Article 337(1) of the Execution and Bankruptcy Law (“EBL”) which provides that, “Debtors who fail to come to the execution office for the declaration of their assets or to declare their assets in writing without a legitimate excuse shall be sentenced to 10 days of disciplinary imprisonment upon the request of the creditor” has been annulled by the Constitutional Court’s decision dated 28 February 2008 and numbered 2006/71 E., 2008/69 E. Such decision of the Constitutional Court has been in effect since April 16, 2009.

Further to the decision of the Constitutional Court, the 16. Civil Chamber of Court of Appeals rendered its decision dated 21 June 2010 and numbered 2010/3945 E., 2010/4412 K. which provides that although Article 337(1) of the EBL has been annulled, since Article 76 of the EBL regulating that “The debtor failing to deliver a declaration of assets is compelled by the execution judge at the creditor’s request by a one-time confinement until making the declaration. However this confinement may not exceed three months” is still in force, in the event the debtor receives the payment order including the notice for the declaration of assets in accordance with Article 168 of the EBL but still does not make a declaration of assets in due time or makes a false declaration, such debtor shall be sentenced to imprisonment from three months to one year upon the request of the creditor in accordance with Article 338 of the EBL.

The new Turkish Code of Obligations (which shall come into effect on July 1, 2012, Law No.6098, 2011) has been drafted to give more rights to buyers, in alignment with the Law Regarding the Protection of the Consumer (Law No. 4077, 1995) (the “LPC”), and introduces major changes to the product liability provisions of the current Code of Obligations (Law No. 828).

Specifically, having purchased a defective product, among the optional rights of the buyer i.e. (i) renunciation of contract and a refund, (ii) replacement of the goods by non-defective generic goods and (iii) reduction in price in proportion to the defect, another option to request free repair presented by the LPC is also introduced in the new Code of Obligations, provided that he/she informs the seller of the defect within 30 days from the delivery of the product.

Further, as per the current Code of Obligations’ provisions related to ordinary sales i.e. sales not considered as commercial sales and in which neither party is the consumer, the purchaser shall examine goods purchased immediately upon delivery and inform the seller of any defect regarding the qualities guaranteed by the seller in order to hold the seller responsible. The wording “immediately” is amended in the new Code of Obligations to “as soon as possible” in order to protect the benefits of the buyer. Accordingly, if the purchaser fails to perform such notification duty, the purchaser is deemed to have accepted the defective good, unless defects in the goods are hidden.
 
Also, with regard to the prescription period for raising claims related to product liability, the provision has been increased from one (1) year in the current Code of Obligations to two (two) years in the new Code of Obligations.

A new provision is regulated in Article 358 of the new Turkish Commercial Code No. 6102 (the “TCC”) (the effective date of which is 1 July 2012, subject to certain exceptions), which provides that shareholders may not become indebted to the company with the exception of debts arising from subscription.

The main purpose of such provision is to prevent shareholders from using the company’s case arbitrarily for work and transactions or for personal expenses and to prevent withdrawal of money from the company.  

Whoever acts in violation of this provision shall be punished by imprisonment of not less than three hundred days (Art. 562/5(c) of the TCC). Board of Directors members who are actively or passively involved in such actions are in violation of the Code under Article 553.

Indeed, companies are also compelled to consider this point in other regulations. For instance, if the company lends money to its shareholders:

-    A corporate tax penalty may be applied as the lending may be considered to be a distribution of disguised profit through transfer pricing;
-    The money which was lent may be subject to withholding tax at 15% as it may be considered to be a distribution of dividends to shareholders;
-    If half of the dividend exceeds TRY23,000, it should be officially declared; and
-    VAT of 18% may be applied.

Legal Newsletter Turkey Q4/2010The understanding of a Portfolio Compensation under the laws of Turkey is “the expression of gratitude for the efforts of the agent to establish a market for the principal”, as indicated in legal doctrine and Court of Appeals’ judgments.

More precisely, if through its activity, an agent has substantially increased the principal’s clientele and if, even after termination of the agency relationship, the principal benefits substantially from the business relations with this acquired clientele, the agent has a right to request an adequate compensation called “portfolio compensation”.

Despite the clear provisions stated in the German and Swiss Commercial Codes, there is no objective criteria stated in the Turkish Commercial Code in force (Law No. 6762) (published in the Official Gazette on July 9, 1956 and numbered 9353) (as amended from time to time) (the “TCC”), with respect to the facts to be considered in the calculation, such as the period for which the agent or distributor provided a service to the principal or the maximum limit of portfolio compensation. Although some calculation methods have been set forth within some Court of Appeals’ judgments, such methods were not codified.

On the other hand, the New Turkish Commercial Code (Law No. 6102) (published in the Official Gazette on February 14, 2011 and numbered 27846) (which shall enter into effect on July 01, 2012) (the “NTCC”)regulates the right to request “portfolio compensation”, under the provision titled “equalization claim”.

In this respect, pursuant to Article 122 of the NTCC, following the termination of the contractual relationship (i) in the event the principal benefits substantially from the new clientele acquired by the agent, even following the termination of the contractual relationship, (ii) in the event the agent, as a result of the termination of the contractual relationship, loses its right to request payment that it shall be entitled to if the contractual relationship had continued due to the clientele provided to the enterprise by it or through the transactions which would have been done in a short period of time and (iii) if such payment is deemed just, by taking into consideration the specificity and conditions of the existing situation; then, the agent is entitled to request adequate payment from the principal.

Concerning the amount of such compensation, Article 122 stipulates that the compensation amount cannot exceed the average of the annual commission or other payments that the agent obtained as a result of its transactions in the last five years. However, if the contractual relationship has continued for a shorter period of time, then the average during the course of the transaction shall be taken into consideration for the calculation.

On the other hand, the said Article also brings a limitation as to the equalization claim by underlying that, if the agent has terminated the agreement without just cause or if the agreement has been terminated by the principal with just cause due to the fault of the agent, the agent cannot claim equalization.

Legal NewsletteIn addition, it is expressly stipulated within the mentioned Article that the claim of equalization cannot be subject to a waiver in advance.

The time limit set forth for the equalization claim is one year following the termination of the contractual relationship. In other words, pursuant to Article 122, any claim for equalization must be filed within one year following the termination of the contractual relationship.

Last but not least, Article 122 also regulates the legal application framework of the notion. In that regard, the mentioned Article states that this provision shall be applied to the termination of the exclusive distributorship agreements and other similar continued contractual relationships providing monopoly rights, unless deemed unjust.

In light of the explanations above, it is clearly seen that the NTCC, through codification of the “portfolio compensation” and by bringing a uniform understanding of the notion, fills the gap which existed during the period of the former TCC.

As per a recent understanding between the political parties of the Grand National Assembly, an intention was voiced to enact three basic codes before the next general election, to be held in June 2011. The three drafts on the agenda of the Assembly were the Code of Obligations, the Commercial Code and the Code of Civil Procedure. The Turkish Government had proposed the Draft Code of Civil Procedure numbered 1/574 (the “Draft Code”) to the Grand National Assembly in April 2008. When the Draft Code is enacted, it will repeal the present Code of Civil Procedure (Law No. 1086) (published in the Official Gazette dated 2- 4 July 1927 and numbered 622,623 and 624). The Draft Code of Obligations was passed by the General Assembly on 11 January 2011 and will become effective on 1 July 2012. The Draft Code was passed by the General Assembly on 12 January 2011 and will become effective on 1 October 2011.

As one of the major changes envisaged, the Draft Code provides that agreements on the jurisdiction of courts will only be made between merchants and/or public legal entities. Therefore, the Draft Code introduces a distinction between merchants or public legal entities and other persons regarding agreements to the jurisdiction of courts. While merchants or public legal entities may be deemed legally equal, they are stronger than other persons who do not possess equal bargaining power when entering contracts; hence the outcome of this situation has been unconditional acceptance of contracts written by the strong parties, including the clauses regarding the jurisdiction. Such agreements will be strictly prohibited.

In light of the Draft Code, only the merchants and/or public legal entities will be able to make agreements between themselves on the jurisdiction of one or more courts. It is noteworthy that the present Code of Civil Procedure provides that the parties have the ability to determine the jurisdiction of only one specific court. This provision will be abolished as regards the Draft Code. Save as provided otherwise by the parties, the agreement on jurisdiction will be exclusive. Where the parties wish to preserve the jurisdiction of specific courts authorised by law, in other words where the parties wish to conclude a non-exclusive agreement, it will be mandatory to include such provision in the agreement.

In the decision of the Court of Appeals dated 8 March 2010 (File No:2009/9310) the argument was whether or not it is possible to consider the dissolution of a company within the context of Article 337/a of the Execution and Bankruptcy Code (Law No.2004) which states that if a merchant quits his or her trade activities, he or she must submit a declaration of wealth to the Trade Registry showing all of his assets and liabilities and the names and addresses of his creditors within 15 days. In case the merchant does not do so or provides inaccurate information, pursuant to the said article, he may be imprisoned for three months to one year upon the filing of a complaint by the creditor.

In its judgement the Court of Appeals stated that the Turkish Commercial Code did have provisions regarding dissolution procedures for the commercial companies and partnerships, however, it did not contain any provision relating to ceasing all trade activities. Therefore, it was decided that the dissolution of a company does not mean ceasing all trade activities but rather that the partnership relationship and its legal entity have been terminated. The dissolution of a commercial entity shall not be considered as ceasing all trade activities and it would not be subject to the procedure stated in Article 337/a of the Execution and Bankruptcy Code.