Access your pdf edition of LB magazine – Türkiye International Focus 2023/24

The road to recovery – how Türkiye’s law firms are pulling through

After February’s earthquakes and May’s elections last year, Turkish lawyers are seeing welcome signs of a return to relative stability

Mitigating the risks of the current economic climate

Oktay Şener of Aksan Law Firm examines how his team has reacted to the changing Turkish legal market

The increasing number of enforcement and bankruptcy cases in Türkiye in recent years

Using statistical data, Egemenoğlu Hukuk Bürosu reflects upon bankruptcy in Türkiye, and looks to the effective measures available for present businesses

Legal nature of representations and warranties in share transfer agreements

Evrim Uygur Yamaner and İrem Özbay of Gled Partners consider seller liability in providing representations and warranties when transferring shares

The licensing process in the Turkish electricity generation market

Dr Ata Torun of Hansu Attorney Partnership provides an overview of the procedure for gaining a licence to generate electricity in Türkiye

Artificial intelligence generated content and copyright, creativity and authorship issues

Gökçe Ergün, Çağla Yargıç and Yaren Türe of Kılınç Law & Consulting report on how Turkish law views AI-generated content in the context of authorship and copyright

Binding corporate rules for transfer of personal data abroad

Eren Can Ersoy of Kılınç Law & Consulting looks at the regulations associated with data protection

The fate of employment contracts in M&A transactions under Turkish law

M. Efser Karayel-Keßler of Matur & Ökten & Karayel Keßler explores the legislation affecting employment relationships when a company’s legal structure changes and where this means employees face unequal treatment

Criminal liability of company directors

Mustafa Tırtır and Muharrem Kazak of Mustafa Tırtır Law Firm set out recent Supreme Court case law on liability for crimes committed during company activity

Looking to the future

Mehmet Selim Yavuz and Murat Uyanık of Yavuz Uyanık Attorney Partnership discuss how the legal market has been affected by the country’s economic climate and their expectations for areas of growth

Ink to code: analysing electronic signature legitimacy in the EU and Turkish legislation

Turhan Mergen, Lalin Elkatip and Zehra Kıryolcu of Diri Sevi Mergen report on electronic signature legislation in Türkiye and its connections with the EU

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Following the devastating earthquakes that rocked Türkiye and Syria in February 2023, rescue, recovery and rehabilitation remain some of the dominant topics of conversation among the Turkish legal community.

The tragedy resulted in the deaths of more than 55,000 people across the two countries, with more than 17 million estimated to have been affected in some way. Inevitably this has meant that a large swathe of the legal fraternity has been directly impacted on a personal level, with many family and friends affected, but law firms have more than risen to the challenge and made themselves available to aid in the recovery.

As well as financial support, firms have offered up their services pro bono to help where possible. Paksoy corporate head Elvan Aziz outlines one specific instance in which she and her firm assisted a local school with getting education restarted following the death of its chairperson.

‘We helped [Turkish school] ATA Koleji with their dealings with the Ministry of Education and the Ministry of Associations, as well as convening the General Assembly, which was a real challenge. We had to locate board members throughout Türkiye – obviously some of them are very old, and some have suffered tremendous losses, so they were not feeling physically or mentally sound enough to continue their work.’

These types of sensitive matters are common to the pro bono efforts being handled by many law firms across Türkiye carrying the burden for organisations trying to get back on their feet. ‘We went to Ankara to meet with ministers, and found sponsors who are now helping with the rebuilding and getting education started again’, explains Aziz. ‘There were employment issues with their teaching staff, but we’re providing pro bono assistance and hopefully they will be on track to restart education soon.’

On a similar note, Tunç Fırat Dereli partner Zeynel Tunç, who was one of many lawyers to lose family and loved ones in the disaster, says that his firm’s team in Istanbul has taken an active role in coordinating relief works, while also putting together legal guides to ensure financial donations are being made effectively. ‘We published articles which shed light on legislative developments impacting earthquake survivors, as well as significant insights into evaluating the seismic resilience of buildings and numerous techniques for Turkish residents to test their properties,’ he explains. ‘The aim was to increase awareness and share information with a broad audience in the spirit of support and solidarity.’

A vote for more certainty

The narrow re-election of Recep Tayyip Erdoğan in May 2023 laid bare both the sharp divisions in Turkish society and the dire state of its economy, as the already weak Turkish Lira plummeted to another record low upon the market’s receipt of the result. Erdoğan’s unorthodox fiscal policies had, in the run-up to the election, only served to exacerbate the situation, so in June 2023 he made new appointments to the cabinet that appeared to signal a U-turn in his approach to remedying the situation. The respective appointments of Mehmet Şimşek to the post of leading the finance and treasury ministry, and of Hafize Gaye Erkan, a former Wall Street banker, as central bank chief, preceded the first interest rate hike in the country since 2021. Further measures outlined by the government included a measure limiting annual rent increases to a maximum of 25%, and a 34% increase in the country’s monthly minimum wage.

‘We’re looking at the decisions being taken by recent government appointments, and you can see a desire to return to the orthodox way of doing things that the whole world is more accustomed to seeing.’
Elvan Aziz, Paksoy

There is of course little chance that the election result will fully resolve the divisions in Turkish society, but a definitive result does bring with it a calming of economic waters, to an extent. On the market post-election, Aziz observes: ‘From a strictly business point of view, what I felt before the elections was that the uncertainty was a key element stopping business coming into Türkiye; particularly from an M&A perspective. What I know from having done this job for 25 years is that businesspeople like certainty – and the election result has given us a kind of certainty. We’re looking at the decisions being taken by recent government appointments, and the explanations being given out, and you can see a desire to return to the orthodox way of doing things that the whole world is more accustomed to seeing – rather than a “novelty” trial and error method that was being used previously. I think we’re seeing some positive results from that.’

This type of economic trend has also recently been seen in Latin America, where markets have looked favourably on countries where elections conclude with some semblance of stability, as opposed to those that are either in the throes of campaigns or that have resulted in unstable governments. However, opinion remains divided on Erdoğan’s staying power. Tunç says that the president’s victory was ‘received with mixed feelings due to initial uncertainty in the post-election economic policies and the team in charge of it’, but that ensuing appointments ‘created an optimism across local and international markets’, which has fed into positivity in the legal market.

Elaborating on her experience of the post-election legal landscape, Aziz notes a recent increase in transactional work. ‘There are of course some exits but there is slow growth that we hope will become more concrete,’ she explains. Foreign investors do appear to be receptive to the government’s change in tack, and so many forecasts for 2024 are now looking less gloomy.

City limits

As Aksan managing partner Oktay Şener notes, ‘developments in Istanbul have implications for the entire nation’. The city’s health can be seen as a barometer for that of the country, and, while other cities have their own sector focuses, the growth areas in Istanbul are also likely to be those that will dictate the national economy. The Turkish government sees the city’s future as the financial centre of the country, and indeed a financial hub in the wider international region. Green and sustainable financing has been a popular focus recently and is likely to become even more so, while the financial services sector is one of the central drivers of the city’s economy, with real estate assets being attractive targets for foreign investors – an ‘incredibly exciting aspect of Istanbul’, as Şener notes.

But while the prospects for growth are clear, notes of caution remain. Demir & Partners attorney Semih Yüksel is among the voices calling for ‘no more physical growth for Istanbul’, arguing that ‘this ancient city with a history of thousands of years can no longer bear this burden’.

Amid fears of another earthquake in Istanbul and the Marmara region, Yüksel expects the construction sector to be preoccupied by efforts to take precautions against such an eventuality, while Egemenoğlu Law Firm’s Dilek Gürsan notes the potential stresses on the sector in Istanbul, given that most of the construction companies are based there. According to Aziz, there has been ‘a lot of requests for proposals (RFPs), and some of the projects that were on hold are starting up again’.

Those recovery shoots may well also be nurtured within Istanbul’s lively startup landscape. M. Tarık Güleryüz of Güleryüz Partners Attorneys at Law has noted ‘a surge of startups in several sites in Istanbul, such as the Istanbul Technical University, Yıldız Technical University and more’. Such sites are able to offer relatively cheap workspaces that are attractive to software and technology-focused companies in particular. The energy sector is also attracting startup capital investment, especially in renewables. Güleryüz adds he has seen ‘an increase in foreign investment in Turkish firms, especially for tech startups such as mobile gaming companies, artificial intelligence startups and e-commerce platforms’.

Environmental, social and governance (ESG) topics are, in line with the rest of the world, also being seen as increasingly crucial to Turkish stakeholders. While the acronym continues to provoke debate over its legitimacy, major companies are unquestionably paying attention to this area, and many of the top players in Türkiye’s key industries are realising that their long-term financial performance will be tied to the integration of sustainability and ESG matters into business decision-making and operation processes.

In contrast, traditional banking and finance work has been less active. Speaking in late August 2023, Aziz described the market as ‘still a bit slow’, citing restrictions on banks and the devalued Lira as key factors. On a similar note, Tunç says the market ‘will take time to bounce back due to the lending narrow-down for the purposes of tackling inflation’, while citing restructuring and financing for energy, infrastructure and mining projects as areas for optimism.Türkiye’s renewable energy assets are also increasingly being seen as a target for foreign investors looking to diversify their portfolios.

Agreeing to disagree

It is unsurprising that the tough financial conditions of the past year have given rise to increasing volumes of dispute resolution work. Güleryüz notes ‘a steep increase in the number of arbitration files and cases filed both by and against our clients’, adding that ‘efficient and quick resolution of disputes becomes even more of a priority for businesses in such periods [of economic difficulty]’. Oğuz İsen of Isen & Kahveci Attorneys at Law reports increased contentious work in the construction, tourism, technology, and energy sectors, ‘including commercial lawsuits involving contractors, subcontractors, and associated service providers’.

As a means of dispute resolution, arbitration is becoming an increasingly common feature of larger commercial disputes, expanding out of its traditional realm of construction and projects disputes, while mediation is also on the rise. Gürsan comments that ‘due to the substantial and recently elevated costs associated with litigation, with the court system taking longer and longer to achieve results, there is an emerging trend to explore alternative dispute resolution methods’, adding that her firm’s bankruptcy and restructuring division has also been busy ‘as struggling businesses seek solutions to navigate the prevailing economic challenges’.

To support these trends, efforts have been made to combat criticisms of the Turkish court system, which is seen by many as slow and inefficient. On 1 September 2023, the country launched a new initiative whereby rental disputes will now be mandated for mediation. İsen feels confident that this will ‘undoubtedly benefit both our office and clients in handling rental issues more efficiently’, describing the initiative as ‘vital’ due to cases often being scheduled as much as 15 months after the submission of the initial lawsuit.

On the labour and employment front, a common trend has been the movement of operations from Russia and Ukraine to Türkiye. Lawyers practising in this area in Türkiye were already busy advising on job cuts and withdrawals from the country due to the economic conditions, but the arrival of operations transplanted from Russia and Ukraine added an inbound dynamic to the workload of the country’s top employment teams.

Türkiye’s energy sector has also been through a period of fluctuation. The combination of factors such as the pandemic, currency depreciation, and the worldwide energy issues resulting from the Ukraine conflict have meant that the domestic energy sector has suffered from a lack of investment. However, green shoots such as the increasing prominence of startups in the renewables space suggest that post-election, the sector may be due for a recovery. Tunç notes that energy law practices have been kept busy with the ‘massive amount of regulatory work due to storage-based licence applications with the regulator’. And continuing on an optimistic note, he asserts that ‘this new wave of licensing will turn into construction and project finance work for the market, once the permitting phases of these potential projects are gradually completed’.

On the insurance front, the sector has seen considerable change in terms of the resolution of conflicts within the industry. Prior to the economic crisis, it was common for insurers and reinsurers to settle issues without litigation; however, this has changed as economic conditions have worsened, and there is now much more contentious work, with the leisure and hospitality sectors among the most active.

The market make-up

Türkiye’s highly competitive law firm landscape remains a picture of contrasts, as the statistics from The Legal 500’s rankings demonstrate. The longstanding domestic full-service offerings such as Paksoy, BASEAK, Hergüner Bilgen Üçer Attorney Partnership and Moroğlu Arseven field strong and dedicated teams across the spectrum of the country’s most active practice areas. These firms compete with a selection of domestic firms that have partnerships with major international players, including Allen & Overy (partnered with Gedik & Eraksoy), Baker McKenzie (Esin Attorney Partnership) and White & Case (GKC Partners). Due to Turkish legislation regarding foreign firms operating in the country, these cannot be fully-fledged outposts of the international firms, and it is not difficult to be drawn into a lively debate about the success of these ventures compared with the domestic heavyweights. In the IP, media, tax, insurance, transport and competition markets there are also a number of prominent boutiques dedicated to their respective areas of expertise.

‘Stricter environmental laws may incentivise the adoption of renewable energy sources. This could involve subsidies, tax benefits, or mandates for certain industries to transition to cleaner energy sources.’
Dilek Gürsan, Egemenoğlu Law Firm

When considering M&A statistics, the fluctuations in deal values for both outbound and inbound investment demonstrate the extent to which Türkiye’s market is familiar with volatility. While the pandemic peaks and troughs are now in the rear view mirror, subsequent recovery has been stymied by economic policy failures and political uncertainty. Early anecdotal evidence points to post-election market growth, but the proof of the pudding will be in the coming year’s activity.

2023’s deal highlights reflect the diversity in the Turkish market that is likely to be a crucial factor in the country’s economic recovery. The energy and natural resources space remains a popular target, while the automotive industry has also seen a number of notable deals.

Economies of scale

As with the majority of businesses, law firms in Türkiye have faced considerable challenges as a result of the currency crash and unprecedented inflation. While businesses in Türkiye have become accustomed to some degree of rise and fall in their economic fortunes, domestic clients have had to reassess their expenses when it comes to legal advice, as well as in their own commercial activity.

Zahide Altunbaş Sancak and M. Tarık Güleryüz of Güleryüz Partners say these stresses have been keenly felt in the manufacturing sector: ‘The rising costs of raw materials and other production materials directly negatively affect these clients, and in turn, their first reflex is to reduce costs in third-party services they retain, including legal services.’ Such challenges have meant that Turkish law firms face a careful balancing act to acknowledge their clients’ pain points, while also ensuring their own accounts remain healthy.

In terms of workload, İsen outlines one route available to firms: ‘As we build our client portfolio, we’re steering clear of high workload, low-return projects,’ he explains. ‘Instead, we’re concentrating on more qualitative, project-based work.’ Gürsan says her firm is currently considering expanding into practice areas that are less affected by economic fluctuations, such as regulatory compliance.

From the client side, one option has been to invest overseas or explore the possibility of shifting some operations abroad. Sancak and Güleryüz say that they are increasingly fielding enquiries from Türkiye-based clients on ‘possible overseas business structures and overseas investments in an effort to ensure long-term financial stability through diversification’.

Laying down the law

On their clients’ primary concerns for this year, Turkish lawyers report a number of key issues. A 5% increase to the corporate tax rate, along with other extra tax burdens for corporates, has been a source of ongoing work for tax practices. Looking to the year ahead, Gürsan raises the prospect of ‘the implementation of more comprehensive and detailed regulations on carbon emissions, which would likely impact various industries’. Were businesses mandated to measure, report and reduce emissions in line with international commitments, firms would expect a flood of instructions on establishing emission reduction targets, and the implementation of more environmentally friendly technology.

Gürsan continues: ‘Stricter environmental laws may incentivise the adoption of renewable energy sources such as wind, solar, and hydroelectric power. This could involve subsidies, tax benefits, or mandates for certain industries to transition to cleaner energy sources.’ This area is already seeing attention from the Turkish government, with sustainable finance products becoming more popular. Incremental growth in terms of these deals is being forecast by firms at the forefront of transactional matters in the country. If markets improve earlier than expected, Tunç predicts ‘we may see the first wave of project financing of storage-based solar power plants at the end of the next year, thanks to their relatively short permitting process for their development’.

The competition law market in Türkiye is one of the busiest in the country, with many major domestic and international firms fielding specialist, experienced teams in the practice area. This lively legal landscape is born of a strict authority that has continued to up its volume of investigations, targeted either at individual businesses or across sectors. However, over the next year, competition and antitrust laws are expected to become an even bigger issue for companies doing business in Türkiye because, as İsen reports, legislative updates expected in the coming months could mean stricter rules for fast-growing e-commerce firms, which have until now been lightly regulated. Businesses have already been seeking advice on the new rules based on a draft law and existing EU regulations. Sancak and Güleryüz suggest the regulations’ impact ‘will be felt for years to come’.

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Oktay Şener, managing partner of Aksan Law Firm, examines how his team has reacted to the changing Turkish legal market

How are the recent economic problems, including the currency crash and inflation, affecting your firm?

Experiencing difficulties is quite normal in the current economic climate and unfortunately, we also witness the reflections of this issue among our clients. However, our country’s economic history and past have accustomed us to such ups and downs. At Aksan, in line with the precautions we have taken after Covid, we have been discussing, contemplating and implementing measures related to this situation for a while now.

What adjustments have you made in the current climate – fees, staffing levels etc?

We initially took steps to reduce expenses. Our office employs a comprehensive reporting system, allowing us to delve into the minutest cost details of every product we produce, which in our case translates to the services we provide, much like a factory. Naturally, the greatest cost of this service is the salary of our employees. However, we are well aware of the significance of working with the best attorneys to deliver quality service. To boost our employees’ motivation, we began to utilise our various programmes more effectively. We have initiated a Talent Pool project, which holds substantial importance for cultivating young managers.

Regarding the fees, we have devised solutions in tandem with our existing clients to balance mutual interests. We have shortened fee adjustment periods and placed this topic prominently in our new proposals. In essence, the attorney-client relationship is built on trust and just like any other relationship, it necessitates the satisfaction of both parties. I am pleased to note that during this challenging period, we have observed a client portfolio that understands one another. Looking ahead to the difficult years, this is incredibly promising from our perspective.

How can you and your clients mitigate the risks?

As I mentioned before, both our clients and we acknowledge that we are facing common economic risks, and we must find collaborative solutions. Our office culture positions us like an in-house attorney within our clients’ structure, so we are not only evaluating these risks from our own standpoint, but can see that our clients understand and feel this as well. With a diverse range of clients, each case requires individual assessment.

Both our firm and our clients can mitigate risks by fostering open communication and proactive legal planning. By staying informed about changing regulations and market conditions, we can identify potential challenges proactively and develop strategies to navigate them effectively.

‘By staying informed about changing regulations and market conditions, we can identify potential challenges proactively and develop strategies to navigate them effectively.’
Oktay Şener, Aksan Law Firm

What practice areas are busy, ie, the biggest areas for your firm, and why?

We are a full-service law firm, promising to provide the right solutions for any legal issue a client may encounter. In this sense, perhaps the most distinct feature that sets us apart from other law firms is our focus on general monthly consultancy services. This naturally encompasses corporate law, employment law and contract law services to a large extent. Additionally, we have witnessed remarkable growth in capital markets and startup legal consultancy, where we also stand out confidently in those areas.

We can confidently say that the partnership structure of our firm is unlike any other in our country. We have a highly dynamic and liberal approach. We believe in pecialisation and proficiency, but we also believe that it becomes sustainable when it develops organically.

The most important sectors for us can be identified as energy, construction, retail and food.

How much of your work is local versus international?

In this economic climate, we have come to understand and feel the importance of foreign investment even more. Both the geographical and political position of our country further emphasise the significance of international business.

In the past ten years, our primary focus has been on Asia-Pacific countries, which continues to this day. However, in the coming year and beyond, we will witness significant strides in the German market – that is what we are hoping and working for. We have declared 2023 to be Germany year at Aksan.

Currently, we can say that our clientele consists of 50% domestic and 50% international clients. There is increasing interest from Middle Eastern countries, and our relationship with English law firms has been growing stronger in recent times.

‘We hold a positive stance on AI, and with a dedicated team, we are actively exploring how we can enhance our services using AI.’
Oktay Şener, Aksan Law Firm

What changes do you expect once the effects of the economic challenges have passed?

When economic challenges decrease and the Turkish business landscape gains clearer visibility, we anticipate a rapid growth and an increase in business activities. This pattern has been also observed in the past. Türkiye is a significant and substantial country in the region.

As the economy stabilises, we also anticipate a rise in foreign investor interest. This, in turn, will bolster the legal services. Foreign investors seek ‘security’ in the country they invest in. This encompasses not only economic security but also ‘legal’ security, which is equally vital. We believe that attorneys and large firms should prioritise these aspects as key areas of focus.

Which sectors are growing in Istanbul and how is your firm positioning for an anticipated resurgence in activity within the region? How much more growth do you see happening in 2023 and 2024 for the city?

Istanbul is the economic hub of our country. Any developments in Istanbul have implications for the entire nation. In the coming years, we anticipate that Istanbul will accelerate its journey towards becoming the financial centre of the region. Of course, real estate is an incredibly exciting aspect of Istanbul. Despite the city’s expansion, it continues to offer a promising real estate market for both local and foreign investors. Additionally, the healthcare sector should be also mentioned. With its population size comparable to many European countries, the demand for healthcare services in Istanbul is considerably high and likely to continue for an extended period.

How much progression has been made in the country on the issues of diversity, sustainability and environmental, social and governance (ESG)?

This topic is indeed crucial. For all clients above a certain scale, our number one agenda item is ESG. We closely monitor developments in Europe and we believe there is tremendous potential in the ESG realm. We believe that the compliance policies of companies and their future positioning will progress in parallel with the importance they attribute to ESG. We anticipate the same trend for law firms as well. ESG is set to be the top subject for the next decade.

Which Turkish legislation in 2023/24 will affect your clients and drive advisory work?

There was a new draft amendment in progress concerning the KVKK (Personal Data Protection Law), which seems to have been postponed for a while due to the elections. However, we anticipate that in the coming years, changes in personal data protection legislation will generate significant attention. Moreover, we foresee the increasing importance of capital markets. Additionally, new regulations regarding investment incentive mechanisms will gain importance in line with the economic recovery.

Furthermore, we are keeping an eye on adapting legislation with the evolving technologies in the IT sector. Technological advancements in Blockchain and artificial intelligence (AI) will lead to substantial changes in the legal landscape. Law firms that lag behind in adopting AI might struggle to maintain their current positions. We hold a positive stance on AI, and with a dedicated team, we are actively exploring how we can enhance our services using AI. In fact, even during the process of conducting this interview, we incorporated AI into our editorial team. We are researching methods to further develop and utilise this application.

Where do you see the Turkish legal business market heading in 2024?

Looking ahead to 2024, we envision the Turkish legal business market will continue its path of growth and modernisation. With increasing globalisation and the country’s strategic geographic position, there are opportunities for expansion in areas such as cross-border trade, technology and innovation. Our firm remains committed to being at the forefront of these developments, providing exceptional legal services to our clients and contributing to the advancement of the legal industry in Türkiye. Furthermore, as foreign investor interest grows, it is only natural that foreign law firms’ interest will also increase in the legal business market. Therefore, forming a presence on the international stage is of paramount importance. For this reason, we aim to enhance our foreign collaborations. The Turkish legal community is more than capable of providing services at an international standard, and indeed, it already does. In fact, due to the increase in costs caused by global inflation, Turkish attorneys and law firms are likely to be preferred for certain aspects of international transactions. We believe it is important to be prepared for this development as well.

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Using statistical data, Egemenoğlu Hukuk Bürosu reflects upon bankruptcy in Türkiye, and looks to the effective measures available for present businesses

In recent years, the liquidity shortage in the markets, the unexpectedly high increase in raw material costs, the sudden fluctuations in exchange rates and the problems arising from the deterioration of the supply and demand balance have caused serious economic difficulties for citizens and companies in our country. As a result of this situation, many companies are struggling under the financial burden of debt. As a result of deteriorating cash flows and financial structures, companies are experiencing difficulty in paying their debts, and are subsequently encountering enforcement proceedings, and even the risk of bankruptcy. Recent negative progress in the economy has also led to an increase in the number of execution and bankruptcy files.

Number of enforcement and bankruptcy files exceeds 33 million

The Ministry of Justice’s data on execution and bankruptcy offices has once again revealed the effects of the deepening economic crisis in Türkiye. According to the compilations made from the data of the Ministry of Justice, in 2022 the number of files in execution and bankruptcy offices reached a total of 33,275,632, including the files carried over from previous years. The increase in the number of execution and bankruptcy files in the 2015-22 period was 27%.

With the Presidential Decree published in March 2020, within the scope of the measures taken to prevent the spread of the Covid-19 virus, all enforcement and bankruptcy proceedings, except for those for alimony receivables, were suspended. The prohibitions, which were extended for a while afterwards, were removed with the normalisation process. Except for the periods of pandemic restrictions and restrictions on execution transactions, there was a significant increase in the number of execution and bankruptcy files at the execution offices. With the removal of the prohibition of execution, the number of files started to escalate again.

In 2022, 9,046,245 new execution and bankruptcy files were filed. With the new files filed in 2022, the total number of execution and bankruptcy files in the offices exceeded 33 million.

The data on the number of files of execution and bankruptcy offices in Türkiye between 2015 and 2022 can be seen in Table 1.

The Ministry of Justice also shared the distribution of files in execution and bankruptcy offices according to geographical regions. The Marmara region ranked first with 14.66 million execution and bankruptcy files, while the number of files in the Aegean, Mediterranean and Central Anatolia regions were 3.69 million, 3.65 million and 4.98 million respectively.

Number of files by type

As of 2022, the total number of files carried over from the previous year was 24,229,387. In 2022, the number of new files filed was 9,046,245 and the number of files closed during the year was 8,281,024. As can be seen from this data, more new enforcement and bankruptcy files are filed every year than files closed, and the total number of pending files continues to increase rapidly. This is also the situation with regard to bankruptcy cases.

As can be seen from Table 2, the most important issue that distinguishes bankruptcy files from other types of proceedings is the average duration of bankruptcy proceedings. As of 2022, the average timespan of bankruptcy proceedings was 3,498 days, which is 4.70 times the duration of proceedings with judgment and 3.31 times the duration of proceedings without judgment. Therefore, there is a necessity for preventive legal arrangements by taking into account the differences in the quality of bankruptcy files.

In order to reduce the workload at the enforcement offices as well as to reduce the rapidly increasing number of files, legal arrangements have been made for the cancellation of debts arising from subscription agreements below a certain figure, as well as for the liquidation of public debts below a certain figure, etc, however, these arrangements will not make a sufficient difference to reduce the number of enforcement files. In addition to such regulations aiming to reduce the rapid increase in the number of execution and bankruptcy files periodically with temporary solutions, solutions that can permanently solve the problem should be considered.

Number of bankruptcy files by provinces as of the end of 2022

When the number of bankruptcy files by provinces in our country as of 2022 is observed, the direct proportion with population and trade capacity stands out. With a total of 1,599 bankruptcy files, Istanbul solely contains more than one third of all bankruptcy files in Türkiye. Istanbul is followed by Ankara with 569 files, Izmir with 233 files, Antalya with 164 files, Kocaeli with 139 files, Bursa with 129 files and Denizli with 113 files. Table 3 provides detailed information on the number of bankruptcy files for all provinces.

As can be seen in Table 4, although there are small changes in the number of bankruptcy files filed during the years between 2015 and 2022, the number of files carried over to the next year is constantly increasing. Considering the long liquidation period in bankruptcy cases and the low collection rate of receivables, creditors are largely unable to obtain their receivables in the case of bankruptcy. This situation may cause other economic problems like a domino effect.

Number of companies closed in the first half of 2023

According to the statistics of closed companies released by the Union of Chambers and Commodity Exchanges of Türkiye (TOBB) for June 2023, 1,938 more companies were closed in June and thus a total of 9,852 companies were closed in the first six months of the year.

Compared to the previous month, the number of closed companies decreased by 7%, the number of closed cooperatives by 1.4% and the number of closed real-person commercial enterprises by 12.8%. In June 2023, the number of closed companies and cooperatives decreased by 29.3% and 38.3%, respectively, while the number of closed real-person commercial enterprises increased by 29.5% compared to the same month of 2022.

In the first six months of 2023, compared to the first six months of 2022, the number of closed companies decreased by 4.7%, the number of closed cooperatives decreased by 7.9%, while the number of closed real-person commercial enterprises increased by 16.2%.

According to TOBB data, 634 of the companies and cooperatives closed in June were in the wholesale and retail trade and repair of motor vehicles and motorcycles sectors. 250 were in the manufacturing sector and 223 were in the construction sector. Among the real-person commercial enterprises closed this month, 1,107 were in the wholesale and retail trade and the repair of motor vehicles and motorcycles, 392 in construction and 278 in the manufacturing sector.

Increase in bankruptcy filings expected in Türkiye

According to the Global Insolvency Report of Allianz Trade, a trade receivables insurance company which provides another set of comprehensive data in addition to TOBB statistics, bankruptcies in Türkiye were expected to increase by 50% this year. According to the report, it was predicted that there would be an increase of 21% in bankruptcies worldwide in 2023 and 4% in 2024.

Allianz Trade’s Global Insolvency Report draws attention to the domino effect in bankruptcies:

• the number of bankruptcies for companies with revenues of more than €50m is currently slightly above pre-pandemic levels;
• the most affected sectors are construction, retail and services;
• low growth, pressure on profitability and strict financing conditions are testing the resilience of the most vulnerable companies; and
• among these companies, the sectors with the least pricing power are textiles, services, retail, transport, construction and consumer durables, which are wage-driven and most exposed to interest rate hikes.

On the other hand, the recent turbulence in the banking sector in Europe and the US raises the question of the impact of a possible liquidity crisis on bankruptcies. According to the predictions in the report, in the event of a financial crisis similar to that of 2008, the number of bankruptcies in the US and Western Europe could increase by 21,600 and 99,900 in 2023 and 2024. Even a liquidity crisis of the magnitude seen during the bursting of the tech bubble in the early 2000s, rather than a major financial crisis, would lead to 12,900 and 95,300 additional insolvencies in the same regions in 2023 and 2024. In the event of a credit freeze and no new loans, the number of bankruptcies in the US and Europe would increase by 10,700 and 46,300 respectively.

Is concordat the remedy for companies with financial problems?

The necessity for legal mechanisms to prevent the bankruptcy of companies whose financial structure and cash flows have deteriorated as a result of the current economic crisis and poor financial management has been increasing recently.

In the bankruptcy postponement system, which was previously included in our legal system as the last exit before the bankruptcy of companies with deteriorating financial structure, many problems existed such as the duration of the trial and implementation period, the inability of the court to fully supervise the companies in the bankruptcy postponement process, and the inability of the creditors to intervene in the operation.

Therefore, the Bankruptcy Postponement Provisions of the Enforcement and Bankruptcy Law (EBL) were repealed by Law No. 7101 on the Amendment of the Enforcement and Bankruptcy Law and Certain Laws published in the Official Gazette dated 15 March 2018. With this amendment, ‘postponement of bankruptcy’ was abolished and the ‘concordat’ system was introduced by expanding the scope.

The concordat, which comes to the agenda in times of economic distress, aims to enable a debtor to pay all its ordinary (not pledged or privileged) debts in line with this offer, provided that the payment offer made by a debtor to its creditors through the court is accepted by at least half of the creditors and approved by the Commercial Court.

‘By protecting companies from enforcement proceedings and subsequently from bankruptcy, the concordat could be used
more actively and efficiently to help the economy and employment rates to
progress within the framework of stability.’
Egemenoğlu Hukuk Bürosu

It is an important advantage for the debtor that the debt is postponed for a long period of time and then spread over favourable maturities and paid equally to all creditors. On the other hand, it is also an important advantage for the creditor that the firm is saved from bankruptcy and the debt can be paid.

Although the concordat process, which came to the agenda as a result of the negative effects of the Covid-19 pandemic in the economy after the high interest rate and exchange rate crisis in the 2018-22 period, decreased in use towards the end of 2022, it started to come to the agenda again due to the economic and financial problems experienced in the first six months of 2023.

In the context of the unfavourable view created by the unpayable and increasing debt burden arising as a result of the execution and bankruptcy files that continue to increase rapidly in our country in recent years, it should be taken into consideration that the aforementioned legal regulations, which are mostly focused on reducing the number of individual and low-amount files and consequently reducing the total number of execution files, are not beneficial for companies.

Since the concordat procedure is quite new and companies in the market are not well-informed about it, they do not apply for this procedure to the extent necessary for their needs. As a result, companies that do not enter the concordat process despite needing it are facing serious financial difficulties and may even go into bankruptcy. As a result of bankruptcy, while the commercial activities of these companies are over, their contribution to the economy and the employment they create are also terminated. This situation prevents the creditors from reaching their receivables to a considerable extent.

By protecting companies from enforcement proceedings and subsequently from bankruptcy, the concordat could be used more actively and efficiently to help the economy and employment rates to progress within the framework of stability. Companies whose cash flow and financial structure has deteriorated should definitely consider this solution to improve their financial situations, in order to not go into bankruptcy and to obtain the capacity to pay their debts.

As it is known, with Article 17 of the Law No. 7186 on Amendments to the Income Tax Law and Certain Laws published in the Repeated Official Gazette No. 30836 dated 19 July 2019, the financial restructuring opportunity was introduced in the Provisional Article 32 and added to the Banking Law No. 5411. This regulation was aimed to enable debtors in credit relations with banks, financial leasing companies, factoring companies and financing companies operating in Türkiye to fulfil their repayment obligations and continue to contribute to employment through measures to be taken within the scope of the framework agreement and contract regarding their credit debts with these institutions. However, the implementation of financial restructuring framework agreements under the Provisional Article 32 of the Banking Law No. 5411 expired on 15 July 2023.

At this stage, the concordat process is the most effective and pluralistic form of debt liquidation in our legal system, in which creditors have a direct say in the process, in terms of ensuring that honest and well-intentioned companies, whose economic situation has deteriorated to a considerable extent, can recover their economic situation, avoid the bankruptcy process and ensure that creditors can safely receive their receivables.

The post Sponsored briefing: The increasing number of enforcement and bankruptcy cases in Türkiye in recent years appeared first on Legal Business.

Evrim Uygur Yamaner and İrem Özbay of Gled Partners consider seller liability in providing representations and warranties when transferring shares

In merger and acquisition (M&A) share transfer agreements, it is common to include statements and representations assuring that there are no encumbrances on the shares and that the company was properly established, legally compliant and possesses required permits and licences.

However, the law lacks specific regulations on liability related to representations and warranties in share transfer agreements. Consequently, the Turkish Code of Obligations No. 6098 (TCO) provisions concerning a seller’s liability for fundamental defects are also applied to share transfer agreements. However, these statements’ applicability and scope in such agreements are debated. As a result, in practice, transferees may request separate representations and warranties from transferors on various matters¹.

In this article, the legal nature of representations and warranties included in share transfer agreements will be examined, and the legal liability of the share seller arising from these representations and warranties will be discussed.

General overview of share transfer transactions

The transfer of shares in a capital stock company involves the transfer of ownership rights in the company, rather than the transfer of the company’s operations or assets. In this regard, the legal nature of a share transfer is more akin to a transfer of rights rather than a transfer of property.

Necessary legal procedures for a share transfer vary depending on the type of the company, the type of shares, and whether the transfer of shares is restricted or not. In the case of shares of a privately held joint-stock company that are in bearer form, as per Article 489 of the Turkish Commercial Code No. 6102 (TCC), the transfer of shares will be effective through notification to the central securities depository by the recipient of the shares. If the shares are in registered form, the transfer process will be completed through endorsement and transfer of possession of the share certificate, in accordance with TCC Article 490.

Under the TCC, there is no requirement for a separate contractual agreement nor a separate binding agreement. It is sufficient to simply follow the transfer procedures prescribed by the law to effectuate the transfer of shares.

However, in practice, share transfer agreements are commonly used as binding agreements with the aim of transferring and acquiring the entirety of the economic rights and interests.

Representations and warranties in share transfer agreements

Legal nature of representations and warranties

In the case of contracts relating to the sale of shares that constitute binding agreements, there is no specific regulation in the TCC. Therefore, the seller’s liability arising from the share transfer agreement will be subject to the general provisions of the TCO.

Share transfer agreements focus on the sale of shares, yet buyers also wish to acquire the company’s operations. While the TCO’s general provisions for sales contracts apply, they are often seen as insufficient in this case. Consequently, these agreements usually contain detailed clauses related to representations and warranties and are particularly crucial in M&A.²

The list of representations and warranties varies depending on the nature of a company, but specific ones are found in most transfer agreements. In this context, first, representations and warranties relating to the joint-stock company whose shares are being transferred are included and the following may apply:

• information provided about the company is accurate;
• company has been legally established and exists in compliance with laws;
• it possesses the necessary permits and authorisations;
• it is not in a state of insolvency;
• there are no ongoing legal actions against the company;
• the balance sheet which will be prepared when the share transfer agreement is executed will comply with accounting principles and legal requirements;
• identification of the company’s shareholders and the characteristics of their shares;
• proper maintenance and storage of all accounting records, books and financial records in accordance with the law and regulations;
• allocation of necessary reserves;
• absence of any significant contracts entered into other than those known by the transferee;
• customary insurance coverages;
• existence of intellectual property rights as represented;
• non-violation of any third-party rights;
• proper declaration and payment of taxes;
• absence of any lawsuits or proceedings initiated against the company other than those disclosed to the transferee;
• absence of similar pending risks; and
• compliance with legal obligations related to employees.³

Regarding representations and warranties for company shares, they may include assurance of all shares issued and in circulation; fulfillment of capital contribution obligations; absence of authority to increase the company’s capital; absence of bonds issued; no purchase or pre-emption rights in articles or agreements; and seller’s ownership and transfer authority. Additionally, the seller often assures that the execution of the contract does not violate any other agreements or obligations the seller has entered into with third parties.⁴

Difference between qualification statements and guarantee commitment

In practice, there is debate about whether the provisions used under the title of representations and warranties fall within the scope of ‘quality notification’ under Article 219 of the TCC or ‘guarantee commitment’ according to the general provisions of the TCC. In legal doctrine, the fundamental reason for this debate is the use of the terms ‘representation’ and ‘warranty,’ influenced by the Anglo-American legal system.

We examine the differences in the table below. In summary, commitments within the seller’s control provided retrospectively (typically at contract signing) generally imply quality notices and result in defect warranties if breached Conversely, assuming risks unrelated to the company’s nature and condition at the time of damage (closing) indicates a guarantee contract.⁹

Scope of responsibility arising from declarations and warranties in share transfer

The need to include declarations and undertakings in share transfer agreements should be discussed. If the transfer does not change the partnership’s control, the transferor is responsible for share ownership rights and certificate validity unless explicitly stated¹⁰. If the transfer changes control, the transferor is accountable even without specific statements, and they are liable for substantial legal defects and asset deficiencies.¹¹

As the applicability of general defect liability provisions does hinge on the shift of control from the seller to the buyer, each specific case should be assessed, guided by definitions in the TCC, competition law and capital markets law.

How due diligence affects liability for defects

In corporate acquisitions, the buyer conducts a thorough examination, known as ‘due diligence,’ before signing the contract. This includes assessing various aspects of the target company, such as its incorporation documents, permits, intellectual property, assets, litigation and shares being sold. Due diligence arises from the buyer assuming risk and the Anglo-American legal system’s principle that the buyer must safeguard the acquisition’s potential consequences.

The buyer’s legal examination determines the seller’s liability for defects. According to Article 222 of the TCO, the seller is not responsible for defects that the buyer knows or should have known during the pre-agreement inspection, which includes obvious defects. However, hidden defects remain the seller’s liability. Article 222/2 of the TCO also excludes the buyer’s knowledge of defects when they fall within the scope of representations and warranties. (The seller is liable for defects that the buyer could find through proper inspection only if the seller has stated there are no such defects.)

Conclusion

In share transfer agreements, commonly encountered in M&A processes and not explicitly regulated by law, detailed lists of representations and warranties are typically included. This practice aims to facilitate the takeover of the target company’s operations alongside the share transfer. The legal nature of these representations and warranties is debated, with varying consequences and seller responsibilities depending on the distinction. Depending on the specific case, these provisions can be referred to as ‘quality statements’ or ‘warranty representations’. The seller’s liability depends on the legal nature of these provisions, and whether the share transfer changes control of the target company also factors into this responsibility. Therefore, it is crucial to align representations and warranties with identified risks and due diligence in these agreements.

The post Sponsored briefing: Legal nature of representations and warranties in share transfer agreements appeared first on Legal Business.

Dr Ata Torun of Hansu Attorney Partnership provides an overview of the procedure for gaining a licence to generate electricity in Türkiye

General overview of the Turkish electricity market

The energy sector in Türkiye continues to develop in accordance with decarbonisation objectives driven by national and international dynamics. In this context, the number of generation facilities based on renewable energy sources has increased significantly in recent years. Most recently, Türkiye’s National Energy Plan announced in 2023 aims to increase clean energy and energy efficiency within the scope of sustainability. In addition to the integration of renewable energy resources into the electricity system, investments in the energy sector have gained significant momentum with recent regulations on the storage of generated electricity.

The National Energy Plan and Roadmap of the Ministry of Energy and Natural Resources seeks to increase Türkiye’s installed electricity capacity by 189,700 MW by 2035. In this context, a significant increase in the share of energy generated from renewable energy sources is desired. By 2035, the ministry expects to have increased the installed capacity of solar power by 52,900 MW, wind power by 29,600 MW, hydroelectric power by 35,100 MW, and geothermal and biomass power by 5,100 MW. In the last 20 years, major initiatives and incentives have been launched for private companies to participate in the investment and operation process in the energy sector, aiming to attract private capital and international investors into the system. With the legal arrangements and decisive liberalisation steps taken in this direction, the Turkish electricity market has been transformed into today’s competitive model with multiple actors, attracting the attention of international investors.

The main regulation for the electricity sector in Türkiye is the Electricity Market Law No. 6446 (the Law). The purpose of the Law is to establish a financially strong, stable and transparent electricity market in a competitive environment in order to provide electricity to consumers in a sufficient, high-quality, continuous and environmentally compatible manner. In accordance with these objectives, a limited number of activities in the electricity market are subject to a licence. The conditions to be fulfilled by companies that may obtain a licence are specified in more detail in the Electricity Market License Regulation (the Regulation). In this context, the Energy Market Regulatory Authority (EMRA) is authorised to regulate, supervise and sanction activities in the electricity market in Türkiye. The duties and authorities of the EMRA include, for instance, the issuance and revocation of licences, the preparation and amendment of relevant regulations for the provision of high-quality, uninterrupted and continuous electricity generation services, and the supervision of market players.

The Law requires licences for electricity generation, transmission, distribution, wholesale or retail sale, import and export of electricity, and market operation activities.

Companies aiming to operate in the electricity market must apply for a separate licence for each activity and for each facility, in case such activities are to be carried out in more than one facility, before starting their activities.

In this context, generation licences must be obtained from the EMRA for electricity generation plants based on renewable energy resources with an installed capacity greater than 5 MW.

Accordingly, in order to engage in generation activities in the electricity market, first, an application needs to be submitted for a preliminary licence. If the applicant company fulfils its obligations during the preliminary licence period, it can then submit an application to obtain a generation licence.

Preliminary licence process in the electricity market

Preliminary licence application

Initially, preliminary licences are required for electricity generation activities. Companies applying for a generation licence are primarily granted temporary preliminary licences by the EMRA in order to obtain necessary permits, approvals and similar documents arising from the applicable regulations before starting the construction of the respective generation facility, and to obtain the right of ownership or the right of use of the site where the generation facility is to be established.

In this context, companies that apply for a preliminary licence are obliged to be established as a joint stock company or limited liability company in accordance with the provisions of the Turkish Commercial Code. If it is established as a joint stock company, all of its shares, except for those traded on the stock exchange in accordance with capital markets legislation, must be registered shares.

As part of a preliminary licence application, a bank letter of guarantee for the amount determined by the board for each installed capacity in MW, addressed to the authority, must be presented.

‘With legal arrangements and decisive liberalisation steps, the Turkish electricity market has been transformed into today’s competitive model with multiple actors, attracting the attention of international investors.’
Dr Ata Torun, Hansu Attorney Partnership

In addition, it is obligatory to submit the (amended) articles of association of the company, stating that the minimum capital of the company has been increased to 5% of the total investment amount foreseen by the EMRA for the generation facility.

The company is also required to submit a document showing that a preliminary licence fee has been deposited in the authority’s account. Only 10% of the preliminary licence fee shall be collected from legal entities applying for a licence to establish generation facilities based on domestic natural resources and renewable energy resources.

Furthermore, the applicant company must include certain provisions in its articles of association as follows:

• if the applicant is a joint stock company, a provision stipulating that its shares, other than those traded on the stock exchange according to capital markets legislation, are registered shares; and
• the specific provision stipulated in the Regulation that the shareholding structure of the company cannot be changed during the preliminary licence period.

In terms of resources based on wind or solar energy, if the site where the generation facility is to be established is the property of the applicant, it is requested to submit a certificate of ownership of the site.

The duration of the preliminary licence is determined by the EMRA, depending on the resource type and installed capacity of the generation facility project; this will not exceed 36 months except in cases of force majeure.

As a general rule, until the licence is obtained, the applicant is prohibited to change the shareholding structure of the pre-licensed company directly or indirectly, to transfer its shares or to carry out transactions that will result in the transfer of shares, except for the exceptions specified in the Regulation.

The applicants should submit the required documents specified in the ‘List of Information and Documents Required to be Submitted in the Preliminary License Application’ determined by the EMRA together with the preliminary license application petition. If there is any deficiency in the application, the applicant is given a period of 15 days to rectify.

The EMRA grants preliminary licences to companies that fulfil the conditions stipulated in the legislation. This decision is also published on the EMRA’s website.

Transactions to be completed within the preliminary licence period

Pursuant to Article 17 of the Regulation, the pre-licence holder company is obliged to fulfil the following issues within the pre-licence period in order to start the investment of the generation facility subject to the pre-licence:

• If the pre-licence holder is not the owner of the site where the generation facility is to be established, it is required to obtain the ownership or right of use of the respective site.
• It is mandatory to obtain the approval of the master and implementation zoning plan for the generation facility planned to be established.
• Project or final project approval required for the generation facility must be obtained.
• A connection agreement must be concluded with the Turkish Electricity Transmission Corporation (TEİAŞ) or the relevant distribution company for the generation facility.
• A technical interaction permit must be obtained for generation facilities subject to a preliminary licence based on wind energy.
• For applications based on wind, solar, hydraulic, geothermal, geothermal, biomass or domestic mines, the decision required under the Environmental Impact Assessment Regulation must be obtained.
• A building licence for the production facility is required.

In addition, it has been stipulated that the EMRA shall grant preliminary licences for the establishment of wind and/or solar power generation facilities to companies that undertake to set up electricity storage facilities, for wind/solar power generation up to the installed capacity of the electricity storage facility. In this way, it has become more attractive for investors that aim to invest in a storage facility to realise a wind or solar power generation facility with the same capacity as the storage facility.

Licence applications in the electricity market

Preliminary licence holders must apply for generation licence, provided that they complete their obligations under the relevant preliminary licence.

Having obtained the necessary permits and approvals within the preliminary licence period, the applicants must be granted a generation licence by the EMRA in order to commence the construction of the electricity generation facility. The licence is obtained for a minimum of ten years and a maximum of 49 years, depending on the nature of the activity.

The applicant of a generation licence is required to provide a guarantee in an amount determined by the board, provided that it does not exceed 10% of the total investment amount stipulated by the EMRA according to the nature and size of the generation facility to be established.

The evaluation by the EMRA regarding the licence application is to be completed within 45 days.

As a result of this evaluation, if the obligations stipulated within the scope of the preliminary licence have been successfully completed, preliminary licence holders are granted generation licences by a decision of the EMRA that includes the following issues:

• construction period and facility completion date, which is published on the website of the EMRA; and
• for generation licences based on renewable energy resources, the annual maximum production amount that the facility can produce with its current installed power according to its source is listed as the annual electrical energy production amount.

Conclusion

As a country rich in wind power and with high solar radiation rates, Türkiye will be a leading centre of attraction for investors in renewable energy in the coming years. It is important that international and local investors act meticulously in the process of obtaining electricity generation licences, both in the preparation of the preliminary licence application in accordance with the relevant legislation and in the fulfilment of the obligations stipulated during the preliminary licence period, since, as mentioned in detail, the preliminary licence process plays a significant role in the preparation of the legal infrastructure, planning, financing as well as operation of generation facility projects.

The post Sponsored briefing: The licensing process in the Turkish electricity generation market appeared first on Legal Business.

Gökçe Ergün, Çağla Yargıç and Yaren Türe of Kılınç Law & Consulting report on how Turkish law views AI-generated content in the context of authorship and copyright

Artificial intelligence (AI) tools that, in simple terms, bring algorithm-based machine learning to mind, have started generating unpredictable outputs, especially with the advancement of cutting-edge systems like generative AI contributing to technological advancement. AI can generate content across a wide spectrum, ranging from texts to images, music to videos.

However, the widespread production of content in this manner has raised issues related to intellectual property law. As a matter of fact, the convergency of the content obtained through AI into a novel nature raises questions about the concepts of the work of art and its authorship.

This article provides an evaluation within the scope of intellectual property law of content created with AI, discussing the concept of authorship and whether AI-generated content qualifies as a work. This article also examines the position of AI-generated content in relation to copyright and who may be liable in the event of copyright infringement.

Concept of authorship and evaluation of AI-generated content within the scope of copyright

With the rise of trends initiated by ChatGPT, the use of open-source generative AI applications by the public has made AI-generated content a part of everyday life. This situation brings together disputes regarding intellectual property rights and leads to many legal discussions ranging from copyright infringements caused by the data sets used by AI to the claims of third parties by AI users who claim copyright over the content they have produced.

‘According to the wording of Law No. 5846 on Intellectual and Artistic Works, in order for something to qualify as a work, it must bear the characteristics of its author.’
Gökçe Ergün, Çağla Yargıç and Yaren Türe, Kılınç Law & Consulting

The most recent and prominent dispute regarding the qualification of content generated by AI as a work is undoubtedly the Thaler v Perlmutter case. In 2018, Dr Stephen Thaler submitted an application to the United States Copyright Office (USCO) for a work titled ‘A Recent Entrance to Paradise’, which was generated through the AI system called the ‘Creativity Machine’. He argued that the rejection of this application for formal registration was unlawful. The objection was dismissed by the USCO on the grounds that the work was created without any creative contribution from a human actor and therefore could not bear the intellectual property characteristic of a human author. The claim was eventually brought before the district court, which upheld the USCO’s decision in August 2023. However, the judge noted the increasing lack of human creativity in the final work and emphasised the need to assess how much human intervention is required for an AI user to be considered the author.

Another important point about the case is that since Thaler applied for the work to be considered a ‘work-made-for-hire’, this aspect was also examined, and was ruled that the author must be a human being even in works created on order.

On the other hand, during the same period, Thaler submitted a patent application for an invention generated by AI to the United Kingdom Intellectual Property Office (UKIPO), asserting in this file that he owned any output produced by the AI system because he owned the ownership of the AI system to circumvent the requirements related to the application procedure. The court interpreted this matter as such a doctrine that has never been applied where a property generates intellectual property. This assessment indicates that intellectual property rights holders would not be considered as AI users in the Anglo-Saxon doctrine.

Under Turkish law, the concept of intellectual property includes rights and authority over literary and artistic works, as well as patents, utility models and designs. According to the definition provided in Article 1/B of Law No. 5846 on Intellectual and Artistic Works (LIAW), a work is defined as ‘all kinds of intellectual and artistic products that possess the characteristics of their creator and are classified as works of science and literature, music, fine arts, or cinema’. According to the wording of this law, in order for something to qualify as a work, it must bear the characteristics of its author. According to the doctrinal opinion, it is argued that an intellectual work with creative qualities and the reflections of the characteristics, creativity and style of the author’s idea can be specific to real persons and therefore, under the LIAW, works can only be created by real persons.

The 11th Civil Chamber of the Supreme Court’s decision dated 4 February 2015, numbered 2014/16277E., 2015/1285K., is similar to this view in doctrine, stating that;

‘The author of a work LIAW, in accordance with Articles 1 and 2/3, is the person who creates it. Since the plaintiff TSE is a legal entity established by Law No. 132 and has a legal personality, it cannot be said that the plaintiff, who does not have a creative activity, is the author of the work. The plaintiff TSE has the right to use the financial rights of the publications subject to the lawsuit under LIAW 10/last and/or Article 18, as a matter of law, but it cannot be said that it has moral rights ownership.’

The court ruled that the author must be a real person who can provide the creative activity.

Copyright concept in AI-generated works and liability in case of copyright infringement

Copyrights cover the legal rights of the products created by the intellectual labour of the person, and these rights are protected under LIAW and no registration is required in Turkish law for the copyright to arise. The rights to intellectual and artistic works arise with the production of the relevant work and since the protection of copyrights is considered within the scope of human rights, it is also protected by Article 27 of the Universal Declaration of Human Rights.

‘Turkish law does not provide for a copyright for autonomous AI products. While AI generates new content based on existing data, whether this content is completely original or not is a matter of debate in itself.’
Gökçe Ergün, Çağla Yargıç and Yaren Türe, Kılınç Law & Consulting

When the intersection of AI and copyright in Turkish law is examined, it should be noted that Turkish law does not provide for a copyright for autonomous AI products. While AI generates new content based on existing data, whether this content is completely original or not is a matter of debate in itself. Moreover, who will be held liable in a possible legal dispute that may arise is another matter of debate.

Indeed, due to the fact that the algorithms underlying AI rely on extensive datasets, it is also possible that the content they generate through processing these datasets may lead to the infringement of third-party copyright. In this respect, considering that AI lacks legal personality, it remains uncertain to whom claims arising from the infringement will be directed.

Conclusion

AI applications and their use for content production in everyday life have created various uncertainties in legal areas. These uncertainties encompass determining legal status, the concept of authorship, the applicability of copyright to AI-generated content, and what rights can be claimed in the context of current developments. These uncertainties are not limited to the ones mentioned.

Although there are differences in each country, under Turkish law it is not possible for a product generated by AI to be qualified as a work and to benefit from the rights and protections enjoyed by the products having the characteristics of a work within the scope of the LIAW in today’s legislation. On the other hand, the literature on the relationship between AI and intellectual property is becoming widespread on the global stage, both in case law and in the guidelines of institutions. Therefore, with the advancing technology, it will be inevitable that changes will occur in our legislation for the law to keep pace with the current technology.

The post Sponsored briefing: Artificial intelligence generated content and copyright, creativity and authorship issues appeared first on Legal Business.

Eren Can Ersoy of Kılınç Law & Consulting looks at the regulations associated with data protection

The irrepressible rapid development of technology and digitalisation around the world necessitates the processing and transfer of personal data. This evolution has a direct impact not just on individuals but also on the business world. The processing and transfer of personal data abroad necessitates the effective protection of data. Personal data processing and transfers overseas demand robust data protection. The transmission of personal data abroad is regulated by Law No. 6698 on the Protection of Personal Data (the Law), and the primary rule for data transfer abroad is to get the data subjects’ explicit consent. With the existence of one of the data processing conditions specified in the Law, and the recipient being located in one of the countries on the list of safe countries to be published by the Personal Data Protection Authority (the Authority), the data controllers in Türkiye and abroad can undertake adequate protection in writing and the Personal Data Protection Board (the Board) can gain permission as an exception to the rule of obtaining explicit consent.

This rule poses certain issues for multinational companies that operate on a global scale. Indeed, because the procedures and principles governing the processing of personal data differ from country to country, it is impossible for companies operating in more than one country to comply with the rules specified in each country’s legislation and to establish a common data processing and protection policy that will cover all rules. As a consequence, on 10 April 2020, the Authority adopted the Binding Corporate Rules (Binding Corporate Rules or Rules) as a new procedure to be applied to the transfer of personal data abroad by multinational companies operating on a global scale, in parallel with the regulations titled Binding Corporate Rules established by the European Commission Working Group 29 while the European Union’s Directive 95/46/EC (Directive) is the predecessor regulation.

Binding corporate rules

Binding corporate rules are applied with a written commitment of sufficient protection for the transfer of personal data abroad for multinational group companies operating in countries where binding corporate laws do not provide sufficient protection.

Through the announcement published by the Authority, the procedures and principles for the implementation of the Rules have been determined and it has been stated that the application can be made to the Authority by hand or by e-mail under the guidance of the ‘Binding Corporate Rules Application Form for Data Controllers’ and the ‘Auxiliary Document Regarding the Main Points to be Included in Binding Corporate Rules for Data Controllers’ (the Auxiliary Document). In this context, the application regarding the Rules will be evaluated, finalised, and announced within a year from the date of application. This period may be extended up to six months, if necessary. If the application is approved by the Authority, multinational group companies operating on a global scale will not be required to obtain explicit consent or submit a letter of undertaking for transfers between themselves.

‘Personal data processing and transfers overseas demand robust data protection.’
Eren Can Ersoy, Kılınç Law & Consulting

Definition of binding corporate rules within the scope of the auxiliary document regulated as ‘Personal data protection policies to be adhered to by a data controller within a group of undertakings established in Türkiye for transfers or a set of transfers of personal data to companies and enterprises operating abroad in one or more countries within the same group of companies and to data controllers that engage in a joint activity or have a joint decision making mechanism regarding data processing activities.’

Elements to be included in binding corporate rules

The elements that should be included in the Binding Corporate Rules are regulated within the scope of the Supplementary Document based on the regulations established by the Authority under Directive 95/46/EC of the European Parliament and of the Council of the European Union on the Protection of Individuals with Regard to the Processing and Free Movement of Personal Data.

During the period when the Directive was in force in the European Union, multinational companies operating on a global scale were obliged to fulfil the obligations arising from the legislation of more than one country at the same time when transferring data to group companies. Over time, it was observed that this obligation disrupted the business order of companies and delayed transactions, and the European Commission Working Group 29 determined the minimum requirements that data transfer policies should meet and named them ‘Binding Corporate Rules’.

This regulation, which is required in accordance with professional life requirements in European Union legislation, has also been recognised by the Authority, and an Auxiliary Document has been prepared in accordance with these regulations, as have regulations on the minimum elements that the rules should bear.

Pursuant to the Auxiliary Document, the elements to be included in the Binding Corporate Rules and the application to be made within this scope are as follows;

• Binding nature: Rules must be legally binding and contain a clear obligation for each participating member of the group including their employees to comply with the Rules. For each group member, the ability of the rules to be binding must be ensured by one or more legally valid and provable method. (To ensure that rules are binding on employees, one or more of the following methods can be used: employment contract, collective agreement, confidentiality agreement, codes of conduct, company policies, workplace internal regulations, etc). Rights of the data subject in respect to Rules must be clearly recognised, the headquarters of the group established in Türkiye, a group member established in Türkiye with delegated data protection responsibilities or the data controller that transfers data accepts liability for paying compensation and to remedy breaches of the Rules.
• Effectiveness: Within the scope of the rules, there should be appropriate training and awareness raising activities within the group, a complaint handling mechanism that can be applied by the persons concerned, an audit of compliance with the Rules, and a network of personnel in charge for the implementation of the Rules.
• Cooperation with the Authority: Rules shall contain a clear duty for all group members to accept to be audited by the Authority and to comply with the advice of the Authority on any issue related to those rules if needed.
• Processing and transfer of personal data: Rules should contain a general and territorial scope of the rules and a general description of the transfers, as well as information on an identified contact person of the group and the companies/entities bound by the rules, in order to enable the Authority to assess whether the transactions carried out in third countries are compatible.
• Mechanisms for reporting and recording changes: There should be obligations to report and record changes to the Rules and notification of such changes to the Authority.
• Data security: An explanation of the data protection principles, including transfers from or to Türkiye, transparency and disclosure obligations where national legislation prevents the group from complying with the rules, and regulations on the relationship between the rules and national legislation.
• Accountability: Members within the scope of the Rules are required to keep a written record of data processing activities in all categories, including electronic methods, and to submit it to the Authority upon request, to carry out the necessary analyses to identify the risks in data transfer, to consult the Board in cases of high risk, and to take appropriate technical and administrative measures for data protection.

In order for the application to be successful, it would be appropriate to make the application with the assistance of an expert, in addition to fulfilling all of the obligations.

Conclusion

The Authority has regulated the Binding Corporate Rules in light of global regulations, particularly those enacted by the European Union, in order to prevent and eliminate current and future problems encountered in the transfer of personal data abroad by group companies operating on a global scale as a result of developing technology and the use of the internet, which has eliminated borders, and this situation has a direct impact on both business and individual life. In this case, the application form must be completed and sent to the Authority in accordance with the Authority’s Auxiliary Document. In order for the application to be successful, it would be appropriate to make the application with the assistance of an expert, in addition to fulfilling all of the obligations.

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M. Efser Karayel-Keßler of Matur & Ökten & Karayel Keßler explores the legislation affecting employment relationships when a company’s legal structure changes and where this means employees face unequal treatment

Changes to the legal structure of companies regularly have an impact on employment relationships. These usually lead to changes in employment conditions, dismissals or early retirements , or cause a change in the identity or form of the employer. This particularly applies to asset deals, mergers, demergers and company-type changes.

Such big-scale transactions affect a large number of employment contracts, and accordingly a large number of employees. In contrast to investors, employees are not in a position to minimise their risks in various ways, such as holding shares in other companies. The financial situation of the new employer and its strategic plans play a very important role in the future of the employees. They are directly affected by the restructuring of their employer company and the measures taken within that scope.

‘The financial situation of the new employer and its strategic plans play a very important role in the future of the employees.’
M. Efser Karayel-Keßler, Matur & Ökten & Karayel Keßler

The transfer of employment relationships in the event of transfer of a business, wholly or partially, is regulated in general in Article 6 of the Turkish Labour Code (the TLC). According to Article 6/I of the TLC, if a business or part of a business is transferred to another entity through a legal transaction, the existing employment contracts shall pass to the transferee together with all rights and obligations on the date of transfer. This general provision does not grant employees the right to refuse the transfer of employment. Neither the transferor nor the transferee employer can terminate the employment contracts solely based on the transfer of the business, as the transfer itself does not constitute a rightful reason for termination (see Article 6/V of the TLC).

Article 6/II of the TLC stipulates that the transferee is obliged to act according to the date of the employee’s first commencement of work for the transferor employer, when determining the employee’s rights that are based on the length of service. According to the following paragraph (Article 6/III), the transferee and transferor employers shall jointly and severally be liable for any claims by employees arising from the employment contract for two years starting from the date of transfer. This means that if the employee cannot receive his/her receivables from the transferor employer within two years, (s)he will no longer be able to claim rights from the transferor employer. However, since there is a ‘joint responsibility’, the employee will still be able to demand the receivables from the transferee employer after this two-year period.

On the other hand, Turkish legislators established special regulations in the Turkish Commercial Code (TCC) in 2012, regarding the fate of employment relationships in the events of mergers, demergers and company-type changes. Articles 158/IV, 178 and 190 of the TCC constitute special provisions in comparison to the above-explained Article 6 of the TLC. The said TCC provisions exclude the application of Article 6 of the TLC in the case of mergers, demergers and type changes. Legal certainty and transparency as well as the protection of employees are better guaranteed under the TCC provisions.

Article 178 of the TCC determines the fate of employment relationships in the context of demergers, while Articles 158/IV and 190 of the TCC make a reference to the application of Article 178 in the case of merger and type-change transactions.

When we compare Article 6 of the TLC to Article 178 of the TCC, common points in both provisions are:

• the employment contracts in the transferred business pass to the transferee automatically, together with all rights and obligations as required by law; the transferee employer has no right to avoid taking over the labour relations; and
• the transferor and the transferee are jointly liable for the receivables that the employees are entitled to under both provisions.

Aside from these, there are many fundamental differences between Article 178 of the TCC and Article 6 of the TLC, as below:

• In contrast to Article 6 of the TLC, which stipulates that the transfer does not constitute a ground for rightful termination for the employee, Article 178/I of the TCC grants employees the right to reject the transfer of the employment relationship. If the employee makes use of such right of refusal, the employment relationship ends in accordance with Article 178/II on expiry of the statutory notice period. Until then, the transferee and the employee are bound by the employment contract and obliged to perform their obligations thereunder.
  It is worth mentioning that while the employees of the transferor can reject the transfer of the employment relationship, the employees of the transferee have no right of refusal, as their employment relationships have not transferred, although their working conditions may also be affected by the transaction.
• In addition, Article 178/V of the TCC grants the employee an additional right to security for his/her claims arising from the employment contract, whereas Article 6 of the TLC does not cover this right. The explanatory memorandum of the TCC points out that the provision of Article 333 of the Swiss Code of Obligations served as a model when drafting Article 178 of the TCC. There is no equivalent to this provision in Article 6 of the TLC.
• Pursuant to Article 178/IV of the TCC, the employer cannot transfer the rights arising from an employment relationship to a third party, unless otherwise agreed or dictated by the circumstances. According to this provision, the transferor and the transferee are jointly and severally liable for the employee’s claims, which became due prior to the transfer or which fell due between that juncture and the date on which the employment relationship could normally be terminated or was terminated following the refusal of transfer.

‘An analogous application of Article 178 of the TCC to asset deals is strictly rejected in the legal doctrine, although it contains more favourable conditions for the employee than Article 6 of the TLC.’
M. Efser Karayel-Keßler, Matur & Ökten & Karayel Keßler

On the other side, an analogous application of Article 178 of the TCC to asset deals, which are transfers in the form of ‘transfer of the assets of commercial enterprise’, is strictly rejected in the legal doctrine, although it contains more favourable conditions for the employee (such as the right to reject) than Article 6 of the TLC. De lege lata, when a commercial enterprise is purchased in this form in Türkiye, all employment contracts belonging to that enterprise are automatically transferred to the purchaser by law in accordance with Article 6 of the TLC. In this case, the employees have no right of refusal and the transfer of business in itself does not entitle the employee to terminate the employment relationship. The transferor and the transferee are jointly and severally liable for any claims of the employee which became due prior to the transfer, provided the responsibility of the transferor is limited to two years from the date of transfer.

Article 11/III of the TCC states that in the case of a purchase of a commercial business via a ‘transfer of the assets of commercial enterprise’, the written transfer agreement does not have to contain a list of employment contracts. If a merchant owns several commercial entities, it can therefore be much more difficult in such an asset deal to determine which employee is staffed under which business, especially if the employee has worked for the employer’s commercial entities equally due to his/her position. In order to avoid ambiguities and potential conflicts between parties, it is advisable to draw up a list of employment relationships taken over in the transfer agreement.

It is important to note that, regardless of the transaction type, companies or legal entities involved in the process are obliged to inform their employees about any transaction that may have any kind of effect on the employees.

As a result, it can be said that the Turkish legislators are determined to improve the rights of employees in mergers, demergers and restructurings, however failed to do so for transfers in the form of ‘transfer of the assets of commercial enterprise’ and thus caused unequal treatment of employees. It is not clear why the Turkish legislators wanted to treat employees differently in this manner. This unequal treatment of employees in various M&A transactions must be eliminated through comprehensive new legal arrangements.

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Mustafa Tırtır and Muharrem Kazak of Mustafa Tırtır Law Firm set out recent Supreme Court case law on liability for crimes committed during company activity

In the event of a criminal offence during the activities of a company, legal entities are not subject to criminal sanctions. Natural persons authorised to represent and bind the company are held criminally liable.

Therefore, in the case of crimes committed during the activities of companies, only the natural persons who commit or participate in the commission of these acts will be punished, not the companies. The important issue here is which natural person will be criminally liable for these criminal acts.

Pursuant to Article 20 of the Turkish Criminal Code (TCC) titled ‘Individuality of criminal responsibility’ and Article 38 of the Constitution, only company executives who have a role in the commission of the acts subject to the crime will be criminally liable. In other words, it is not possible to talk about the criminal liability of these persons just because they are shareholders of the company or just because they are on the board of directors, or even because they are the chair of the board of directors. This is also the established case law of the Supreme Court:

Determining who is at fault

The Supreme Court makes it clear that merely being a company partner is not sufficient for criminal liability. In a decision of the 12th Criminal Chamber of the Supreme Court, it is stated that it is necessary to determine which defendant is at fault and on what grounds. The text of the decision is given below (emphasis added):

‘The defendants are company partners, in the company that operates as a family business, the father of the other defendants is the company manager, the other defendant deals with the external affairs and accounting of the company, the defendants are partners and responsible managers of the limited liability company, taking into account that being only a company partner is not sufficient for criminal liability, it is imperative to determine which defendant is defective on what grounds and to determine and appreciate the legal status of the defendants according to the result.’¹

More than one legal representative

The Supreme Court has stated that if there is more than one legal representative of the company, the criminal responsibility belongs to the representative who knows the details of the offence and has a role in its occurrence, rather than the formal representative of the company.

‘In transactions carried out without the knowledge of the company executives, the persons who personally carry out the act will be liable.’
Mustafa Tırtır and Muharrem Kazak, Mustafa Tırtır Law Firm

The relevant decision of the 19th Criminal Chamber of the Supreme Court states (emphasis added):

‘When legal entities have more than one legal representative if the crime was not committed in the unity of action and opinion, the responsibility belongs to the representative who knows the details of the crime and has a role in its formation, rather than the form of the crime, taking into account the weight and limits in the division of the power of representation, depending on the principle of the individuality of punishment… But in any case, the validity of the defense and fact that the legal representatives did not know the acts of the personnel at the time of their commission should be evaluated and a conclusion should be reached by taking into account factors such as the legal entity’s field of activity in terms of business and location, communication density and possibilities, form and structure of organisation, size, scale, number of personnel distribution of duties, business volume and capacity, possibility of acting independently, financial structure, assets, safe and bank deposits, nature and subject of the act.’²

In a decision of the 15th Criminal Chamber of the Supreme Court, it is stated that the fact that the person is the chair of the board of directors of the company does not in itself mean that he/she participates in the crime (emphasis added):

‘In the event that the legal entity has more than one representative, the criminal responsibility will belong to the legal representative who knows the details of the crime and has a role in its occurrence, not the person responsible for the form of the crime, taking into account the weight and limits in the division of representation authority depending on the principle of the individuality of the punishment, and the fact that the defendant is the chairman of the board of directors of the company does not constitute evidence of participation in the crime in itself…’³

Likewise, in a decision of the 11th Criminal Chamber of the Supreme Court, it was held (emphasis added):

‘… criminal responsibility is personal, the fact that the defendant is one of the site managers does not indicate that he is criminally responsible for the crime committed, and it is necessary to clearly determine who is the person who committed the crime of breaking the seal…’⁴

Actions without company’s knowledge

The Supreme Court has stated that in transactions carried out without the knowledge, instruction and order of the company executives, the persons who personally carry out the act will be liable instead of the company representatives. According to the Court of Cassation, Article 20 of the Turkish Criminal Code states that company representatives, who are formally responsible for the offence, cannot be the perpetrators.

‘While determining the criminal liability of company executives, the company’s articles of association and decisions regarding the division of labour should be examined.’ Mustafa Tırtır and Muharrem Kazak, Mustafa Tırtır Law Firm

The aforementioned decision of the 11th Criminal Chamber of the Court of Cassation states (emphasis added):

‘Managers and legal representatives of legal entities and taxpayers or responsible persons may be the perpetrators of the crime of issuing false documents regulated in Article 359 of the Tax Procedure Code, as well as any third party may commit and participate in this crime. As a rule, in real person taxpayers, although the criminal responsibility belongs to the taxpayer who realised the tax-generating event, in some cases, tax responsibility and criminal responsibility may not overlap, in this case, in accordance with the principle of individuality of penalties, the addressee of the penalty should be the perpetrator who committed the crime. Likewise, since the persons who perform the action without the knowledge, instruction, and order of the representative (personnel, accountant) will also be responsible for the action committed, in accordance with the principle of individuality of penalties, the real perpetrators who organise the forged document should be investigated rather than the person responsible for the crime.’⁵

Duties and responsibilities

The Supreme Court states that while determining the criminal liability of company executives, the company’s articles of association and decisions regarding the division of labour should be examined and the duties and responsibilities in the company on the date of the incident should be determined. The decision of the 11th Criminal Chamber of the Supreme Court is given below (emphasis added):

‘… the liability of legal entities in terms of tax laws is regulated in Articles 10 and 333 of the Tax Procedure Code no. 213 and it is stipulated that the penalties stipulated in Articles 359 and 360 of the same Code shall be imposed on those who commit these acts and if legal entities have more than one legal representative and the crime is not committed in unity of action and opinion, the responsibility shall belong to the representative who knows the details and has a role in its formation, not to the formal responsible of the crime according to the weight and limits in the division of representation authority depending on the principle of the individuality of the punishment, the company’s articles of association and decisions regarding the division of labour, if any, should be brought and the duties and responsibilities of the defendant in the company on the date of the incident should be determined; the taxpayers who issued the invoices subject to the offense should be heard as witnesses, on the basis of which legal relationship they gave the said invoices to whom, whether they know the defendant according to the result.’⁶

‘Only the partner or manager who knows the details of the act and has a role in its formation can be held criminally liable.’ Mustafa Tırtır and Muharrem Kazak, Mustafa Tırtır Law Firm

In a similar decision of the Supreme Court, it was stated that it should be investigated whether the defendants, who do not have any titles other than being the chair of the board of directors and a member of the board of directors, were actually responsible for the production and, if any, the production manager, responsible manager and workshop chief of the factory should be determined. In the relevant decision, the 12th Criminal Chamber of the Supreme Court stated (emphasis added):

‘In the incident that took place in the metal factory in the Organised Industrial Zone where 270 workers worked, the victim [who was an] experienced worker, while putting sheet metal with his hand on the press machine, which did not have two-hand control but only worked with a foot pedal, absentmindedly touched the pedal with his foot and the press head descended and cut his two fingers. In the expert report prepared as a result of the discovery, attributing all the fault to the legal entity without specifying how the fault is attributed to the defendants concretely, without investigating whether the defendants, who do not have any title other than being the Chairman and member of the Board of Directors, are actually responsible for the production, and without determining the production manager, responsible manager, workshop chief of the factory, if any, and without determining the production manager, responsible manager, workshop chief of the factory, to establish a judgement contrary to the principle of individuality of penalties based on an inadequate expert report.’⁷

In another decision of the 12th Criminal Chamber of the Supreme Court, it was stated that the defendant, who had shares in the company due to the fact that it was a family business and who was officially the vice chair of the board of directors but was in charge of the intermediate services of the company, could not be held criminally responsible. The aforementioned Supreme Court ruling is given below (emphasis added):

‘At the end of the trial, a lawsuit was filed against MST, the chairman of the board of directors of the aforementioned company, on the charge of negligent homicide, and at the end of the trial, in the committee report prepared by three occupational safety experts, it was stated that there was no risk analysis in terms of preventing occupational accidents and that the employees were not trained against risks and dangers. With the statement that MST, the chairman of the board of directors of the company, and ST, the vice chairman of the board of directors, were primarily at fault in the incident by leaving the supervision of the work in the field to incompetent persons, MST was convicted of the crime, and a criminal complaint was filed against ST with the decision to the Public Prosecutor’s Office, and a lawsuit was filed against the defendant for negligent homicide by the Konya Public Prosecutor’s Office; the defendant declared that he had shares in the aforementioned company due to the fact that it was a family company, that he was officially the vice chairman of the board of directors on the date of the incident, that he was in charge of the intermediate services of the company… the defendant, who does not have any duty and authority other than being the vice chairman of the board of directors, cannot be held liable.’⁸

Pursuant to the above-mentioned Supreme Court decisions, Article 38 of the Turkish Constitution and the principle of individuality of penalties regulated in Article 20 of the TCC, only the partner or manager who knows the details of the act and has a role in its formation can be held criminally liable, not all of the legal representatives. The criminal liability of the members of the board of directors and even the chairman of the board of directors, who did not actually participate in the acts subject to the crime, did not know the details of the acts and did not play a role in their formation, will not arise. In some cases, the Supreme Court states that the person who directly commits the act will be criminally liable for the acts and transactions carried out without the knowledge and approval of the board of directors. In this scenario, the Supreme Court stated that persons who are not involved in the management of the company may also be prosecuted. To summarise, it should be noted that the Supreme Court strictly applies the principle of individuality of punishment in cases requiring criminal proceedings related to companies.

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