Turkish Law Blog
Lifting the Veil of the Corporate in Turkish Law
Most of the law systems provide distinct and different legal personality to corporates than their members, shareholders, and partners. Type of legal personality and it’s specific limits of liability may depend on Classification of Corporate which regulated by law. In accordance with this principal Turkish Code of Commerce, Law no 6102 Article 125/2 declares as it quoted “Trading Corporations shall have their own legal personalities”
Pursuant to this principle which took place almost every substantive commercial legislation and judicial precedents, corporates have their own wealth and assets upon their personalities as well as Turkish Law. In the event of any lawsuit or execution proceeding, Creditors of corporates has to direct their claims to the legal personality of the relevant corporate. The claimants do not have “locus standi” against partners. In some of the cases, this circumstance prevents the collection of debts.
However, in the occurrence of some certain circumstances prescribed by Turkish Court of Appeals (Court of Cassations), the judge may lift the corporate veil or will ignore the corporate veil in order to hold responsible the person or persons hiding behind the veil.
The effect of this Principle is that there is a fictional veil between the corporate and its partners as stated under the prior title. In several cases, the humankind, however, used this veil as a shelter to hide from legal obligations and cloak for fraud or misconduct. Thus it became really necessary for the law to lift the corporate veil and hold the persons responsible who abused such a veil.
In the public aim of courts to ensure the justice between parties and provide legal security to business life; Turkish Court of Appeals (Court of Cassations) started to approve this phenomenon in several certain circumstances especially in the last decade. Opinions of the Turkish Court of Appeals, the court of last resort, shall be binding to trial courts. Such opinions shall deem to the leading case to lower courts as well as many other law systems around the world. Due to this legal status, “ Lifting The Veil Of The Corporate in Turkish Law” has not taken any place in written legislation, but in precedents.
Basic Opinion of the Turkish Court of Appeals (Court of Cassations)
The Turkish Court of Appeals allows the process of “Lifting The Veil Of Corporate” only under 4 conditions according to its opinions. The Court classifies such conditions as “Merging of Legal Entities and Assets of Legal Personality and Partners”, “Insufficient Capital”, “Theoretical Abuse” and “Foreign Conduct”.
In the occurrence of one of the conditions hereof, the court may disregard the legal personality of the relevant corporate and hold the person or persons responsible behind the veil who are in fraud.
The frequent incident that requires lifting the veil of corporate in the aims of justice in Turkey is “Merging of Legal Entities and Assets of Legal Personality and Partners”. In the current situation, there are more than 900.000 “Limited Corporates” (One of the corporate types regulated in Turkish Law) registered in the Turkish Market. The substantial number of those corporates are running into debts just because of their assets transferred upon real personalities of partners or third parties.
Under the necessity of these circumstances, the Court of Appeals created its own precedents and applied such precedents into cases.