DETERMINATION OF EXIT SHARE VALUE IN TERMINATION OF PARTNERSHIP LAWSUITS UNDER TURKISH COMMERCIAL CODE
1. Termination of Partnership Lawsuits in General
Pursuant to Article 531 of the Turkish Commercial Code ("TCC") numbered 6102, the owners of the shares representing at least one tenth of the capital and one twentieth in public companies have been given the right to request the termination of the company in the presence of justifiable reasons. With this regulation, minority shareholders are given the opportunity to intervene against the misuse of the management by the majority shareholders who are dominant in the joint stock company.
Minority shareholders who meet the minimum share ratio stipulated in Article 531 of the TCC can directly file a lawsuit against the legal entity of the joint stock company in the commercial court of first instance where the company headquarters is located. Although the TCC does not set forth include a time limit for termination for a just cause, the Court of Appeal’s Court Decisions are that the lawsuit must be filed within a period in accordance with the principle of honesty.
2. The Concept of Just Cause
The concept of just cause in termination of the Joint Stock Companies is not regulated in the TCC. What can be deemed as just cause is appreciated by the Court according to the characteristics of the instant case before the Court.
However, it is possible to give the following examples of termination cases for just cause brought in before the Courts.
- Systematic use of majority power in a way that violates the legitimate interests of the minority or that of the company,
- Deprivation of the shareholder from the dividend,
- Damage to the partnership by providing benefits to the members of the board of directors or to the people they are affiliated with,
- Continuous violation of the shareholder's rights such as attending the general assembly, voting, and obtaining information,
- Unrequited capital and permanent loss of partnership
- Loss of decision-making function of organs.
Termination cases for the just cause listed above should be evaluated in accordance with the law and fairness according to each individual case. In addition, while evaluating the interests between the minority and majority shareholders, it is necessary to take into account the characteristics of concrete events as well as the economic and social consequences.
3. Termination of the Joint Stock Company and Alternative Remedies
Whether the reasons put forward by the minority shareholders constitute just cause is evaluated by the court according to the characteristics of the event and the court decides on i)termination, ii)dismissal from the partnership or iii) any other solution it deems appropriate.
In one of landmark decisions Court of Appeals of Turkey dated 4.07.2017 with 2016/2752 File Number and 2017/4079 Decision Number, The plaintiff filed a lawsuit for termination and liquidation request of the company based on Article 531 of the TCC whereby the Court of Appeals has decided that;
- It is not possible to realize the common purpose of the company, that the plaintiff does not have a negative contribution to the emergence of just cause, and that the conditions for termination are fulfilled for just cause in Article 531 of the TCC,
- It is not appropriate to pay the real value of the share of the plaintiff shareholder as of the date of the decision and to be excluded from the company,
- Termination and liquidation of the company in the best remedy,
- Accordingly it was decided to dissolve the joint stock company and to appoint a liquidation officer.
As stated in the Court of Appeal’s ruling, the reasons put forward in the termination action to terminate the joint stock company must be very crucial and substantial in a way that justifies the termination, it should form a conclusion that other alternative solutions are not suitable for the situation and termination is the last resort.
Notwithstanding the foregoing, in practice, Courts predominantly decide on alternative solutions appropriate to the situation, rather than dissolution of the company such as;
- Acquisition of the shares of the plaintiff minority shareholders over their real value by the company or other shareholders,
- Admission of a new shareholder to the company,
- The division of the partnership,
- Granting the plaintiff to a member of the board of directors,
- Determining the principles of the annual profit distribution,
- The payment of a certain amount of the undistributed profit in equal installments to the shareholders in a certain period of time in proportion to their shares,
- Capital increase from undistributed profits,
- Partial liquidation.
4. Determination of Exit Share Value
In Article 531 of the TCC, it was regulated that instead of the dissolution of the company, the plaintiff shareholders could be paid the real values of their shares closest to the decision date of the Court afterwards the plaintiff shareholders could be removed from the company. At this point, it is important how the share value of the minority shareholder removed from the company will be calculated.
In the decision of Court of Appeals of Turkey dated 22.05.2020 with 2018/1032 File Number and 2020/527 Decision Number; the Court has decided that based on Article 531 of the TCC, the plaintiff's share will be paid and the plaintiff shall be removed from the company due to the fact that the company is an active company, and the plaintiff is dismissed from the company by being paid the amount determined as the current value by the board of experts.
On deciding on exit share value, The Court of Appeals has stressed that determination of share value for the outgoing shareholder on 29.03.2018 based on the figure determined in the expert report dated 10.08.2016 is compliance with law. The Court added that there is no procedure to determine the real value of the withdrawal share by charging interest between the expert report date and the decision date, moreover there is no long period passed between the date on which the exit share is determined and the date of the final court decision, and this period is reasonable.
At another decision of Court of Appeals on exit share; the Court, with its ruling dated 03.12.2015 with 2015/4504 File Number and 2015/12980 527 Decision Number, has rendered that; the best solution going forward is instead of buying out in cash, to give the immovable property to the plaintiff in return for its shares, afterwards to cancel the title deed registrations and to register it on behalf of the plaintiff, and ultimately to terminate the partnership rights and cancel the shares due to the partnership share amount given to the plaintiff when the decision is finalized.
As can be understood from the Court of Appeals’ Decisions; the Court may decide to exclude the minority shareholder from the partnership instead of the termination of the company. In this case, the expert reports are used in determining the real value of the share as close to the date of the decision.