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March 23, 2020

Postponement of General Assembly Meetings In Joint Stock Companies

Coronavirus Pandemic, Mergers & Acquisitions

1. INTRODUCTION

The General Assembly is one of the two mandatory bodies provided in the Turkish Commercial Code (“TCC”) numbered 6102 for the joint-stock companies, and it is of great importance in terms of being the only platform where the shareholders’ right to vote can be exercised. The General Assembly Meetings are conducted concerning the conditions determined in the legislation and articles of association with the participation of shareholders or their representatives as “ordinary general assembly” at least once a year and as “extraordinary general assembly” when it is needed.[1] However, due to several reasons, it may not always be possible to general assembly meetings to take place on the announced time and place. The legislator has foreseen this risk and regulated the postponement of the general assembly meetings in the TCC and the Regulation on the Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Representatives of the Ministry of Customs and Trade to be Present in the Said Meetings (“Regulation”). Some of those reasons are; postponement upon the demand of the minority, failure to provide the meeting quorum, losing the meeting quorum after the meeting has begun, postponement of the general assembly by a general assembly decision and postponement by the decision of the meeting chair.[2]

Currently, as the COVID-19 (Coronavirus) epidemic emerged from the People’s Republic of China poses a public health threat for the whole world, necessary measures are taken in Turkey to prevent the spread of the epidemic in our country. In this regard, the announcement made by the Ministry of Internal Affairs dated March 20, 2020, allowed the joint-stock and limited liability companies to cancel the ordinary general assemblies which were previously called for a meeting by the governing bodies following the Turkish Commercial Code No. 6102 and the articles of association, with a decision taken by the governing bodies, without waiting for the general assembly to be held to take a postponement decision.

2. REASONS AND CONDITIONS FOR POSTPONEMENT

A. Postponement Upon the Demand of the Minority

One of the rights granted to the minority within the scope of TCC is to demand the postponement of the general assembly per some aspects thereof. According to the article 420 of the TCC, the minority may demand the postponement of discussion of “financial statements and pertaining subjects”. To comprehend what the legislators intend to describe with “subjects pertaining to financial statements” Article 413/3 of TCC must be regarded. According to the aforesaid article, release of the company’s board members, executives and auditors, and the selection of new ones can be evaluated as issues related to the financial statements.[3]

According to the TCC, the percentage of the minority who can request a postponement in this regard has been determined as shareholders holding 10% of the capital in joint-stock companies and 5% of the capital in public joint-stock companies. If the minority requests a postponement, the meeting is postponed for a month with a decision of the meeting chairman without needing a general assembly decision.[4] As a general rule, discussion of financial statements cannot be postponed for a second time after it has been postponed once due to the demand from the minority. However, the minority may demand the postponement of the discussion of financial statements for the second time in case the objections raised and recorded to the meeting minutes by the minority were not addressed with regards to the principles of honest accountability.[5]

If the meeting is postponed due to said objections raised by the minority, the decision for postponement must be declared in Turkish Trade Registry Gazette and published in the websites of companies whom must have one. The next general assembly should be called following the calling procedure determined to be held 1 (one) month later.

B. Postponement Due to Failure to Provide the Meeting Quorum

The postponement of the general assembly meeting due to failure to provide the meeting quorum before the meeting is regulated under Article 28 titled “Postponement of the Meeting” of the Regulation. According to this article, if the minimum meeting quorum provided in the TCC and the articles of association of the company cannot be met before the general assembly meeting begins, the meeting will be postponed.

C. Postponement Due to The Loss of Meeting Quorum

It is possible for some shareholders to leave the meeting and the quorum to be lost after the meeting has started, provided that the quorum was met at the beginning of the general assembly meeting. In this case, the postponement of the meeting is essential and this issue is regulated in Article 28 of the Regulation. According to the aforementioned article; if it is seen as a result of the polling made during the meeting that the decision quorum calculated per the list of shares present before the start of the meeting is not represented the meeting will be postponed.

However, it is important to underline that this article of the Regulation constitutes a contradiction to the TCC.  Article 418 of the TCC suggests that shareholders or their representatives holding at least the one-fourths of the capital must be present in the first meeting and that the said quorum should be provided for the whole duration of the meeting. The quorum suggested in the article is the meeting quorum and the decisions must be taken with regards to the decision quorum calculated based on the meeting quorum. However, the Regulation suggests that the decision quorum calculated based on the meeting quorum in the beginning, will be considered as the meeting quorum for the rest of the meeting.[6]

D. Postponement by General Assembly Decision

Another possibility that the general assembly meeting can be postponed is that the general assembly decides to postpone it. This kind of postponement is regulated under the Article 28/2 of the Regulation. The most important feature of this type of postponement is the postponement decision to be taken by a general assembly, which was called following the legislation and the articles of association of the company, must be taken before the meeting proceeds with the agenda. With this aspect, this type of postponement is an exception to the principle of “adherence to the agenda” since the general assembly does not take any decisions in favour or against regarding the points determined in the agenda.[7]

E. Postponement by the Meeting Chair’s Decision

It is possible for the chairman of the meeting to postpone the general assembly meeting under two conditions. These are the conditions where the meeting cannot be held for security reasons and the failure to provide the necessary system requirements for the companies using the electronic general assembly system. The regulation regarding the postponement of the meeting of the general assemblies held in the electronic environment is stated in Article 28 of the Regulation. The meeting can be postponed by the meeting chairman by getting the Ministry Representatives opinion, provided that the general assembly does not comply with the conditions set out in the “Regulation on the General Assembly Meetings in the Electronic Environment in Joint Stock Companies”. Even though the article uses the term “can be postponed”, postponement is mandatory in this case. [8] Because the general assemblies held in an electronic environment are subject to the same rules and they provide the same legal results as those that are not held in the electronic environment, there may be a risk that some shareholders may not attend the meeting and exercise their rights if the appropriate conditions are not met.

F. Postponement due to Safety Reasons (Evaluation in Terms of COVID-19 (Coronavirus) Outbreak)

The general assembly may be postponed by the chairmanship of the meeting upon understanding that the meeting cannot be held in terms of security by obtaining the opinion of the law enforcement officers and the representative of the Ministry in case there is one. In this type of postponement, the conditions need to be evaluated for each specific case.

Currently, as the COVID-19 (Coronavirus) epidemic emerged from the People’s Republic of China poses a public health threat for the whole world, necessary measures are taken in Turkey to prevent the spread of the epidemic in our country. In this regard, the announcement made by the Ministry of Internal Affairs dated March 20, 2020, allowed the joint-stock and limited liability companies to cancel the ordinary general assemblies which were previously called for a meeting by the governing bodies following the Turkish Commercial Code No. 6102 and the articles of association, with a decision taken by the governing bodies, without waiting for the general assembly to be held to take a postponement decision.

Thus, the ordinary general assembly meetings of joint-stock and limited liability companies that are currently called to hold the ordinary general assembly meeting for the activity year of 2019 may be cancelled by a decision to be taken by the management bodies. You can access the sample cancellation announcement from the following link: https://www.ticaretsicil.gov.tr/view/popup/popup.php

On the other hand, following Article 1527 of the Turkish Commercial Code, it is left at discretion whether to enable the electronic participation of shareholders to general assembly meetings to ensure the minimum number of participation by the shareholders physically to avoid the spread of the epidemic in the companies that utilize the electronic general assembly system and wish to hold a general assembly meeting. 

3. CONDUCTING THE NEW MEETING

The “second” general meeting to be held after the postponement is essentially the continuation of the first meeting and does not qualify as a separate general assembly meeting. Since the new general assembly meeting is considered as a continuation of the postponed one, the agenda of the new meeting should only include the agenda points of the previous one. [9] Another matter that should be present in the second meeting is the minutes of the postponed general assembly meeting. For this reason, the minutes of the postponed general assembly meeting should be recorded properly.

Article 22 titled “Meeting and Decision Quorums” of the Regulation lists the meeting and decision quorums for special conditions in detail. For a general assembly meeting convened according to the ordinary meeting quorum, if the shareholders or their representatives representing at least one-fourth of the company capital are not present at the first meeting, the quorum is not sought and decisions are taken by the majority of the votes of those present in the second meeting. However, if there is a change in the articles of association on the agenda, other than those specified in Article 22, and that the shareholders representing half of the company’s capital were not present at the first meeting; it is sufficient for the shareholders who constitute at least one-third of the company’s capital to be present at the second meeting and the decisions are taken by a majority vote thereof.

4. CONCLUSION

Postponement of general assembly meetings is possible under certain conditions provided in the TCC and the Regulation. The second meeting to be held in case of postponement is considered as a continuation of the first meeting and should be convened following the appropriate calling procedure. Besides, special meeting and decision quorums for the second meeting should also be taken into consideration.

We would like to state that the announcement made by the Ministry of Internal Affairs dated March 20, 2020, as a part of the measures taken in Turkey to prevent the spread of the COVID-19 (Coronavirus) epidemic emerged from the People’s Republic of China, which poses a public health threat for the whole world allowed the joint-stock and limited liability companies to cancel the ordinary general assemblies which were previously called for a meeting by the governing bodies following the TCC and the articles of association, with a decision taken by the governing bodies, without waiting for the general assembly to be held to take a postponement decision.

[1] BİLGİLİ & DEMİRKAPI, “Şirketler Hukuku” 2013, p. 259

[2] ibid. p.313-315

[3] ibid. p.313, KAYA, “Anonim Şirketlerde Azınlık Hakları”, İstanbul Barosu Dergisi Volume:93 Issue:2, 2019

[4] KAYA, “Anonim Şirketlerde Azınlık Hakları”, İstanbul Barosu Dergisi Volume:93 Issue:2, 2019

[5] BİLGİLİ & DEMİRKAPI, 2013 p.313

[6] BİLGİLİ & DEMİRKAPI, 2013 p.314

[7] ibid. p.315

[8] ibid., p.315

[9] ÖZER, “Anonim Ortaklıklarda Genel Kurul ve Genel Kurulun Elektronik Ortamda Toplanması ve Karar Alması” 2006, p.146

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