The right to postpone discussion of financial statements is a minority shareholders’ right which is regulated under article 420 of the Turkish Commercial Code and is a positive right and can be exercised in general assembly meeting. Accordingly, at the request of shareholders holding one-tenth of the capital in non-public companies or one-twentieth in the public companies, discussion of the financial statements and related items in the agenda shall be postponed for a month in the general assembly meeting without the need for a resolution of the general assembly.

The main purpose of the article is to provide minority shareholders, who cannot (adequately) examine the financial statements before the general assembly, have the opportunity to vote in the general assembly on the financial statements and other related issues by examining them in more detail. Minority shareholders thus gain one more month to examine the financial statements.

1. How can the right be exercised?

The right can only be exercised in a general assembly meeting by a minority shareholder. This right cannot be exercised with a statement to the board of directors before the general assembly meeting. If a minority shareholder does not exercise his/her right, the chairman of the meeting is not entitled to decide to postpone discussion of financial statements and related items in the agenda.

It is not required for a minority shareholder to submit any justification in order to exercise the right. On the other hand, in order to exercise the right again in the following second meeting, it is required that the objections to the financial statements that have been written in the minutes have not been answered faithfully and fairly. Therefore, objections to financial statements should be written in the minutes.

It is not required for a minority shareholder to have write his/her demand to exercise his/her right in the minutes. On the other hand, it is required as a proof and for the condition of the action for annulment and to exercise the right again in the following meeting.

A minority shareholder’s demand to exercise his/her right is sufficient to postpone discussion of the financial statements and related items in the agenda, there is no requirement for approval of the general assembly or the chairman of the meeting to exercise the right.

• What is scope of the right?

The right to postpone discussion of financial statements covers discussion of financial statements and related items in the agenda. The problem here is to determine the related items in the agenda.

Although there are debates on which items should be postponed in the doctrine with the discussion of the financial statements, it is mainly accepted that it should be interpreted within the scope of the items that may be directly affected by the decision on postponement. In this context, it is accepted that the discussions of profit-loss account, which is an integral part of the financial statements, dividend distribution, release of the members of the board, re-election of the same board members and auditors whose duty terms were terminated should be postponed. Election of new board members and auditors and giving permits of the board members to do business and compete with the company in accordance with the articles 395-396 of TCC can be discussed and resolved in the general assembly meeting.

• What are the consequences of exercising the right?

Upon the demand of a minority shareholder to postpone discussion of the financial statements, discussion of financial statements and related items in the agenda will be postponed for one month. The one-month period is the minimum period, and these discussions may be postponed for a period more than one month, however this one-month period shall not be shortened without approval of minority shareholders.

Postponement is announced to shareholders in Turkish Trade Registry Gazette and in website of the company if the company is subject to obligation to have a website. Shareholders are convoked to the next meeting in accordance with the procedure stipulated in the law. Next meeting is a continuation of the first meeting.

In the following meeting, only approval of the financial statements and related items in the agenda may be discussed and it is impossible to amend the agenda for the following meeting.

Minority shareholders are entitled to exercise the right again. However, in order to exercise the right again, it is required that the objections to the financial statements that have been written in the minutes have not been answered faithfully and fairly.

• What are the consequences of prevention of exercising the right?

An action for annulment may be filed with regard to the financial statements and the related items in the agenda if the financial statements and the related items in the agenda are continued to be discussed although a minority shareholder demands postponement of the financial statements.

In order to file an action for annulment, the dissenting opinion should be written in the minute and the case must be filed against the company in the commercial court of first instance at the place of the company’s headquarters within three months from the date of the decision.

If the financial statements and the related items in the agenda are continued to be discussed and application for registration has been made although a minority shareholder demands postponement of the financial statements, this application for registration must be rejected by the trade registry. However, trade registry will register and announce the other resolutions taken in the general assembly meeting.

Kind regards,

Tolga Poyraz

Attorney at LawKurt&Partners