“What the Turkish Council of State thinks about the executability and finality of a decision of the Capital Markets Board of Türkiye?”
January 10, 2023 | NEWS
By Gokhan Bozkurt, Mustafa Bozkurt
In a recent case, the 13th Chamber of the Turkish Council of State (Danıştay) pointed out that if an administrative act includes or states any sanction threat against a person, that administrative act is acceptable as an executable and final in the meaning of the Turkish administrative law, even if it is descriptive or informative.
A Teknoloji Yatırım Anonim Şirketi (Company A) is a publicly-traded company listed on the Istanbul Stock Exchange. The plaintiff is the chairman of the board of directors of Company A. Company A has %45 of the shares of B Bilgisayar ve Görüntü Sistemleri Anonim Şirketi (Company B), while the plaintiff has 5%.
In the board of directors meeting of Company A, the board members decided to purchase the 5% shares of the chairman by Company A from Company B.
Upon the transaction’s announcement, the Capital Markets Board of Türkiye (the CMB) opened an investigation regarding the purchasing transaction. As a result of the investigation, the CMB decided that the resolution of the board of directors caused a disguised profit transfer in favor of the chairman. The CMB, therefore, decided to take a series of actions against the chairman, which are:
i) to file a criminal complaint with the prosecutor's office on the allegation that the chairman transferred in disguised profit due to his actions in the decision of the board of directors regarding the purchase of the shares corresponding to 5% of the capital of Company B from the chairman,
ii) the pecuniary loss determined by the CMB will be paid to Company A by the chairman within three months of the CMB’s decision,
iii) if the board of directors does not take any action within three months to recover the pecuniary loss from the chairman, the CMB might apply articles 103 and 105 about the board of directors of Company A in terms of the Turkish Capital Market Law,
iv) to authorize the Legal Affairs Department of the CMB to file a civil lawsuit against the chairman to recover the pecuniary loss if he does not pay the loss to Company A,
v). to announce in the CMB’s bulletin to the public that the investors whom the transaction will suffer may file a lawsuit against all the board of directors of Company A in terms of their responsibilities,
vi) the issue will be addressed at the first general assembly of Company A to inform the shareholders.
Upon the CMB’s decision set forth above, the chairman -the plaintiff- filed a petition before a local administrative court seeking to annul the decision of the CMB on the grounds of its unlawfulness.
After examination of the case, the Administrative Court held that in the actions for nullity which will be filed against an administrative act, or a decision, the court would have to consider whether the administrative act is executory, final, and executable. The court pointed out that it also needs to be considered in case the implementation of the administrative act and whether it will have legal consequences on the addressee to resolve the issue. If the administrative act qualifies or satisfies these conditions, it most likely will be able to subject to an action of nullity.
Considering these determinations, the Administrative Court concluded that:
(a) With regards to the filing a criminal complaint with the prosecutor’s office against the plaintiff part of the administrative act (article i) will be paving the way for the trial and, at the same time, since it is an informing to the judicial authorities for the initiation of the criminal proceedings, this part of the administrative decision cannot be considered as an executory, final, and executable administrative act and cannot be subject to an action for nullity.
(b) The acts aforementioned above as articles iii), iv), v), vi) have the feature of informative such as a piece of advice, an opinion, or recommendation. These parts of the CMB’s decision are not executory, executable, and final and will not have any legal consequences for the plaintiff. Therefore, these acts cannot be subject to an action for nullity.
(c) The other part of the administrative act, which is the payment of the pecuniary loss determined by the CMB, will be paid to Company A by the plaintiff (article ii) in accordance with the applicable law and lawful.
In terms of these findings and determinations, the local administrative court dismissed the case.
The plaintiff appealed the local court’s judgment before the Regional Administrative Court. The Regional Administrative Court, however, found the grounds of the local administrative court in accordance with the applicable law, and as a result, the appeal was refused.
The plaintiff also appealed the judgment of the Regional Administrative Court and took the case before the Turkish Council of State. The 13th Chamber of the Council of State decided that the parts of the CMB’s decision pertaining to articles i), ii), and iv) are in accordance with the applicable law. Therefore, the 13th Chamber affirmed these parts of the judgment of the local administrative court.
The 13th Chamber of the Council of State, in its judgment, stated that administrative acts such as the administration reminding or notifying a party to do something are not executable and final. These kinds of administrative acts do not have any legal obligations or consequences for the interested parties. Therefore, such actions cannot be subject to any administrative case or actions for nullity. However, the 13th Chamber said that if those acts state that in case parties do not comply with the administrative decision, it will be imposed any sanctions on parties, in this situation, the administrative acts are accepted as executable and final and may be subject to any administrative case.
When we examine the acts outlined in articles iii), v), and vi) of the CMB’s decision, these administrative acts impose legal responsibility on the interested party to comply with the Turkish Capital Market Law. Should the parties -the plaintiff and the board of directors- not abide by the administrative acts outlined in the mentioned articles, they may encounter administrative fines according to articles 103 and 105 of the Capital Markets Law. Therefore, aforesaid administrative acts are accepted as executable and final and will be able to be subject to actions for nullity. Accordingly, the 13th Chamber of the Council of State overturned the Regional Administrative Court’s judgment and sent the file back to review.