Legal Remedies Against the Excessive Remuneration of the Directors in Corporations Pursuant to Turkish Law
Esra CenkciThe determination of directors’ remuneration under Turkish law can be determined in articles of incorporation or General Assembly. However, there is a lack of provisions specifying the principles governing the scope of corporation renumeration. This loophole poses the risk of transferring the corporation’s profits to the majority shareholders under the guise of remuneration, thereby violating minority shareholders’ rights. To address this challenge, courts have sought to balance directors’ entitlement to remuneration with shareholders’ rights to dividends through legal rulings. Remuneration paid to directors may be deemed illegal if they violate the shareholders’ rights to dividends. This study aims to determine the nature of such illegality and explore the legal remedies available to victimized shareholders. Furthermore, it examines the feasibility of reclaiming payments already disbursed to directors as a result of a resolution deemed illegal by the founding body.
Rechtsmittel nach türkischem Recht gegen übermäßige Vergütungen an Vorstandsmitglieder in Aktiengesellschaften
Esra CenkciIm türkischen Recht können die Vergütungen (oder sog. Entschädigungen) der Vorstandsmitglieder in der Satzung oder durch den Generalversammlungsbeschluss festgelegt werden. Es gibt keine Regelung, auf deren Grundlage der Umfang der Vergütungen in Aktiengesellschaften ermittelt werden. Diese Situation birgt in sich die Gefahr, den Gewinn der Gesellschaft unter dem Namen „Vergütung” an die Mehrheitsaktionäre abzuführen und damit die Rechte der Minderheitsaktionäre zu verletzen. Um dies zu verhindern, wird versucht, durch gerichtliche Entscheidungen einen Ausgleich zwischen dem Anspruch der Vorstandsmitglieder auf Vergütung und dem Anspruch der Aktionäre auf Dividenden herzustellen. Es wird anerkannt, dass die an die Vorstandsmitglieder bezahlten Vergütungen insoweit rechtswidrig sind, als sie das Recht auf Dividende der Aktionäre verletzen. Hierbei sind ausgerichtet die Grundlagen, die mit übermäßiger Vergütung verletzt sind, die Art der Rechtswidrigkeit und die Rechtsmittel der in ihren Rechten verletzten Aktionäre zu bestimmen. Außerdem wird auch die Frage behandelt, ob diese Zahlung zurückgefordert werden kann, falls aufgrund des für rechtswidrig befundenen Organbeschlusses bereits eine Zahlung an das Vorstandsmitglied erfolgt ist.
Remuneration for the board of directors members for their management duties can be paid at various intervals, such as daily, weekly, annual, or monthly, as specified in the articles of incorporation or determined by the General Assembly resolution (Turkish Commercial Code (TCC) Article 394). The TCC lacks regulations specifying the maximum amount or guiding principles of remuneration. Consequently, corporate profits often flow disproportionately to the majority shareholders through excessive remuneration, especially in corporations with concentrated shareholding structures. This practice detrimentally affects shareholders’ right to receive dividends. To address this issue, certain criteria have emerged through judicial decisions to assess the appropriateness of the remuneration paid to directors. When assessing whether remuneration is excessive, balanced consideration must be given to directors’ contributions. This assessment should safeguard shareholders’ inherent right to dividends while considering factors such as the corporation’s shareholding structure, financial status, past practices during general assemblies, and remuneration received by directors in comparable corporations facing similar circumstances regarding shareholding and finances.
When a judge concludes that remuneration is excessive, they have the discretion to either give a verdict for adjusting the remuneration in accordance with the aforementioned criteria or simply invalidate the resolution passed by the General Assembly. This choice stems from the legal nature of the shareholders’ right to pursue the company’s profit, which is considered inalienable. Resolutions passed by the body that limit or abolish this right are rendered null and void under Article 447 of the TCC. Excessive remuneration not only grants shareholder directors an unfair advantage in accessing the corporation’s profit but also contravenes the principle of equal treatment, as stipulated in Article 357 of the TCC. Breaching the basic principle that fosters equality among shareholders in capital companies warrants the sanction of nullity under Article 447 of the TCC. Moreover, the resolution passed by the body is nullified because any illicit transfer of corporate assets to certain shareholders contradicts the principle of capital maintenance as outlined in Article 447 of the TCC. Consequently, resolutions passed by the General Assembly, wherein remuneration is deemed excessive, are subject to nullity sanction. However, it is noteworthy that the Court of Cassation has consistently opted to apply the sanction of annulability to body resolutions in almost all its rulings on this subject. This enforcement choice may be attributed to the procedural aspects of the cases brought before the court.
Given that the excessive determination of remunerations contravenes commercial provisions prohibiting transactions and resolutions that restrict shareholders’ inalienable rights, as well as principles of equal treatment and capital maintenance, there is ample justification for applying the first paragraph of Article 1530 of the TCC to address the repercussions of such violations. Article 1530 also provides a mechanism for recalling remuneration that exceeds reasonable limits. It stipulates that contracts exceeding the maximum limit set by law or competent authorities shall be considered concluded beyond the said limit, and the second sentence of Article 27 of the Turkish Code of Obligations (TCO) shall not be applicable in this context. Consequently, it is evident that the remuneration deemed reasonable by the court represents the highest limit established by competent authorities in accordance with Article 1530(I) of the TCC. Thus, it is warranted to deem the resolution of the General Assembly determining directors’ remuneration unlawful to the extent that it exceeds reasonable limits. Consequently, the sanction for nullity should be applied to the portion of the resolution that exceeds this limit.
When Article 1530 of the TCC is applied, the recall process should be in accordance with provisions governing unjust enrichment, as outlined in Article 77 of the TCO. Directors may be held liable for interest, calculated at the rate applied for short-term advances, from the moment the remuneration is disbursed. The statutory limitation period for filing a recall request is set at 2 to 10 years under Article 82 of the TCO.
Should the excessive determination of remuneration render the continuation of the company untenable for minority shareholders due to the limitation or elimination of their divided rights, these shareholders reserve the right to petition for the dissolution of the corporation under Article 531 of the TCC.
