Press Release No: Individual Application 23/17
02.08.2017

PRESS RELEASE CONCERNING THE JUDGMENT FINDING NO VIOLATION OF THE RIGHT TO PROPERTY DUE TO THE LIABILITY OF LEGAL REPRESENTATIVE FOR UNPAID PUBLIC RECEIVABLES

On 25 July 2017, the Plenary of the Constitutional Court found no violation of the right to property safeguarded by Article 35 of the Constitution in the application lodged by Ahmet Uğur Balkaner (no. 2014/15237).

The Facts

Between 17 September 1996 and 17 December 1999, the applicant was a board member of the Derby Lastik Fabrikaları Anonim Şirketi (“the Company”). The Company is a shareholder, with 10% shares, of the Yurtbank Anonim Şirketi (“the Yurtbank”) that was handed over to the Savings Deposit Insurance Fund (“the Fund”) on 21 December 1999. Furthermore, 99% of the shares of the Company is owned by the Balkaner Group which is the controlling shareholder of the Yurtbank. The applicant was also a board member of the Yurtbank between 31 December 1998 and 21 December 1999.

On 30 April 1994, 30 August 1994 and 24 April 1995, the Company received loans from the Yaşarbank Anonim Şirketi (“the Yaşarbank”). However, it did not repay the loans. A legal action was taken in this respect on 2 August 2000.

The Yaşarbank was also handed over to the Fund together with the Yurtbank on 21 December 1999 with the same Decree of the Council of Ministers. The loans obtained by the Company from the Yaşarbank were assigned and transferred to the Fund with a contract dated 10 August 2001.

On 20 May 2008, a payment order was issued pursuant to the repeated Article 35 of Law no. 6183 on the Collection Procedure of Public Receivables, dated 21 July 1953, for the purpose of collecting from the applicant the public receivables that could not be collected from the Company. On 30 December 2009, the applicant brought an action before the 8th Chamber of the İstanbul Administrative Court (“the administrative court”) for annulment of the payment order.

The administrative court dismissed the case on 16 November 2011. In the decision, it was underlined that the unpaid loans were characterized as public receivables upon their transfer to the Fund. It was concluded in the decision that in accordance with the additional Paragraph 5 of the repeated Article 35 of Law no. 6183 (added by Article 4 of Law no. 5766 dated 4 June 2008), the legal representatives were severally liable to pay for the public receivables that could not be collected from the company; therefore, the applicant was liable to pay the unpaid debts of the Company.

The applicant appealed against the decision. Having examined the applicant’s request, the 13th Chamber of the Council of State (“the Chamber”) upheld the administrative court’s decision on 3 October 2012. The Chamber noted in its judgment that in cases of receiving loans from the banks, the legal representative of the company receiving the loans would be liable for the debts which were characterized as public receivables, during the period from the date when the loans were obtained until its repayment. The Chamber concluded that as the applicant was the legal representative of the Company during the period allowed to repay the loans, he was liable for the unpaid debts.

The Applicant’s Allegations

The applicant maintained that he was a board member of the Company only between 17 September 1996 and 17 December 1999, and that he was not a board member on 10 August 2001 when the Company’s debts were characterized as public receivables, therefore, he should not be held liable for the debt. The applicant argued that if the additional Paragraph 5 of the repeated Article 35 of Law no. 6183 was not applied, the liability would only be imposed on the legal representative who was on active duty during the repayment period of the debt, and the debt would not be able to be collected from himself. The applicant complained that pursuant to Provisional Article 1 of Law no. 5766, the mentioned Paragraph 5 was applied retroactively to cover the public receivables not collected until its entry into force. Recalling that Provisional Article 1 had been annulled by the Constitutional Court, the applicant claimed that the retroactive application of Paragraph 5 of Article 35 impaired the right to property and the principle of the state of law.

The Constitutional Court’s Assessment

In brief, the Constitutional Court made the following assessments:

According to the Constitutional Court, the legislator may extend the liability for the purpose of securing the public receivables and increasing the possibility of their collection, as well as it may set forth a several liability.

Legal acts and actions of the trading companies have no real personality. They have been granted legal entity status by law, and their activities are carried out by real persons who are responsible for their management and administration on their behalf. These real persons who are regarded as legal representatives of the companies have the opportunity and power to carry out the legal actions of the legal entity they are representing, to manage its personnel and assets, to determine the direction of its investments and activities and to take the measures required by virtue of its economic and financial situation. In connection with these, carrying out the duties of a company and paying its public debts within the prescribed term are also among the primary duties of its legal representative. A legal representative is the person who bears the ultimate responsibility of the actions or acts of the company. He is a company official with the greatest authority, carrying power to prevent acts or omissions that may lead to non-payment of public receivables. Put another way, they have power to ensure the payment of these public receivables. Therefore, a legal arrangement may be made to hold the legal representatives, who manage trading companies and carry out their acts and actions, severally liable for paying public receivables that cannot be collected from the company. Considering the authority granted to the legal representatives and the duties assigned to them, it is understood that holding the legal representatives severally liable for the unpaid public debts does not impose, as a rule, an excessive and extraordinary burden on them.

However, no liability beyond the powers and opportunities entrusted to the legal representatives may be imposed on them. Holding a legal representative liable for the payment of public receivables arising from certain acts and actions carried out during a period when he has no chance to intervene or prevent them and especially to rule the company’s activities may result in a disproportionate burden on him in the circumstances of the concrete case.

The case that gave rise to the public receivables had resulted from the loans received from the Yaşarbank on 30 April 1994, 30 August 1994 and 24 April 1995. The applicant was not the legal representative of the Company at the material time. However, as also understood from the judgment of the Chamber, the applicant was the legal representative of the Company on the payment date of the loans. It is the legal duty of the legal representative to repay the loans on behalf of the Company with the money obtained from the Company’s assets. Where the legal representative fails to perform this duty, a liability arises on the part of him. However, the liability of the legal representative to pay the debt of the Company does not mean that he must pay the debt by using his own assets but the Company’s assets. If the Company does not have sufficient assets to cover the debt, imposing liability on the legal representative whose only act is his failure to pay the debt –except for the cases where he has contributed to the Company’s default– may cause damage to justice and equity.

The applicant has no allegation as to the fact that between 17 September 1996 and 17 December 1999, when he was the legal representative of the Company, the assets owned by the Company were not sufficient to cover the loans received in the previous period. In addition, it appears that the applicant was a member of the Balkaner family, one of the controlling shareholders of the Yurtbank, and he also took office in the management of the latter. According to the audit report dated 7 March 2000, the Yurtbank granted loans to 23 companies within the Balkaner Group, directly or indirectly, in high amounts, and they were not paid back. Regard also being had to these facts, holding the applicant, who –as a legal representative– failed to fulfil his duty to pay the debt of the Company, liable for the public receivables that resulted from this debt does not place an excessive and disproportionate burden on him.

 The applicant alleges that the liability imposed on him has increased due to the retroactive application of the law that entered into force subsequently. Repeated Article 35 § 1 of Law no. 6183 on the basis of which a payment order was issued in respect of the applicant had also been in force before the date when the Company’s debts were characterized as public receivables. The aim of the additional Paragraph 5 of Article 35 of Law no. 6183 is to eliminate interpretation differences between the relevant chambers of the Council of the State as regards the disputes concerning tax-related public receivables. By the additional Paragraph 5, no amendment has been made regarding Paragraph 1 where the liabilities of legal representatives are regulated. The amendment is related to the interpretation of the article. A legal arrangement aimed at eliminating different interpretations cannot be said to have increased the applicant’s liability alone.

In addition, with reference to the annulment of Paragraph 5 of the repeated Article 35, it cannot be concluded that the payment order issued under this provision led to a violation. In order to be able to make an assessment on this issue, both the grounds relied on by the Constitutional Court in the annulment of the relevant paragraph and the circumstances of the case must be taken into account. The Constitutional Court annulled the additional Paragraph 5 on the ground that in accordance with this paragraph, the legal representatives, who fulfilled their tax-related and other duties and liabilities completely and timely, would be held severally responsible for any act that occurred in a period when they did not take office and had no chance of intervention. The Constitutional Court underlined that holding a legal representative severally liable for the acts and failures of others, which did not result from his own faults, would be incompatible with the justice and equity.

In the present case, the applicant was not held liable for an act which occurred after the date on which his term of office in the capacity of legal representative had expired or after a time that he had no chance of intervention but for the failure to pay the debt that was due on his term. Accordingly, given the particular circumstances of the case, the annulment of Paragraph 5 of the repeated Article 35 of Law no. 6183 had no effect on the applicant’s situation.

Consequently, holding the applicant liable for the public receivables that resulted from his failure to pay the debts of the Company where he was the legal representative, which could not be collected from the Company’s assets, did not impose an excessive and disproportionate burden on the applicant. Therefore, the interference with the applicant’s right to property did not impair the balance to be struck between the public interest and the applicant’s right to property to the detriment of the applicant.

In conclusion, the Constitutional Court held that the applicant’s right to property safeguarded by Article 35 of the Constitution was not violated.

This press release prepared by the General Secretariat intends to inform the public and has no binding effect.

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