Shareholders and public debts
An essential principle of capital companies under the Turkish Commercial Code (TCC) stipulates that a “Shareholders’ liability vis-à-vis the company [is] limited in proportion to their capital contribution”. Thus, as a reflection of this principle, the TCC clearly stipulates that the partners of limited liability companies (LLC) are only liable for their capital contributions and their additional and side payment obligations set forth under the articles of association, and that partners are not responsible for the company’s debts. Likewise, according to the TCC, shareholders of joint-stock companies are only liable in proportion to their capital contribution.
Law 6183 on the Procedure of the Collection of Public Receivables (LPCPR) sets forth an exception to this principle. According to Article 35/1, “Partner(s) of a limited liability company are directly liable for the uncollectible and deemed-tobe uncollectible public receivables in proportion to their shareholding amount and they may be pursued in accordance with the provisions of this Law.” In this respect, if there is an uncollectible or deemed-tobe uncollectible public debt of an LLC, then the partner(s) of such LLC may be held directly liable with respect to such public debt, in proportion to their shareholding amount in the company.
Procedural Tax Law (PTL) 213 sets forth a special provision for legal entities, pertaining to tax receivables – which is a public receivable within the scope of the LPCPR. According to Article 10 of the PTL, “The obligations of the taxpayer legal entities, minors, wards (…) must be performed by their legal representatives (…). The tax-payables and contingent receivables, which cannot be collected from the assets of the taxpayers due to the [legal representative’s] failure to perform such obligations, partially or fully, shall be collected from the assets of the non-performing party. This article is also applicable to non-Turkish taxpayers’ legal representatives in Turkey.”
When reviewed together, the aforementioned provisions make it unclear whether legal representatives of the legal entities should be pursued at the outset, before pursuing the shareholders for a tax receivable, which cannot be collected from the LLC’s assets, completely or partially. The contradictory decisions of the State Council and the Chamber of Tax Courts has led to the publication of a decision by the State Council’s General Assembly on the Unification of Judgments (GAUJ) in the Official Gazette on June 20.
The GAUJ has examined the conflicting decisions. One part of the decisions reviewed by the GAUJ stipulates that the public receivable, which cannot be collected from the LLC, should first be collected from the legal representatives – managers - of such LLC, who served within the relevant period (which the full receivable is related to). If the receivable cannot be collected from the legal representatives, only then the shareholder(s), who had a shareholding within the relevant period (which the full receivable is related to) can be held liable for such receivable, in proportion to their shareholding. In these court decisions, it has been considered as a violation of the limited liability principle to claim a public receivable directly from the shareholder of an LLC without pursuing the LLC’s legal representative(s) – managers - first. These decisions assert that the sequence to be followed for the collection of an uncollectible public receivable is to pursue the legal representatives of the LLCs first and then the shareholder(s) as indicated in the LPCPR.
The other part of the decisions referred to in the GAUJ stipulates that there is no sequence for pursuing the legal representatives and shareholders of an LLC with respect to uncollectible public receivables. In these decisions, the emphasis was given to debt-collection variances between the legal representatives and the shareholders; under the relevant provisions of law, the legal representatives are held liable for the full amount of the public receivable, whereas the shareholders are held liable only in proportion to their shareholding.
In light of the differences between the court decisions, and the controversy in practice, the GAUJ adopted the second approach. Accordingly, there is no sequence among the legal representatives and shareholders of an LLC with respect to the collection of public receivables.
This, along with other decisions regarding tax collection rendered by the Constitutional Court suggests that the courts’ approach aims to ensure the fastest method and process for collection of uncollectible public receivables.