A seat on the board of a Turkish joint-stock company carries personal liability, and it does not matter whether the seat belongs to the founder who runs the company every day or to the investor’s nominee who joins four meetings a year. Under Article 553 of the Turkish Commercial Code No. 6102 (TCC), directors who culpably breach their duties under the law or the articles are liable for the resulting damage to the company, to the shareholders and to the company’s creditors. Three features make the Turkish regime different from what a Delaware-trained investor expects: there is no business judgment rule in the American sense, only a standard of care; liability is joint but differentiated, so each director answers only to the extent the damage can be attributed to his or her own fault; and a general-assembly release (ibra) closes the company’s claim but not everyone’s. Add the public-debt regime, under which the tax office and the social security institution can collect the company’s unpaid debts from directors personally, and the risk is concrete enough to plan for. This article sets out the duties, who can sue and when, what the release does and does not do, and the four protections a director should have in place before the first board meeting.
The duty: a prudent manager, in good faith
Article 369 states the standard: directors and third parties charged with management must perform their duties with the care of a prudent manager and protect the company’s interests in accordance with the rules of good faith. Turkish courts read this as an objective standard (what a careful person in that role would have done), not a subjective one (what this particular director knew), and the standard does not drop because a director is unpaid, non-executive or nominated by an investor. Article 375 then lists the duties that cannot be delegated: top-level management and instructions, the management organisation, the accounting, financial control and financial planning systems, the appointment and dismissal of managers, supervision of management for compliance with the law, the articles, internal directives and board instructions, keeping the share ledger and the board and general-assembly minutes, preparing the annual report and the general-assembly meetings, and notifying the court under Article 376 when the company is over-indebted. A director who never looks at the accounts has not delegated the financial-control duty; he has ignored it.
Three conflict rules complete the picture. A director may not take part in deliberations where his own interest or that of a close relative conflicts with the company’s, and must disclose the conflict even if the board is unaware of it (Article 393). A director may not transact with the company on his own or another’s behalf without general-assembly permission, and non-shareholder directors and their relatives may not borrow from the company (Article 395). A director may not compete with the company without general-assembly permission (Article 396). Investor nominees who sit on the boards of several portfolio companies in the same sector should obtain the Article 396 permission at the appointing general assembly, and should recuse under Article 393 whenever the fund’s interest and the company’s diverge, for instance on a down round the fund is leading.
Who is liable, to whom, and for what
Article 553(1) makes founders, directors, managers and liquidators liable for damage caused by a culpable breach of duties arising from the law or the articles. Since the 2012 amendment, fault must be proven by the claimant; the earlier presumption that shifted the burden to the director was removed. Article 553(3) adds a limit that matters for nominee directors: no one is liable for breaches or irregularities outside his control, and this cannot be undone by invoking the duty of supervision. Article 553(2) protects lawful delegation: a board that has validly delegated management under Article 367 and an internal directive is not liable for the delegates’ acts unless it is proven that it failed to exercise reasonable care in selecting them.
The company’s own damage may be claimed by the company or by any shareholder, but a shareholder can only demand payment to the company (Article 555). If the company goes bankrupt, creditors may also claim, after the bankruptcy administration has had the first opportunity (Article 556). Shareholders and creditors who suffer direct damage of their own claim it for themselves under Article 553. Claims are brought before the commercial court at the company’s seat (Article 561) and are time-barred two years from the claimant learning of the damage and the person liable, and in any event five years from the act, unless a longer criminal limitation period applies (Article 560).
Differentiated joint liability
Article 557 is the provision to read twice. Where several persons are liable for the same damage, each is jointly liable with the others only to the extent that the damage can be attributed to him personally according to his fault and the circumstances. The court may be asked to determine each defendant’s share in the same proceeding, and recourse between the defendants is settled by the judge taking all circumstances into account. In practice this means an investor nominee who attended meetings, asked for the management accounts, recorded dissent on a reckless resolution and was misled by falsified figures should be found to bear little or none of the loss, while the executive founder who prepared the figures bears most of it. It also means that silence is expensive: a nominee who never asked has no record to point to.
Release, settlement and their limits
The annual general assembly customarily releases the directors (ibra) for the past financial year. Article 558 explains what that buys. A release cannot be revoked by a later general-assembly resolution. It extinguishes the company’s claim, and the claims of shareholders who voted for the release or acquired their shares knowing of it, in respect of the facts disclosed at the time; other shareholders’ claims lapse six months after the release. It does not bind creditors, and it does not cover facts that were concealed. Article 559 adds that liability arising from formation and capital increases cannot be released or settled for four years after registration, and thereafter only with general-assembly approval that a 10 per cent minority can block. A release therefore closes most of the file for an honest board and almost none of it for a dishonest one.
The public-debt overlay
Separately from the TCC, Article 35 (repeated) of the Law No. 6183 on the Collection of Public Receivables makes the legal representatives of a legal entity personally liable, from their own assets, for public receivables that cannot be collected from the entity in whole or in part, and Article 10 of the Tax Procedure Law No. 213 does the same for taxes where the representatives failed in their duties. For a joint-stock company the legal representatives are the directors with authority to represent it, so an executive founder holding signature authority is exposed to the company’s tax and social-security arrears in a way a non-signing nominee usually is not. This liability does not depend on shareholder votes, is not covered by the general-assembly release, and is enforced by the tax office rather than through a court claim.
Four protections to have in place
The first is process: a board that meets on schedule, receives management accounts before each meeting, minutes its decisions with reasons and records dissents is a board whose members can each show what they knew and did. The second is a lawful delegation under Article 367, so that day-to-day acts sit with the executives and the board’s liability for them is confined to selection and supervision. The third is D&O insurance: Turkish insurers write directors’ and officers’ policies, and investors increasingly require them as a closing condition; check that the policy covers the public-debt exposure and defence costs, and that it does not exclude claims by the majority shareholder, which is where a founder’s own risk usually lies. The fourth is contractual: an indemnity from the company in favour of directors for costs and liabilities incurred in good faith, within the limits of Turkish law, and, for the investor nominee, a back-to-back indemnity from the fund. None of these removes the Article 553 standard; together they make it survivable.
Can a director resign to escape liability?
Resignation ends liability for future acts once registered and announced, but not for the period in office. A director who resigns because of a resolution he considers unlawful should record the reasons in the minutes before leaving, since that record is what Article 557 will weigh.
Is the investor’s observer exposed in the same way?
An observer without a board seat is not a director and is outside Article 553 unless he in fact directs management, in which case courts can treat him as a de facto manager. Observers should avoid instructing executives directly.
Does the release also cover the founder as general manager?
Only in his capacity covered by the resolution. If the same person is a director and an employed general manager, the general-assembly release addresses his liability as a director; his liability as an employee is governed by his employment contract and the Code of Obligations.
Related: fiduciary duty · D&O insurance · investor rights: veto, information, board.
Sources. Turkish Commercial Code No. 6102 (Articles 367, 369, 375, 393, 395, 396, 553–561); Law No. 6183 on the Collection of Public Receivables (Article 35 repeated); Tax Procedure Law No. 213 (Article 10). Statute links open the official Turkish texts on mevzuat.gov.tr.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
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