Effect of Coronavirus outbreak on General Assembly Resolution of Joint Stock companies and Limited liability companies, Status of Resolution of the Board of Directors or Board of Managers, Precautions taken by the Ministry of Customs and Trade for Companies, Methods of Postponement of General Assembly Meeting, Electronic General Assembly or Board’s Resolution.
1- Generally;
Coronavirus (Covid-19) epidemic has been declared as “Pandemic” by the World Health Organization on 11 March 2020. Requisite measures which are taken as a result of the unexpected spread of the coronavirus have not only affected miscellaneous sectors and business affairs around the world but also manifested in the internal procedures of companies.
In the context of the current situation, we will consider the effect of the outbreak on resolutions, in particular ordinary general assembly resolution, which are to be taken by the end of March 2020 in accordance with the Turkish Commercial Code (“TCC”), taken precautions and provided conveniences for companies by the Ministry of Customs and Trade and the issues of an alternative treatment to take an electronic general assembly (“GA”) or board's resolution.
2- Taken Precautions and Provided Conveniences for Companies by the Ministry of Customs and Trade
During this period, when the Covid-19 epidemic was heavily affected, the Ministry of Customs and Trade (“Ministry”) recognized the possibilities for postponing GA meetings to be taken by the companies and taking resolution without having to be physically present. In the numbered 53382221 dated 20/03/2020 of the General Directorate of Internal Trade of the ministry, the precautions taken for commercial companies were announced as follows.
Joint stock and limited liability companies to cancel ordinary GA meetings if the company’s governing body had previously sent invitations for such meeting in accordance with the TCC and the articles of association. To cancel an ordinary GA meeting, the governing body of the company may issue a decision to postpone the meeting without having to wait until the GA has convened.
Besides, as per Article 1527 of the TCC, companies utilizing the electronic general assembly system that wish to hold a GA meeting are advised to use discretion and hold their GA meetings electronically without participation in a physical environment, with the physical participation of a minimum number of shareholders, in order to prevent the spread of the pandemic.
For companies whose articles of associations lack any provisions allowing meetings to be held electronically, precautions have been taken to permit such companies to hold meetings by way of the “Electronic General Assembly Meeting System” and “Electronic Board of Directors System”.
The full content of the announcement can be found at the link below; https://icticaret.ticaret.gov.tr/haberler/sirketlerin-genel-kurul-toplantilarina-iliskin-aciklama
This announcement of the ministry is in line with the No. 2020/3 dated 19.03.2020 Circular of presidency that is "All meetings and events to be held in open and closed areas have to be postponed”
3- Failure to hold Ordinary General Assembly Meetings of Joint Stock and Limited Liability Companies
In accordance with both the Turkish commercial code and The Capital Market Law (“CML”), it is enacted that the GA shall be convened by the managers. The ordinary GA shall convene annually within three months as of the closing of the accounting period. Considering these law preambles and the regulation on the procedures and principles of the GA meetings, it should be known that this provision has the partake of a regulatory provision.
In this context, especially during this period when the General Assembly meetings of the company were held with intensity, a decision to postpone the meeting should be made, if the invitation to GA had been made, this invitation should be withdrawn, and then a GA resolution should be taken in a good light. In accordance with this provision, the resolution taken in the subsequent period shall be effective without detriment. Correspondingly, there would be no obligation to pay compensation as a result of the delay of the GA resolution. Then, the declaration of the ministry and other measures taken by the administration under force majeure constitute a reason for lawfulness in order not to hold the GA meeting.
- If an invitation has sent to the General Assembly meeting
In the context of the statement made by the ministry, if the Joint Stock companies or Limited liability companies have called for a GA meeting, it should be cancelled or postponed in order not to hold a physical participation meeting. In this respect, without convening a GA or without the formation of a council committee, it must be postponed or cancelled by the board of directors ("BoD") resolution in joint-stock companies or by the board of managers ("BoM") resolution in limited liability companies
Considering the administrative precautions taken and travel restrictions, in any case, if the call for the GA meeting by the governing body, the failure to ensure fair representation of shares in companies and would give rise to prevent the formation of quorums as per articles of association ("AoA"). This would result in the non-exercise of the rights of the shareholders. In this context, it should be known that the resolution taken by the governing body to call for the GA meeting is absolute nullity in accordance with Article 391/1/c of the TCC
The Turkish Trade Registry Gazette offers assistance for how to properly make requests and
announcements in this regard, and a draft announcement text has been published at https://www.ticaretsicil.gov.tr/ It is stated that based on application, trade registry offices would conclude the registration of resolution on the same day.
- If the General Assembly Resolution is taken under these circumstances
The whilst the above-mentioned circular of the presidency and other travel restrictions have been introduced by the government, any GA resolution may have been taken by the company. In this case, two different possibilities must be addressed;
· In case the resolution to call for the GA meeting taken by the company's governing body is absolute nullity, the result of an absolute nullity circumstance would be subject to impose sanction to null and void.
· In case the governing body does not call for GA meeting, Even though the resolution was taken at the GA meeting by representing the rights of all shareholders, if bearing in mind prohibiting meetings and events by the administration The GA resolution shall be facing a risk of nullification. However, the appointment of a ministry representative for the meeting to joint-stock companies will have to be rejected by the Ministry within the stated declaration.
We would also like to point out that, if resolution shall be taken within the General Assembly meeting convened at the call for the company's governing body and any damages shall be incurred in connection with this decision, in accordance with article 553 of the TCC, it could give rise to the civil and criminal liability of those who serve in the governing body.
- Resolutions of Limited companies through “Circulating among the shareholders” as a disjunctive way
In accordance with article 617/4 of the TCC, In case shareholders of Limited liability companies do not request a joint physical GA meeting, it is possible to take GA resolution by obtaining the written approval of all shareholders (Circulating the resolution among the shareholders). Within the scope of this disjunctive provision, As the meeting does not take place in a physical environment, there will be no possibility of nullity sanctions to arise.
- General Assembly Resolutions of Joint Stock and Limited Liability Companies with sole shareholder
It is stated that the sole shareholder in the Joint Stock and Limited liability companies has the full powers of the GA of the company. Hence, since there is no meeting requirement in accordance with article 408/3 of TCC for Joint Stock Companies and Article 616/3 of TCC for Limited liability companies, the GA resolution, which provide the written condition, are taken by the sole shareholder who has full powers of the GA shall be valid.
4- Board of Directors Resolution of Joint Stock Companies under these circumstances
As a result of the administrative precautions taken, it is unlikely that a physical meeting could be held. As per Article 390/4 of the TCC, in the case that the physical BoD meeting of Joint Stock Companies gives no preference by the members of the BoD, the BoD resolution has been permitted to be taken by circulating the resolution among the BoD members. In this procedure, without detriment to the special decision quorum requirements defined under the companies’ AoA, the resolutions of BoD can be adopted provided that the written approval of at least the majority of the members is obtained.
- As an Alternative way to Conduct Meetings Electronically
In accordance with Article 1527 of the Turkish commercial code, the GA resolution and the resolution of the governing body could be taken electronically. A company's adequateness to take a resolution in electronic environment under the provision of the mentioned article depends on the fact that it has been determined in the AoA and has achieved some technical qualifications. In the declaration of the ministry, it is stated that the condition “inclusion in the AoA” would not be sought and that the AoA amendment regarding the provision that permits the companies to take the resolution in electronic environment is given the possibility to be realized at the first GA meeting to be held thereafter. In this context, it has been recommended to take a resolution electronically by the ministry.
In order for companies to take a resolution electronically, they must provide the infrastructure for the technical procedures specified in the Communiqué on General Assembly Meetings of Commercial Companies to be Conducted Electronically Except for the General Assembly Meetings of Joint Stock Companies (“Communiqué”). On the other hand, if the compliance required by the Regulation on General Assembly Meetings of Joint Stock Companies to be Conducted Electronically (“Regulation”) is ensured, Joint Stock Companies could be taken GA resolution utilizing the Electronic General Assembly Meeting System. Following the ministry's declaration, facilitating provisions for ensuring companies comply with both regulation and communiqué are not yet available.
It should be noted that it takes a long time for companies that do not have the technical infrastructure to provide this infrastructure in order to take resolution utilizing “Electronic General Assembly Meeting System” or “Electronic Board of Directors System”. In addition, in the declaration of the ministry, it was announced that this transaction would be carried out by receiving support services from the Merkezi Kayıt Kuruluşu Anonim Şirketi (“MKK”). We inform you that the transactions to be carried out before the MKK require some additional costs and that the related establishment process can be extended in approximately 15 days.
5- Conclusion
In the event of force majeure caused by the Covid-19 outbreak, we consider that alternative methods for the inner procedures of the company should be preferred. In this context, it should be stated that;
- The article in question of the TCC in which it is stated that the ordinary GA shall convene annually within three months as of the closing of the accounting period is a regulatory provision,
- In this process, GA meeting of the Joint Stock and Limited companies with more than one shareholder planned to be made in the physical environment should be postponed or if the invitation has been sent out, the invitation should be withdrawn, otherwise, there could be facing a risk of nullification,
- There is no such risk about the taking GA resolution of Joint Stock and Limited liability companies with sole shareholders,
- It is an alternative way for the GA resolution of Limited companies with more than one shareholder and the BoD resolution of Joint Stock Companies with more than one shareholder to be taken by circulating the resolution among the shareholders,
- These resolutions could be taken in the electronic environment by ensuring the necessary technical infrastructure and procedures.
We remain at your entire disposal for any further assistance you may need.
King Regards.
Sergen Ecesoy
Aşık & Partners
