TCC Shifts Burden of Proof to Board Members and Senior Management

======================================================

The Turkish Commercial Code (TCC) has introduced a significant change in its liability principle, holding board members and senior management accountable for claims not only from shareholders but also from creditors. Under this new principle, these individuals are required to prove they have acted in line with their duties, rather than the claimant having to prove otherwise.

Internal Bylaws Set Guidelines

According to the TCC’s liability principles, internal bylaws of a company set out guidelines for governance, including:

• Definition of board members’ and senior management’s duties
• Delegation of powers
• Exchange of information
• Reporting systems within the board

These clear-cut guidelines also provide guidance on the allocation of liability.

Differentiated Liability

The TCC has introduced a “differentiated liability” system, which replaces the previous joint and several liability system for directors. Under this new system:

• Board members and senior management who have delegated certain powers or duties will not be held liable for the actions or decisions of their delegates provided they have acted with reasonable diligence in delegation, instruction, or supervision.
• They must demonstrate that they have taken necessary measures to ensure compliance with their obligations.

Administrative and Regulatory Consequences

Members of governing bodies and senior management can face:

• Administrative monetary fines for non-compliance with certain provisions (e.g., bookkeeping requirements or inaccurate statements on capital adequacy)
• Personal liability for unpaid public debts

Criminal Liability

Members of governing bodies and senior management can face criminal liability for breach of risk and compliance management obligations under the Turkish Criminal Code. This includes:

• Bribery
• Embezzlement
• Forgery
• Insider trading
• Market manipulation

Corporate Compliance Defence

The TCC provides a corporate compliance defence, which requires board members and senior management to prove they have acted with reasonable diligence in delegation, instruction, or supervision of their delegates.

Recent Cases

A recent example of corporate risk management failure involved the sale of a Turkish regional airline company, which led to criminal proceedings. This case highlights the importance of:

• Thorough due diligence
• Reliable checks on parties involved in business transactions

Government Obligations

The Turkish government has introduced legislation on risk and compliance management in the public sector since the 2000s. Public administrations and state-owned enterprises are required to establish an internal control system that includes:

• Internal audit
• Risk management processes

Digital Transformation

While there are some differences between public and private sector risk and compliance management obligations, all entities and organizations are expected to comply with the law and implement best practices possible.

Note: The Turkish Criminal Code sets out specific crimes that can only be committed by government officials.