LEGAL LIABILITY OF BOARD OF DIRECTORS IN JSCS UNDER TURKISH LAW(MAY 2016)

Board of Directors (“BoD”) of a Joint Stock Company (“JSC”) are liable for prudent performance and protection of the company’s interests. Legal liability of BoD in JSCs has been stated in Article 549-555 of Turkish Commercial Code (“TCC”). In order to ease the understanding, legal liability may be separated into special liability and general liability. Special liability has been foreseen only for special cases under Articles 549-552. Within this scope, liability due to false or misleading documents and declarations under law; liability due to false declarations concerning capital and payment deficiency; liability due to corruption in share valuation; liability due to raise of money from the public illegally are the major issues which has been mentioned to be under special liability.

Pursuant to Article 553 of TCC, in the event that BoD Members breach their liabilities defined by the law and articles of association due to their fault, they shall be held responsible for the loss/damages of the company, its shareholders and creditors. In the event of a legal dispute, burden of proof is on the plaintiff. The plaintiff is obligated to prove the fault of BoD Members. In other words, BoD members will be responsible for payment of compensation, in the event that;
• BoD Members breach their obligations under the laws or articles of association, and
• Abovementioned violation causes loss or damage against the company, its shareholders or creditors, and
• BoD Members are at fault, and
• Plaintiff provides evidence which shows BoD Members breach their liabilities due to their fault which is the direct cause of the incurred damage.

We would like to emphasise that Article 553 of the TCC regulates the limitation of liability of BoD members. BoD members cannot be held liable for illegal acts which have occured out of their control. In that circumstance, BoD Members even cannot be held liable for “duty of care” or “obligation of supervision”. In other words neither duty of care nor obligation of supervision may be used as grounds for BoD Members liability.

On the other hand, what will happen in the event that BoD Members appoints a person to delegate his duties and authorities? This question is replied in Article 553.2 of TCC. The BoD members who delegated their duties and authorities will only be held responsible if it can be proved that they did not act with a reasonable duty of care when choosing their delegate. Pursuant to aforementioned articles, BoD Members shall be held responsible in the event that;
• management functions are partially or completely delegated (for example, if an executive director is appointed,) and
• appointed person is appointed without ordinary care.
Article 553.2 of TCC states that if there is no management function under BoD Members’ responsibility, there is no liability for BoD Members.

Under the TCC doctrine, when more than one BoD Member shall be responsible for a damages, each member of the BoD may be found liable pro rata to the degree of their fault. According to Article 557, BoD Members who acted with due care will not carry responsibility for the damage; and those who acted without due care will be liable as per their own fault. It means liability is not only joint but also personal. In the event of legal dispute, plaintiff have a right to claim compensation against all the BoD Members or against to only BoD Members who acted without due care.

We would like to underline that cases which claimed compensation against BoD members are not common cases under Turkish law. Thus, we advise that you should not apply to court unless you provide enough evidence and determine cause of action.