As it is known, the concept of entity/person is categorized under the terms “real person” and “legal entity/person” in the Turkish legal system. The legal entity is defined as the entity which “legally binds together the property of many people and is legally treated as one person. The legal entity is able to become indebted. The stock corporations for legal entities aside from their owners and managers. Even though these legal entities are liable for the consequences of their own actions, the legal liability of their legal representatives must be considered for their unpaid debts to the public/state.
The liability of the legal representatives for the debts to the public are referred to in the article No. 35 of the Law on the Procedure for the Collection of Public Receivables No. 6183 which is a collection law, clause No. 2 of the article No. 10 of the Tax Procedure Law No. 213 which regulates taxation processes and clause No. 20 of the article No. 88 of the Social Security and General Health Insurance Law no. 5510 which regulates the social security system.
A: THE CONCEPT OF LEGAL REPRESENTIVE IN INCORPORATED COMPANIES
Representation can be defined as the process of carrying out legal actions. When the authority of representation is based on legal grounds, this representation is named “legal representation.” According to the regulations, the liability for the unpaid debts of incorporated companies to the public/state belongs to the legal representatives of incorporated companies. The exceptions in the law aside, it is stated in the article No. 365 of the Turkish Trade Act that the administration and the representation is to be carried out by the board of management. In accordance with this, it is accepted that the board of management of a company is that company’s legal representative. The article No. 359 of the Turkish Trade Act regulates the formation of the board of management by stating that “the management board of a company consists of one or more than one person who was/were appointed through the articles of the prime contract or by the general board.”
Also, through a prime contract article and an internal directive, the board of management can be authorized to completely or partially transfer the authority to manage the company to one or a few of the members of the management board or to a third party. In this case, the legal representative becomes the person or the persons who hold the authority or to whom the authority was transferred. These legal representatives are the management board members who have the authority of representation, the managing directors and liquidators.
It must be stated that the shareholders, who cannot be identified as legal representatives, are not liable for the debts to the public.
B: THE LEGAL CHARACTERISTIC OF PUBLIC RECEIVABLES
a) In relation to the faulty-absolute liability
The article No. 35 of the Law on the Procedure for the Collection of Public Receivables dictates that the management board members who are liable for the management and the representation of the company, the managing directors and the managing members are liable for the unpaid debts of the company. Even though the matter of this liability being a faulty or an absolute liability is controversial, based on the text and the preamble of the law, it can be said that this is an absolute liability.
In terms of the Tax Procedure Law, the main tax debtor is the person who performs the action which requires taxation. The tax payers in incorporated companies are the board of management members who have the authority to manage and to represent the company as the legal representatives of the company. In the clause No. 2 of the article No. 10 of law, it is stated that the “the tax which was not collected from the above-stated persons because of their failure to carry out the actions required by their legal responsibilities, will be collected from their properties,” and therefore, it is possible to say that this liability is a faulty liability.
Clause No. 20 of the article No. 88 of the Social Security and General Health Insurance Law dictates that the members of the board of management, directing managers and employees and liquidators are liable for the unpaid insurance premiums if they have no valid excuse, by stating that “if the insurance premiums and other debts to the public are not paid without the existence of a valid excuse within the time determined by this law, the public officers who are responsible for the accruement and imbursement processes will carry out their duties concerning the liability of the members of the board of management, the directing managers and employees.” It is possible to say that the liability stated by this law is a faulty liability. The above-mentioned “valid excuses” are not clearly determined by the law. The validity of the causes will be determined by the court based on the feature of special conditions of legal and corporeal events. According to the supreme court, the principles of social security and the rights of respondent institution must be considered when this evaluation is in process. The supreme court pays attention to the statement which suggests that there should be “an universally acceptable cause which renders the payment of the debt impossible for the representatives of the incorporated company,” for an evaluation based on a valid cause. When the verdicts of the supreme court about valid causes are studied, it can be seen that the supreme court refers to the rulings of the regulation concerning the “postponement of bankruptcy.” The recent verdict of the 10th Civil Chamber of the Supreme Court No. 2018/6053 E.- 2020/685 K is as follows;
In accordance with the article No. 179/b of the Enforcement and Bankruptcy Law which dictates that “ debt follow-ups, including those suggested by the law no. 6183, cannot be carried out against the indebted” premiums will not be collected from a company, the bankruptcy of which has been postponed and the property of which is under protection through the regulation of the article No. 179 of the Enforcement and Bankruptcy Law. The impossibility of collection which stems from the above-mentioned regulations is not caused by the members of the board of management, but by the law itself. Thus, the rulings within the reach of the concept of “valid causes” will be considered to be in effect concerning the members of the board of management, in accordance with the article no. 88 of the law no. 5510
As dictated by the article no.3 of the law no.7101 which was published in the official gazette on 15.03.2018, some changes have been made to the article 179 of the Law of Enforcement and Bankruptcy and the expression “postponement of bankruptcy” has been removed from the text of the law. In accordance with the “14 temporary articles” which was added to the Law of Enforcement and Bankruptcy of 2004 in accordance with article no. 46 of the law no. 7101, the postponement of bankruptcy and the concordatum (arrangement of bankruptcy) demands will be evaluated according to the regulations which were in effect on the date of the initiation of the demand.
b) In Relation to Subsidiary Liability
The liability of the members of the board of management for the debts of the company to the public is a subsidiary liability which preserves the right of the public. It is possible to make demands on the legal representatives of the company for the unpaid public debts after a debt follow-up for the legal entity of the company.
For it to be possible to demand the public debt from the manager, a debt follow-up must be commenced for the company and must fail or it must become obvious that the company, as a legal entity, will not be able to pay the debt. A debt follow-up then can be commenced for the liable managers.
The exception to this subsidiary liability has been regulated in the Social Security and General Health Insurance Law no. 5510. The ruling about the public debts of the company, which includes premiums and debts to the Social Security Institution, dictates that the company and its managers are directly liable by stating that “the high-level managers or the authorities and their legal representatives are jointly and severally liable, along with their employers, for the debts to the company.”
c) In Relation to the Joint Liability
The article 10/2 of the Tax Procedure Law and the article No. 35 of Law on the Procedure for the Collection of Public Receivables dictates that the liability of the members of the board of management for the unpaid debts to the public, is to be evaluated as joint liability. The continuity in question is secondary.
The law no. 5510 dictates that the collection of the premiums is the join liability of the company and the high-level managers. Yet, this continuity is direct. In accordance with this rule of joint liability, the administration can collect the debt fully or partly from any member of the board of management that is liable for the debts to the public.
d) In Relation to Unlimited Liability.
The members of the board of management, the directing employees and managers of the incorporated company are unlimitedly liable with all their property for the unpaid debts of the company to the public. The liability of the liquidators is an exception to this. The liability of the liquidators is limited by the amount they deal with or by the amount they liquidate. The liquidators and the previous legal representatives of the company are together liable for the debts of the incorporated company before the liquidation was commenced. Yet, the liability of the liquidators is limited by the amount of the property which is being liquidated. The liquidators are liable only for the amount they deal with or liquidate, in accordance with the article no. 33 of the Law on the Procedure for the Collection of Public Receivables which states that “the liquidators cannot distribute or deal with the amount which was gained through liquification, unless they first pay the amount owed to the public administrations. Unless they obey this regulation, the liquidators will be personally and jointly liable for the accrued debts to or the debts which will be accrued to the public. This amount for which the liquidators will be liable for cannot exceed the amount which was dealt with.
C. The Scope of the Liability and the Special Conditions
a) In Relation to the Law on the Procedure for the Collection of Public Receivables No. 6183
The articles no. 1 and 2 of the above-mentioned law regulates the public receivables (the debts to the public) and which of these debts can be collected through this law. The duplicated article no. 35 titled “The Liability of the Legal Representatives” regulates the collection of the debts of the legal entity of the company to the public from the members of the board of management. It must be stated that not all the public creditors/debtees are related to this law and that the creditors which concern the Tax Procedure Law shall not be subject to the application of this law. The Tax Procedure Law is qualified as a special law which concerns taxes and the debts/receivables concerning the taxes and the article no. 10/2 of this law is to be applied concerning the collection of the debts to the public from the members of the board of management. It is dictated by the council of state and doctrine that the duplicated articled no. 35 of the Law on the Procedure for the Collection of Public Receivables cannot be applied to those who are related to the Tax Procedure Law.
For the liabilities stated by the Law on the Procedure for the Collection of Public Receivables to exist, the type of the public receivable/debt to the public must have been one of the types determined by this law. Then, a debt follow-up must have been commenced by the public administration and the follow-up must have failed or it must become obvious that the follow-up process is going to fail. The ruling concerning the legal representatives have been added to the Law on the Procedure for the Collection of Public Receivables No. 6183 with the clause no. 5 which was added through the law no. 5766 in 2008. According to this ruling, if the legal representatives and the managers of the company are different persons during the time when the debt first appeared and during the time when the debt is due, they will be jointly liable for the debt to the public. Yet, this ruling has been taken out of effect starting from 03.04.2015 by the Court of Constitution. According to the latest regulation, every member of the board of management or every directing manager is liable for the public receivables which have occurred during his/her own term.
b) In Relation to the Tax Procedure Law No. 213
Article no. 1 and 2 of this law clearly states the debts/receivables which are to be collected in accordance with this law. According to the rulings of this law, the receivables which concern this law are the taxes, duties and fees related to the overall budget and provincial special administrations and municipalities. The taxes, duties and fees related to the custom offices are not a part of the taxes covered by this law.
The clause no. 2 of the article no. 10 of the law concerns the topic at hand. This clause, which concerns the liabilities of the legal representatives, dictates that the members are liable only for the debts and receivables regulated by the Tax Procedure Law when the members of the board of management are found liable for the taxes and receivables related to the taxes.
For the above-mentioned liability to exist, there must first be a receivable/debt which is related to the Tax Procedure Law and the tax duties must have been neglected. The board of management and the directing managers of the incorporated companies are liable for the tax duties related to the company. The person who is to be liable for the debts is the person who has carried out the process which led to the existence of the debts during his/her management term and he/she must be directly responsible of the failure of the payment of the tax. Another condition occurs when the debt/tax follow-up which is being carried out against the company, which is the original tax payer, fails. There must be causal relation between these conditions.
There are two exceptions to the liability stated by this law; the first one is in effect if there is a force majeure (compelling reason) which renders the liability of the members of the board of management invalid, and the second one is in effect for the members of the board of management who are not obliged to pay taxes.
c) In Relation to the Social Security and General Health Insurance Law no. 5510
It must first be stated that the receivables and debts to the Social Security Institution which derive from the Social Security and General Health Insurance Law are to be collected in accordance with the rulings of the Law on the Procedure for the Collection of Public Receivables. The receivables concerning this law are receivables/debts like the premiums which are to be paid to the Social Security Institution, contributions to education, administrative fines and special communication tax. If the insurance premiums are not paid to the Social Security Institution within the time determined by the law, the company, along with its own legal entity, the high-level members of the board of management, the authorities and the legal representatives will be jointly liable.
This liability, which has been regulated by the Social Security and General Health Insurance Law, depends on the condition that there is a demandable public receivable/debt. The debt must have been unpaid to the institution within the determined time without any valid excuses.
It should also be stated that the verdict of the Constitutional Court dictates that the members of the board of management who do not have the authority to represent and bind are also liable for the debts to the Social Security Institution which came into effect after the introduction of the Social Security and General Health Insurance Law, as long as these debts have occurred during their term. Therefore, it is possible to commence a debt follow-up against the members of the board of management, even if they do not have the authority to represent and bind.
2- The Liability of the Branch Manager
The ruling of the supreme court dictates that the branch manager who has the authority to represent, give orders and appoint and who is liable for taking care of the administrative and financial dealings , including the authority to carry out the payment of the insurance premiums, of the company is responsible for the premium debts which have occurred during his/her own term. The article no. 371/1 of the Turkish Trade Act dictates that “those who have the authority to represent the company are able to carry out all the processes related to the company the name of the company,” and the clause no. 3 of the same article dictates that “the authority to represent can be limited to a centre or a branch.” According to the precedents of the supreme court, for the branch manager to be liable for the debt, the branch manager has to have the authority to make payments and represent the company in administrative and financial dealings and the debt has to belong to the branch which is under the control of the branch manager. Likewise, according to the verdicts, it is possible for the employer to give the above-mentioned authority to the branch manager through a deed of trust without a registry to the commercial registries. It is crucial for the determination of the extent of the liability to determine the source of the debt, the existence of the authority and the reach of the authority. It must be known that the branch manager is connected to the employer through a labour contract and the expiry of this contract does not affect the title of the branch manager. There must be records and a letter of resignment belonging to the branch manager for the duties of the branch manager to end. The announcement of the end of this authority, which leads to liability, should not yield any adverse results for the branch manager. The assembly of civil chambers of the supreme court has stated through one of its verdicts that “The announcement of the expiry/end of the authority to represent in the registration gazette is an act which aims to inform the third parties and does not have the goal of attributing a legal validity to the matter. Thus, it is an informative process, not a constitutive one.
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