Directors’ Liability in Turquie

The term “director” refers to various positions within the corporate structure, with the scope of their civil liability varying based on their role. Under Turkish law, persons entrusted with legal representation and/or executive powers within a company may be deemed “directors” such as:

• members of the Board of Directors in joint-stock companies,
• managers (i.e., members of the Board of Managers) in limited liability companies,
• executive directors (individuals who are not members of the management body but have been delegated executive and/or representation powers) and
• liquidation officers during a company’s liquidation process.

The primary sources of civil liability of directors (except de jure directors, such as trustee in bankruptcy process) are (i) agreements (Articles of Association for the bodies of the company and contractual relationship with the company for executive directors) and (ii) duty of care arising out of the Turkish Commercial Code (Law No. 6102) (the “TCC”). While the TCC provides the general framework for directors’ civil liability, the relevant provisions are not consolidated into a single law instead they have multiple grounds. Under Turkish legal systematic, the liability of directors arises from the source that imposes the specific obligation, and the applicable sanction is also determined by that source. For instance, directors' liability for public receivables, including tax debts, is regulated under various tax-related laws such as the Law on Collection Procedure of Public Receivables (Law No. 6183), the Tax Procedure Code (Law No. 213) and the Social Security and General Health Insurance Law (Law No. 5510). In parallel, the obligation to ensure that financial statements reflect accurate and fair information is addressed under the Capital Market Law (Law No. 6362) (the “CML”).

Directors are liable only for their faults, which in turn means that a director would not be held liable when they exercise the expected level of care of a prudent director in actions causing damage. The TCC requires directors to perform their duties with the duty of care expected of a prudent director and to act in good faith in the interest of the company, adhering to the principle of honesty. Accordingly, directors are not subject to strict liability for matters beyond their control or duty of care. This reflects the adoption of the business judgment rule in Turkish law, similar to its application in common law jurisdictions.

Additionally, the TCC incorporates the principle of joint and proportional liability, under which directors’ liability is assessed based on their respective levels of fault and executive / representative authorities. A director’s liability varies according to the scope of their executive powers and representative authority and degree of fault, and it is not considered joint and several liability. Under this principle, each director is held accountable only to the extent of their fault in contributing to the damage, alongside other responsible parties.

In a nutshell, those who incur loss and damages as a result of a director’s failure to fulfill their duties arising from the law and/or agreements are entitled to bring an action against the director. Accordingly, (i) the company, (ii) shareholders and (iii) the company’s creditors may initiate civil liability actions against directors provided there is a causal link between the director’s actions or omission and the damage suffered.

A resolution of the general meeting is required for the company to initiate a lawsuit against directors for damage suffered by the company. The company may claim compensation for the damage it has incurred as a result of the directors' actions.

Shareholders may suffer either direct damage (e.g., non-payment of dividends) or indirect damage (e.g., losses incurred by the company). Shareholders are entitled to demand payment of their direct damages to themselves and indirect damages to the company. 

The company’s creditors can only bring an action against the directors in the event of the company’s bankruptcy. Creditors may demand compensation for their direct damage (e.g., the loss incurred from a loan provided based on untrue information by the directors) to themselves and indirect damage (e.g., losses incurred by the company) to the company.

A director may only be held criminally liable for the acts and transactions of the company only if such an act or transaction is explicitly criminalized by law. Therefore, unlike a director’s civil liability, it cannot be argued that a director has criminal liability within the framework of a general rule, such as the duty of care.

Under Turkish law, provisions imposing criminal liability on directors are not consolidated into a single law but are instead scattered across various laws depending on the nature of the crime. For instance, Article 562 of the TCC enumerates the criminal liabilities of directors concerning acts related to corporate governance. In addition to the TCC, various other laws impose criminal liability on directors, including the Turkish Penal Code (Law No. 5237) (the “TPC”), the Environmental Law (Law No. 2872), the Zoning Law (Law No. 3194), the Labor Law (Law No. 4857), the Enforcement and Bankruptcy Law (Law No. 2004) (the “EBL”) and the CML. The acts of “improperly keeping accounting records” or “failing to establish a mandatory company website” are subject to administrative fines for directors. On the other hand, criminal offenses that prescribe imprisonment include obstruction of audits under the CML (one to three years), misuse of powers for personal gain under the TPC (up to seven years), and tax evasion offenses such as accounting fraud or forging documents under the Tax Procedure Code (Law No. 213) (three to eight years). Director criminal liability spans a spectrum, from administrative penalties to severe criminal sanctions. 

It is important to distinguish between the criminal sanctions imposed on a company and the personal liability of a director. The criminal liability of companies is limited to security measures rather than punishment. For instance, when a company engages in criminal activities, security measures such as the forfeiture of the company’s assets may be applied against the company itself. However, this does not automatically result in personal criminal liability for its directors unless explicitly provided by law.

To mitigate the risk of directors' criminal liability, it is advisable to clearly define their areas of responsibility, allocate duties through an institutionalized authority matrix and ensure the timely implementation of corporate policies within the company.

Criminal proceedings may be initiated by the public prosecutor.

Under Turkish law, crimes are divided into two categories: (i) those subject to complaint and (ii) those prosecuted ex officio. In crimes subject to complaint, the complaint of the person harmed by the crime is a prerequisite for the initiation of an investigation. Examples of such crimes include the disclosure of trade secrets, banking secrets or customer secrets under Article 239 of the TPC and unfair competition offenses under Article 62 of the TCC. Additionally, the crime of abuse of trust under Article 155/2 of the TPC is also subject to a complaint.

The public prosecutor is authorized to initiate all investigations, whether they are subject to complaint or ex officio. With regard to offenses that are investigated ex officio, any person may report the alleged crime to the public prosecutor or police department when they become aware of the crime. Examples of crimes prosecuted ex officio include the breach of corporate governance obligations under Article 562 of the TCC (excluding the breach of the obligation to keep secrets, unless committed in a qualified manner) and criminal liability arising from failure to request the bankruptcy of a stock company as stipulated the EBL.

Under the CML, certain criminal investigations concerning directors require the Capital Markets Board to file a formal complaint before proceedings can be initiated. Without such a complaint, the public prosecutor cannot proceed with an investigation. For instance, crimes such as providing false, misleading or incomplete information in financial statements, manipulative transactions affecting market integrity or violations of disclosure obligations are subject to this requirement. Once the Capital Markets Board files a complaint, the public prosecutor may initiate the investigation.

When the public prosecutor completes the investigation, regardless of how it was initiated, if the prosecutor concludes that the acts subject to investigation constitute a crime, an indictment is issued and sent to the competent and authorized criminal court.

The statute of limitations for the civil liability of directors is two years from the date the plaintiff becomes aware of the damage and the party responsible (i.e., the relevant director). In any case, such claims must be brought within five years from the date the act causing the damage occurred. If the act constitutes a criminal offense and is subject to a longer statute of limitations under applicable criminal law, the longer limitation period will apply to the compensation claim.

Additionally, specific provisions may prescribe different time limits for certain liability cases. For instance, compensation claims arising from the inaccurate, incomplete, or misleading disclosure documents of publicly listed companies are subject to a six-month statute of limitations.

For criminal cases, the general statute of limitations is determined based on the severity of the offense. It is thirty years for crimes punishable with aggravated life imprisonment, twenty five years for crimes punishable with life imprisonment, 20 years for crimes punishable with imprisonment of not less than twenty years, fifteen years for crimes punishable with imprisonment of more than five years but less than twenty years, and eight years for crimes punishable with imprisonment of up to five years or a judicial fine. For example, the offense of abuse of trust has a statute of limitations of fifteen years. In contrast, many offenses punishable by imprisonment of up to five years or a judicial fine are subject to an eight-year statute of limitations

In Türkiye, Directors and Officers Liability Insurance (the “D&O Insurance”) is predominantly used for publicly listed companies. In practice, D&O Insurance is implemented as part of professional liability insurance, with special provisions added to the general conditions. However, it is crucial that the policy terms are carefully reviewed, tailored and drafted to address the specific needs of the insured directors.

Under the TCC and the Capital Markets Board’s Corporate Governance Communiqué, D&O Insurance is defined specifically for members of the Board of Directors, rather than for all directors. According to these regulations, the D&O Insurance with coverage exceeding 25% of the company’s capital must be disclosed to the public. Although obtaining such D&O Insurance is not mandatory, it is recommended as it facilitates compliance with corporate governance requirements for publicly listed companies.

Typically, D&O Insurance policies cover directors’ civil liabilities, excluding liabilities arising from intentional, willful or fraudulent acts.

The liability of executive and non-executive directors differs. While the liability of directors is joint, it is not equal (Please see answer 1). Directors with more extensive management power and representative authority bear a higher level of liability. This assessment of authority and liability is made on a case-by-case basis, considering the scope of their responsibilities.  For instance, a finance director’s liability for financial matters is significantly higher, whereas a factory or site manager’s liability is broader in matters related to occupational safety. This liability framework is referred to as joint and proportional liability in Turkish law.

For independent directors, there is no distinct liability regime under Turkish law. However, according to the Capital Markets Board’s Corporate Governance Communiqué, independent board members are classified as non-executive members of the Board of Directors. Consequently, their liability is generally narrower compared to executive directors. The scope of their liability is typically limited to:

• non-delegable duties and responsibilities of the Board of Directors;
• careful selection of individuals to whom delegable duties and responsibilities are assigned; and
• supervision of those to whom such duties and responsibilities are delegated.

Under Turkish law, a holding company may be held liable if it exercises its control over a subsidiary in a manner that causes harm to the subsidiary. The liability of holding companies is specifically regulated under the corporate group provisions of the TCC. Accordingly, a holding company is prohibited from exercising its control in a way that damages the subsidiary company. Certain transactions and resolutions are considered unlawful under these rules if they result in losses for the subsidiary. In such cases, if no equalization is made or no equivalent right of claim is granted to compensate for the loss, the shareholders or creditors of the subsidiary company may seek compensation for the subsidiary's losses from the parent company and the responsible members of the Board of Directors.

The right to bring a lawsuit is granted exclusively to shareholders who either voted against the resolution at the General Assembly or formally objected to it in writing. The relevant shareholders may request the parent company to compensate their losses or purchase their shares at a value determined accordingly. This right is subject to a limitation period of two years from the date of the General Assembly resolution or the announcement of the Board of Directors’ resolution.

Additionally, the TCC establishes the parent company's liability for trust arising from the reputation of the corporate group. This liability applies to third parties who engage in commercial relations with the subsidiary based on the reputation and trust created by the parent company. The transaction must have been conducted as a result of the community reputation and the trust it created.