Annulment of The Provision On The Administrative Fine For Non-Compliance With The Notification Obligation Regarding The Transfer of Bearer Share Certificates
I. Introduction
Pursuant to the decision of the Constitutional Court of 18 January 2024, file no. 2021/28 and decision no. 2024/11, published in the Official Gazette of 3 April 2024, the administrative fine to be imposed for failure to comply with the obligation to notify the transfer of bearer share certificates was annulled on the grounds that the object of the offence and the penalty are not clearly defined in the law so as to leave no room for doubt.
II. Provision Subject to Annulment
According to the Article 562(13)(b) of the Turkish Commercial Code, an administrative fine of five thousand Turkish Liras shall be imposed on those who fails to submit a notification pursuant to the first paragraph of Article 489.
The first paragraph of Article 489 to which the rule refers is as follows:
Transfer of bearer share certificates
ARTICLE 489
(1) The transfer of bearer share certificates shall become effective as regards the company and third parties only upon the notification to be made to the Central Securities Depository by the transferee of the share by transferring the possession. In case no notification is made to the Central Securities Depository, the holders of bearer share certificates may not exercise their share-related rights arising from this Law until the necessary notification is made.
The aforementioned provision states that in order for the transfer of bearer share certificates to be effective for the company and third parties, the Central Securities Depository must be notified by the transferee of the share by transfer of possession. According to this provision, holders of bearer share certificates cannot exercise their rights arising under the Turkish Commercial Code against the company and third parties until the required notification is made to the Central Securities Depository.
III. Constitutional Court’s Assessment and Decision
In the lawsuit petition, it was claimed that an administrative fine was introduced for those who fails to make a notification pursuant to Article 489 of the Turkish Commercial Code, but the duration of the notification liability was not clearly stated in the provision, this caused uncertainty and thus leaving this matter to a secondary legislation was contrary to the principle of legality regulated under Article 38 of the Constitution.
According to the assessment of the Constitutional Court, it was emphasised that the prohibited acts as well as the penalties to be imposed for these prohibited acts should be clearly indicated in the law in a clear, understandable and limited manner that leaves no room for doubt, in accordance with the principle of legality, and it was concluded that the provision does not meet the requirement of legality, as there is no regulation regarding the period within which the notification should be made, both in the provision and in the article referred to. Therefore, Article 562(13)(b) of the Turkish Commercial Code, which provides for the imposition of an administrative fine, is annulled.
IV. Our Remarks
Article 489 of the Turkish Commercial Code was amended by the “Law on the Prevention of Financing the Proliferation of Weapons of Mass Destruction” numbered 7262. The purpose of this amendment was to introduce a notification requirement for the transfer of bearer share certificates, to affect the free transfer of shares in joint stock companies and the anonymity of the shareholder, and thus to prevent the transfer of assets derived from crime and the financing of terrorism through joint stock companies.
The first paragraph of Article 489 states that, in the event of failure to notify, the rights attached to the share may not be exercised until the required notification is made, and the second paragraph of the article states that the date of notification to the Central Securities Depository shall be taken as the basis for exercising the rights attached to the bearer share certificate against the company and third parties. Article 5 of the Communiqué on the Notification and Registration of Bearer Share Certificates with the Central Securities Depository stipulates that the notification must be made by the transferee of the share or by the company if the transferee applies to the company.
Therefore, the legal consequence of the transferee’s failure to make the notification or the company’s failure to make the notification is that the transferee may not exercise its rights against the company and third parties or, if the notification is made late, it may only assert the rights attached to the share from the date of notification. Recent court decisions have started to establish case law in this direction. For example, in an action to set aside a general meeting resolution, the plaintiff’s failure to make the required notification to the Central Securities Depository resulted in the dismissal of the action for lack of cause of action.
Since, according to the decision of the Constitutional Court, the act of failing to notify is also a punishable offence, it is important at this point to determine whether the regulation is in accordance with the principle of legality. As stated in the decision of the Constitutional Court, the legislator did not address the question of how long the offence of failing to notify the Central Securities Depository of the transfer of bearer share certificates is deemed to have been committed and did not include a provision to that effect in the law. Therefore, we believe that the annulment decision is well-founded and that this issue will be resolved by a new regulation in the Turkish Commercial Code.