Sale of Significant Assets in Joint Stock Companies and Related Contentious Issues



In joint-stock companies, an exception has been introduced by Article 6102 of the Turkish Commercial Code (“TCC”), with the provision of Article 408/2-f, stating that the disposal of significant amounts of company assets through bulk sales is exclusively within the general assembly's powers.

Since this exception is not detailed in the TCC, it is debatable which transactions will be considered bulk sales under this paragraph, what is meant by a significant amount, which criteria will be used for determination, whether transactions other than sales will also be considered within this article, and whether a subsequent general assembly approval will validate a transaction if it was initially conducted without such a general assembly decision. 

These discussions may constitute varying importance for majority or minority shareholders and may play a primary role in disputes between shareholders in each concrete case.


Scope of the "Significance Criterion" in Significant Company Asset Sales

The assets of joint-stock companies considered significant are evaluated both economically and in terms of the company's continuity. At this point, it is important to consider whether the qualitative or quantitative features of a company asset should be considered separately or as a whole for it to be deemed significant.

The first criterion that can be considered to determine whether an asset in question corresponds to a significant amount of the company's assets is quantitative measures. Because quantitative measures are based on numerical data, they involve relatively more objective assessments. A sale can be referred to as significant if the value of the company asset sold exceeds a certain threshold when compared to the total value of the company's assets. However, considering quantitative measures as criteria is also required by the honest presentation principle  found in TCC Article 515/1.

According to Assoc. Prof. Dr. Levent Biçer and Assoc. Prof. Dr. Esra Hamamcıoğlu, sales that exceed 60% of the company's assets can be considered significant.[1]

Ömer Teoman, in a legal opinion during the period of the former Commercial Code, indicates that the transfer of operational fields and related assets, which correspond to 84% of the company's total turnover, abandoning the production of energy and communication cables and transferring these assets to a third party, is a fundamental transaction. Even if it is not a bulk sale, it can still be considered a disposal of a significant portion.[2]

Since there is no explicit regulation in the TCC regarding the criterion of significance, the Communiqué on Significant Transactions and the Right of Withdrawal (II-23.3) (“Communiqué”) applicable to public joint-stock companies emerges as a legal regulation that can be applied by analogy.

In the Communiqué, the significance criterion is set at 50% by considering three different calculation methods.

According to the first calculation method, the value of the assets involved in the transaction is considered in relation to the total assets (assets) according to the last disclosed financial statements of the company. In another calculation, the transaction amount's ratio to the company value is considered. Another method is based on the contribution of the asset in question to the revenue obtained according to the last annual financial statements compared to the total revenue. According to the Communiqué, if any of these calculations exceed the threshold of 50%, the significance criterion is deemed to have been met. 

The controversy lies in whether the 50% ratio stipulated by this regulation for public joint-stock companies will be referenced for non-public joint-stock companies as well. In the related doctrine, Prof. Dr. Ersin Çamoğlu states that the criteria set forth in the capital markets legislation can be considered as an auxiliary source that the judge may take into account when exercising discretion for companies that are not publicly traded.

Despite the definiteness and objectivity of quantitative criteria, the intended legal protection may not always be provided within the scope of the concrete case and the purpose for which the judgment is brought. Such that the elements of the asset which are important for the execution of the business subject might constitute a large quantitative part of the entire assets, yet may not carry any importance for the execution of the business subject.[3]

Therefore, for an asset in a joint-stock company to be considered of significant nature, quantitative criteria can be accepted as a starting point. To reach a definitive conclusion, other qualitative criteria that make up the concrete case, such as the impact of this asset on the continuity of the companies' operations, must also be taken into account.

Indeed, in a court decision [4] related to the subject matter, an examination was made to determine whether the asset in question was the company's single and most significant asset, and it was ruled that if it was understood to be the only asset, then the sale of this property by the board of directors' decision should be deemed invalid. It was emphasized in this particular ruling that if the sale of an asset significantly limits the company's operations compared to the past or substantially reduces the company's transaction volume, then it could be considered a sale of a significant amount of assets.

Similarly, in another decision [5], it has been emphasized that it is crucial to determine whether the significant amount is an asset of vital importance for the continuation of the activities carried out by the company for the execution of its business subject.

As can be seen, the determination of significance is reached by collectively evaluating both quantitative and qualitative criteria according to the characteristics of the concrete case.


Issues Related to Determining the Significance Criteria in the Articles of Association

According to Article 340 of the TCC, it is possible to add supplementary provisions to the articles of association of joint-stock companies, which are not subject to any regulation in the laws. Accordingly, the definition of the “significance criterion” in the articles of association by the company shareholders, which is quite a contentious issue in practice, also emerges as a possibility. This method would resolve any potential disputes that may arise between shareholders and the board of directors regarding who has the authority to sell company assets right from the outset.

However, the most important consideration when adding a supplementary provision to the articles of association is to ensure that it does not eliminate the application area of the mandatory provision of Article 408/2 of the TCC. Indeed, provisions arranged this way would be null and void.

Accordingly, setting a very high ratio or amount that allows very limited application to Article 408/2-f of the TCC, or on the contrary, setting a very low ratio or amount that would interfere with the board of directors' domain, such regulations concerning the criterion of significance could lead to the infringement of shareholders' rights and thus be subject to annulment lawsuits. Additionally, they may carry the risk of being declared null due to the implications of transferring authority between organs.

Furthermore, since the aforementioned method attributes the "significant" qualifier to certain assets from the outset without any examination, it may lead to a direct transfer of authority between the board of directors and the general assembly, and thus may be in violation of the mandatory provisions of the TCC. Consequently, such an amendment to the articles of association could be subject to annulment even before it is put into practice.

Another point to mention regarding the regulation of the “significance criterion” in the company's articles of association is the quorum required for the decision to make such an amendment in the articles of association.

As is known, according to Article 421/1 of the TCC, unless there is a provision to the contrary in the TCC or in the articles of association, decisions to amend the articles of association must be taken by a majority of the votes present at a general assembly representing at least half of the company capital. On the other hand, as explained, decisions regarding the wholesale of significant amounts of assets must be taken with the affirmative vote of at least 75% of the company capital. In this context, based on the rule that decisions of a nature that affect the change of the main rule can also be taken within the decision quorums related to the main rule, it would be appropriate to argue that the amendments to be made in the articles of association concerning the determination of the significance criterion can be taken with the affirmative vote of at least 75% of the company capital.

Moreover, the significance criterion can also be regulated in the articles of association at the establishment of the company. However, since the founding articles of association can be arranged by the unanimous vote of the founding shareholders, there will be no need for a discussion on the quorum at this point.


Discussion on Whether Other Transactions That May Result in a Sale Fall Within the Scope of the Article

Another discussion point regarding this regulation is whether the same provision would apply in cases where the disposal of company assets leading to more severe consequences than a sale, such as transfer, donation, suretyship, guarantee, and the execution of loan agreements, etc.

There are various opinions in the doctrine regarding this matter. According to the view of Prof. Dr. İlhan Helvacı, the term “sale” should be interpreted narrowly, and it is argued that the provision should only apply in cases of transfer through a sales contract of assets of significant amount. The main basis for Prof. Dr. İlhan Helvacı's argument is the principle of legal certainty. According to this principle, Article 408/2-f of the TCC should only cover the “sale” transaction; otherwise, every transaction involving the significant assets of a joint-stock company could be included within the scope of the provision. Consequently, it is stated by Mr. Helvacı that transactions such as transfer, donation, suretyship, guarantee, and loan agreements would not fall within the scope of this provision.

Another opinion in the doctrine is that of Prof. Dr. Ersin Çamoğlu. Prof. Dr. Ersin Çamoğlu argues that the legislator, when regulating the subject, proceeded from the economic importance that the transaction holds for the company. Çamoğlu interprets the term “sale” mentioned in the relevant TCC provision as a higher concept that encompasses all transactions which carry the same importance for the company and produce the same financial results. Accordingly, all legal transactions that could lead to more severe financial and legal consequences than a sales contract, such as transfer, donation, suretyship, guarantee, and loan agreements, should be considered within the scope of the relevant TCC provision. The broad list of transactions included under Article 23 of the Capital Markets Law No. 6362 has also played a role in the emergence of Çamoğlu's view. Therefore, Mr. Çamoğlu concludes that the list of transactions in TCC Article 408/2-f should be broadly maintained so that transactions such as transfer, suretyship, guarantee, and loan agreements should also be considered within the scope of the concept of sale in TCC Article 408/2-f.


Interpretation of the Term wholesale in the Article

Another issue that needs to be examined in accordance with the relevant legal article is what is meant by the term “wholesale” in the phrase “wholesale sale of a significant amount of company assets”.

The term “wholesale sale” in the provision is understood to mean the sale of a part of the company's assets that corresponds to a significant amount all at once and in a single transaction. However, we are of the opinion that the legislator's intent is not limited to the subject of a single sales transaction involving significant assets; it should also encompass consecutive sales to the same person that could potentially lead to the company's destruction.


The Legal Status of Sales Transactions Conducted Without a General Assembly Resolution

The general assembly holds absolute authority in relation to the sale of significant amounts of assets; hence, any decisions made by the board of directors concerning the sale of a significant amount of assets, which fall within this non-delegable authority of the general assembly, are null and void.

However, regarding the legality of transactions based on decisions made by the board of directors that are subsequently ratified by the general assembly, the 11th Civil Chamber of the Court of Cassation [6] has ruled that, even if there was no prior general assembly decision before the sale of real property, the ratification granted by the general assembly after the initiation of legal proceedings is valid. Therefore, the Court of Cassation acknowledges that the general assembly can grant ratification for the sale transaction retrospectively.

On the other hand, it should be noted that, just as Article 408 of the TCC does not regulate the quorum required for the general assembly to make decisions regarding the wholesale sale of a significant amount of company assets, Article 421 of the TCC, which regulates the quorums for decisions on amendments to the articles of association, does not specify a determination for this situation either. Despite the lack of an explicit provision in the TCC on this subject, according to Article 22/12 of the Regulation on the Procedures and Principles of General Assembly Meetings of Joint Stock Companies and Representatives from the Ministry of Customs and Trade to be Present at These Meetings; “At the general assembly meeting, a decision on the wholesale sale of a significant amount of company assets shall be taken with the affirmative votes of shareholders representing at least seventy-five percent of the company capital. If this quorum is not present at the first meeting, the same quorums shall be sought at the second meeting.” Consequently, it can be concluded that a positive decision by the general assembly on the sale of significant company assets must be voted affirmatively by shareholders representing 75% of the company shares.

In such a case, within the framework of decisions that fall under this scope but are not presented to the general assembly by the board of directors, in addition to the invalidity of the transaction pursuant to Article 553 of the TCC, the board members and executives who are at fault for not presenting the said sale transaction for the approval of the general assembly will be responsible for any resulting damages.


The Issue of Whether the Rights of a Bona Fide Third Party Will Be Protected

Whether the rights acquired by bona fide third parties will be protected in the event of the sale of an asset that can be considered significant in a joint-stock company without a general assembly resolution is also another point of discussion in the doctrine.

In cases where there is no general assembly decision for the sale of a significant amount of company assets, according to the opinion of Biçer/Hamamcıoğlu, a sales contract made with third parties can only be valid if the general assembly subsequently grants permission for this sale transaction; otherwise, the contract will be invalid from the outset. Similarly, according to Dural's opinion, entering into a sales contract with third parties without a general assembly decision results in the board of directors signing the contract without authority, and if the general assembly does not later grant permission for this sale, the contract will be invalid from the beginning.

Although the prevailing view in the doctrine is that for the sale of a significant amount of company assets to be valid without a general assembly decision, it must be subject to the condition that the general assembly subsequently grants permission for this transaction, the provisions of the TCC should be considered broadly and as a whole, and the legislator's purpose in enacting these provisions should be taken into account.

In general, the general assembly of a joint-stock company has the authority to make decisions regarding internal relations, while the board of directors has the representation authority in external relations. When it is intended to impose a context on the general assembly in external relations, there must be a clear provision for validity.

As an exemplary illustration; TCC Article 356/1 by stating, “contracts related to the acquisition or lease of an enterprise or asset for a consideration exceeding one-tenth of the capital, within two years following the company's registration, shall not be valid unless approved by the general assembly and registered in the trade registry. Any dispositions, including payments made for the performance of these contracts before their approval and registration, are invalid.” grants decision making power to the general assembly on external relations of the company invalidating transactions that are contradicting with this principle.

However, no determination is made in TCC Article 408 regarding the effect of the absence of a general assembly decision on the validity of dispositions. If the legislator had intended for such a condition of validity to be sought, it could have made a regulation similar to what was done in TCC Article 356/1. Therefore, it would not be correct to interpret a regulation aimed at the internal distribution of authority between the organs of the company in such a way that it would affect the legal interests of third parties or permeate external relations.

A key element that should be considered in the impact of the sale of significant assets on contracts made with third parties is the principle of “legal certainty”. Third parties, in a contract with a joint-stock company that involves the sale of a significant asset, are dealing with the company's board of directors. Therefore, if the board presents itself to third parties as the authorized representative and states that it is authorized to sign the related sales contract, it cannot be the duty of the third parties to question whether the company's general assembly has made a decision on the sale of the relevant asset. Indeed, even if third parties wanted to question this situation, there is no possibility for them to know or determine whether it is necessary for the general assembly of the joint-stock company, which is the other party in the contract, to make such a decision. Accepting the opposite would seriously damage the principle of legal certainty.[7]


Conclusion and Assessments 

It is evident that the decisions regarding the bulk sale of significant amounts of assets, which form an exception to the general authority given to the management organ by the TCC, present various problems in terms of internal relations between partners, the transfer of authority between organs, and the representation of the company externally. For this reason, each specific case should be evaluated within its context, based on the mentioned criteria, and a conclusion should be reached without deviating from the principle of legal certainty; a framework must be drawn accordingly.

[1] Levent BİÇER, Esra HAMAMCIOĞLU, “Anonim Ortaklıklarda Genel Kurulun Devredilemez Yetkileri Kapsamunda Önemli Miktarda Şirket Varlığının Toptan Satışı ve Uygulama Alanı (TTK m. 408/2-f)”, Kadir Has University Journal of the Faculty of Law, Book I, Issue I, 2013, İstanbul, p.41

[2] Damla Gülseren SONGUR HACIGÜZELLER, “Anonim Şirketlerde Önemli Miktarda Varlığı Üzerinde İşlemler”, Ankara University Institute of Social Sciences Department of Private Law Private Law Doctoral Program Doctoral Thesis, 2019, Ankara, p.117

[3] SONGUR HACIGÜZELLER, ibid, p.118

[4] Bakırköy 3rd Commercial Court of First Instance, File Number 2020/401, Decision Number 2021/1252, Date 30.12.2021

[5] İstanbul 14th Commercial Court of First Instance, File Number 2017/512, Decision Number 2019/1196, Date 28.11.2019

[6] 11th Civil Chamber of the Court of Cassation, File Number 2012/6771, Decision Number 2013/6820, Date 04.04.2013

[7] Tolga AYOĞLU, “Önemli Miktarda Şirket Varlığının Satışında Genel Kurul Kararının Hukuki Niteliği”, Kadir Has University Journal of the Faculty of Law, Book 5, Issue 1, 2017, Ankara, p.99-103

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