. At this point, it is necessary to consider the specific deficiency in the corporate body upon which the lawsuit is based. If the lawsuit is filed on the grounds that the general meeting cannot be convened, the board of directors will represent the company in the lawsuit. If the lawsuit is filed based on a deficiency in the board of directors, however, since a board of directors that does not actually exist or, despite existing in form, is unable to function cannot represent the company in the lawsuit, a receiver will be appointed for the company in such a case.
4. Appointment of a receiver to protect the company and ensure the continuation of its operations
The purpose of appointing a receiver as a provisional legal protective measure in a company dissolution lawsuit is to save the company from dissolution, protect its assets, and ensure it can continue its operations. For this reason, if the term of the board of directors authorized to represent the defendant company has expired during the lawsuit, a receiver is appointed to represent the company for the duration of the proceedings.
In a dissolution lawsuit filed due to a lack of corporate bodies, when the court appoints a receiver for the company, it will verify the existence of the conditions required under Article 427(4) of the Turkish Civil Code. For the appointment of a receiver for a joint-stock company, which is a legal entity, the conditions required under Article 427(4) of the Turkish Civil Code4, the conditions that must be met are: “the existence of assets,” “the assets belonging to a legal entity,” “the legal entity being deprived of the necessary organs for the management of its assets,” and “the management of the legal entity not being able to be ensured by any other means.”
The ruling of the 43rd Civil Chamber of the Istanbul Regional Court of Appeal, Case No. 2023/621 E., Decision No. 2023/495 K., dated May 11, 2023;
“For a management receiver to be appointed, it is a prerequisite that the company’s board of directors cannot be formed in any way and that this vacancy has not been resolved through other legal means.” This statement outlines the conditions for the appointment of a receiver.
The Court of Cassation has ruled that, in the event the general meeting is not convened, the court may issue an interim order appointing an administrator to convene the general meeting. In a company dissolution case, since the company lacks its mandatory organs, the administrator is appointed either to perform a specific task (such as convening the general meeting) or to ensure management in the absence of a board of directors.
5. Possible rulings in the case
5.1 Dismissal of the case
In a company dissolution case, if the deficiencies are remedied within the reasonable timeframe set by the court, the court will dismiss the case on the grounds that the case has become moot, as the plaintiff no longer has a legal interest, and will state this in its decision.
Court of Cassation, 11th Civil Chamber, Date: 02/25/2019, Case No. 2017/481, Decision No. 2019/1468
“…The plaintiff requested that the deficiency in corporate governance be remedied by appointing a receiver for the company, and that if such deficiency could not be remedied, a decision be made to dissolve and liquidate the company; however, since the deficiency in corporate governance was remedied during the proceedings by appointing a receiver for the company, the court ruled to dismiss the case on the grounds that there was no need to decide on the dissolution of the company…” In such cases, if the lack of corporate bodies is resolved during the proceedings, a decision to dissolve the company will not be made.
5.2 Ordering the dissolution of the company
In a joint-stock company, the mere existence of a deficiency in corporate bodies does not, by itself, result in dissolution. For a decision to dissolve the company to be made, it is also necessary to establish that the deficiency is “permanent,” that “the court has granted the company a period of time to remedy the deficiency,” and, finally, that “the deficiency has not been remedied within the granted period.”
The concept of “permanence” refers to the organ deficiency being of a permanent nature. Accordingly, even if the company has faced an organ deficiency for a period of time, if this situation is subsequently resolved, the dissolution of the company will not be considered. For example, if the general meeting of a joint-stock company has not convened for two or four years, or if the board of directors has operated with an insufficient number of members for two years, and this deficiency is subsequently remedied; this past deficiency, which no longer exists, cannot result in dissolution. Therefore, for a decision to dissolve a joint-stock company due to a deficiency in its governing bodies to be made, the deficiency must still be “ongoing” at the time the lawsuit is filed.
The Court of Cassation also requires the condition of continuity; in this context, it does not consider the board of directors’ inability to convene or make decisions sufficient on its own to constitute a deficiency in the corporate body, but rather holds that a deficiency may exist only if this situation “continues.”
5.2.1 Granting the Company a Period of Time
For a decision to dissolve a company suffering from a lack of corporate bodies, it is also a prerequisite that the court first grant the company a “period of time” to remedy the deficiency. This is because the company cannot be dissolved without such a period being granted.
The requirement to grant the company a period of time prior to dissolution is a mandatory provision. Therefore, regardless of how long the company has operated without a governing body prior to the lawsuit, a decision to dissolve the company immediately without first granting a period of time to remedy the lack of a governing body is not possible.
The court has the discretion to set the period it grants as longer or shorter depending on the specific circumstances of the case. The period granted by the court must be a reasonable one that allows for the rectification of the deficiency in the corporate body. In some of its decisions, the Court of Cassation has deemed a one- or two-month period granted by the court for rectifying the lack of corporate bodies to be “inappropriate.” However, in another decision, the Court of Cassation has ruled that if it is clear that granting a period would serve no purpose and would not alter the outcome, a dissolution decision may be issued without granting such a period. In practice, this period is typically granted for three or six months.
5.2.2 Hearing the Board of Directors by the Court
Before the court grants the company a period to remedy the deficiency, the board of directors must also be heard. Therefore, the court will hear the members of the board of directors before granting the company a period.
As can be seen from the provision, the legislature has conditioned the application of this article on two alternative scenarios. Accordingly, in a joint-stock company, either the absence of one of the legally required organs for an extended period or the inability to convene the general meeting makes the application of Article 530 of the Turkish Commercial Code possible. Accordingly, in cases where the board of directors has not been able to convene for a long period, the term of the board of directors has expired, all members of the board of directors have resigned, or despite the removal of the board members, the general meeting has failed to hold an election for a new board of directors, or where an election has been held by the general meeting but the absence, invalidity, or annulment of the general meeting’s decision is sought, the board of directors will effectively be “non-existent,” and in such -situations, Article 530 of the Turkish Commercial Code will come into play.
