Wholesale of a Significant Amount of Company Assets

Basic Concepts

What is meant by a significant amount 

The TCC does not include any definition or ratio regarding the significant amount. This issue, which is left to the discretion of the judge according to the case at hand, causes difficulties in practice^[1]. The judge assesses whether the asset subject to the sale constitutes a significant amount for the continuity of the company's activities in each case^[2].  

In the doctrine, it is argued that the judge may take the regulations of publicly traded companies as a source for determining significant assets within the framework of Article 4 of the Turkish Civil Code No. 4721^[3] . In this context, it is claimed that Article 23 of the Capital Markets Law, which regulates significant transactions in public joint stock companies, and especially the criteria of the Communiqué on Significant Transactions and Retirement Right (II-23.3) issued by the Capital Markets Board may be taken as a basis. In these regulations, the legislator has characterized transactions such as mergers, spin-offs, and conversions as material transactions regardless of the volume and value criteria. In contrast, certain volume and value criteria have been adopted for matters such as the transfer of assets or the establishment of limited real rights that result in the transfer of assets to be considered material transactions. 

Some authors, on the other hand, suggest that legislators should stipulate a certain ratio by the principle of legal security. Accordingly, it may be regulated that if the value of the assets subject to the sale exceeds a certain percentage about the value of the total assets of the company, the significant amount requirement shall be fulfilled^[4]. 

The Court of Cassation characterizes assets vital for the company's survival as significant assets. For example, the transfer of assets vital for the company's survival constitutes a considerable amount^[5].  

However, since the purpose of the regulation is to protect the shareholders and the capital, the Court of Cassation evaluates whether the transaction is in favor of the company while determining the significant amount. For example, in a dispute regarding the cancellation of the decision of the board of directors, the Court of Cassation stated that the sale of 10 flats was made for the insolvent company to get out of this situation, that this situation served the interests of the company and that the decision was by the objective good faith rules. For these reasons, the Court of Cassation rejected the cancellation of the Board of Directors' decision^[6]. 

In another decision of the Court of Cassation^[7], the Court of Cassation stated that an immovable property, which should be transferred to the municipality free of charge under the Decision of the Council, would not constitute a significant asset for the company. In a case subject to the decision of the Court of Cassation dated 12.10.2023, the court of first instance applied for an expert opinion to determine whether the exit share was a significant asset^[8].  

What to Understand from Company Assets 

The TCC stipulates that a general assembly resolution is required to sell a significant amount of assets, both for active companies and companies in liquidation. According to Article 538 of the TCC, which is discussed in the section on liquidation of joint stock companies, a general assembly resolution is required for the wholesale sale of a significant amount of active assets. According to the predominant opinion, the terms asset and active asset have the same meaning^[9] . Neither Article 538 of the TCC nor Article 408/2-f of the TCC stipulates what should be understood as company assets. The doctrine ^[10] defines company assets as "all tangible and intangible elements and monetary value of the company's commercial enterprise". 

What to Understand from Wholesale 

There is an opinion in the doctrine that transactions that are of the same importance and have the same financial consequences as the sale for the company should also be interpreted within the framework of this concept, and within this scope, transactions such as mortgages, sureties and assignments will also be subject to the decision of the general assembly^[11] . In the decisions of the Supreme Court, it is accepted that transactions such as the transfer of the overriding right constitute a wholesale transfer of a significant amount of company assets^[12] . The 11th Civil Chamber of the Court of Cassation^[13] , in one of its decisions, did not consider the sale of the factory building and the immovable belonging to the company within the scope of the financial leasing agreement, with the condition of being taken back at the end of the lease period, as a wholesale sale. 

What should be understood by wholesale is also controversial in the doctrine. While one view argues that the transaction is meant to be concluded with a single contract, the other view^[14] argues that wholesale can also be evaluated for successive transfers made quickly. On the other hand, some authors argue that the wholesale concept should not be interpreted narrowly and state that a wholesale sale of assets may also be in question if a single element is sold^[15]. However, in one of its decisions, the Court of Cassation ruled that a wholesale asset sale cannot be mentioned if the real estate is sold by dividing it into parcels instead of a wholesale sale^[16].  

Violation of the Regulation 

Under the case law of the Court of Cassation, the sale of a significant asset of the company by a resolution of the Board of Directors without a resolution of the General Assembly shall result in the nullity of the resolution of the Board of Directors, and the sale agreement^[17] . 

There are different opinions in the doctrine regarding the validity of the agreement. According to some authors, if the general assembly subsequently consents to the transaction, the contract shall be valid. Otherwise it shall be null and void from the beginning^[18]. Another opinion argues that Article 371/4 of the TCC should be applied by analogy in sales contrary to the general assembly's decision, and bona fide third parties should be protected^[19] . Furthermore, it is also argued that the sale made without a general assembly resolution is not binding on the company, is null and void, and will only become valid if approval is granted^[20]. 

General Assembly 

Quorum for the General Assembly Resolution

Although Article 408/2(f) of the TCC regulates that the wholesale sale of a significant amount of assets in joint stock companies is among the unassignable powers of the general assembly, it does not stipulate a special quorum for this decision. This ambiguity has caused discussions both in the doctrine and in practice^[21], and different opinions have been put forward as to whether the aggravated quorums introduced for companies in the liquidation process in Art. 538/2 of the TCC can be applied by analogy^[22] . The Court of Cassation, on the other hand, ruled that Article 538/2 could be applied by analogy to companies that were not in liquidation during the former Commercial Code^[23] . 

However, Article 22, paragraph 12 of the Regulation on the Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Ministry Representatives to be present at these Meetings stipulates that "In the general assembly meeting, the decision to sell a significant amount of company assets wholesale shall be taken with the affirmative votes of the shareholders constituting at least seventy-five percent of the company capital. If this quorum is absent in the first meeting, the same quorum shall be sought in the second meeting.” Although the Regulation stipulates a 75% quorum, it is criticized in the doctrine for being contrary to the hierarchy of norms since this quorum is not explicitly included in the law^[24]. 

In its decision dated 08.12.2021^[25] , the 11th Civil Chamber of the Court of Cassation, contrary to its previous approach, clearly stated that the general assembly resolution regarding the wholesale of a significant amount of assets should be adopted by the ordinary majority within the framework of Article 418 of the TCC. The Court of Cassation emphasized that the aggravated quorums specific to companies in liquidation cannot be applied to active companies and that a quorum that is not expressly regulated by the law cannot be introduced by regulation. With this decision, the doctrinal view is that the general assembly resolutions regarding the wholesale of a significant amount of assets in joint stock companies that are not in the liquidation process will be taken by ordinary meeting and resolution quorums have been adopted.

On the other hand, in its decision dated 4.11.2024, the same chamber of the Court of Cassation^[26] reiterated that Article 538/2 of the TCC should be applied by analogy to the decision quorum. Since there are a considerable number of supporters of the view that Article 538/2 of the TCC should be applied by analogy in the doctrine, it would be appropriate for the Ministry of Trade to address the aggravated quorum regulation introduced by the regulation at the level of the TCC and to make a precise legal regulation that eliminates ambiguities.

Interpretation of the Provision in terms of Limited Liability Companies

Articles 573 et seq. of the TCC, which regulate limited liability companies, do not contain any article equivalent to the articles on joint stock companies regarding the sale of significant assets, nor does Article 644, which refers to joint stock companies, contain any reference to Article 408. There is no reference to Article 408. On the other hand, under Article 643 of the TCC, it is stated that the provisions regarding the liquidation procedure and the powers of the company organs in liquidation shall apply to joint stock companies. As a matter of fact, in a Court of Cassation decision dated 16.6.2022, the Court of Cassation ruled that if the assets transferred by the company are sufficient to cause the company's liquidation, a general assembly resolution regarding the sale of assets under Art. 538^[27] . In the dissenting opinion, it is underlined that the provisions regarding joint stock companies cannot be applied to limited liability companies by analogy, and therefore, a general assembly resolution is not required. In a recent decision of the General Assembly of Civil Chambers of the Court of Cassation, it is clearly stated that Art. 538 may be applied by analogy to companies not in liquidation^[28] . In the doctrine, some authors believe that this is due to a deliberate silence, as well as those who argue that the provisions of joint stock companies can be applied by analogy. 

Conclusion

Under Article 408/2(f) of the TCC, the general assembly has the non-transferable power to sell a significant assets in joint stock companies. However, the Court of Cassation's doctrinal opinions and case law shape the determination of the significant amount and what should be understood by the company assets and wholesale sales. Differences of opinion and changing jurisprudence are noteworthy, especially about the quorum of the general assembly. It is still controversial whether the provisions on asset sales for joint stock companies can be applied to limited liability companies. To eliminate these uncertainties and establish legal security, some legal regulations are needed.