Directory of Research and Expertise

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Research Summary and Profile

Research interests:

Law

Summary of research interests and expertise:

Social Sciences and Humanities

Project summary relevant to Fellowship:

 Directors’ Duties to Creditors in Insolvency – Wrongful Trading?  - Uk and Turkish Law Compared.  

In Turkish company law directors of a company owe their duties to the company and shareholders. This rule results in shareholders having derivative claims against directors if directors breach their fiduciary duties to their company. However, article 556 of the Turkish Commercial Code (TCC) inserted in 2011 when the TCC was amended, states that in the insolvency of a company creditors as well as shareholders can take actions against directors if they breach their duties to the company. There is not another relevant provision concerning how and when directors owe duties to creditors in Turkish law.  

Under the modern corporation theory directors owe their duties to the company embracing interests of all corporate constituencies. Yet since shareholders are the residual risk bearers, they have the right to take action against directors on a going concern basis. When insolvency occurs, creditors replace shareholders as the residual risk bearers and directors become personally accountable to creditors. Consistent with the modern corporation theory TCC regulates that directors are responsible to creditors when a company is in actual insolvency. Nevertheless, TCC does not include a specific wrongful trading type of duty of directors when a company moves towards insolvency.   

On the other hand, article 376 of the TCC implementing article 19 of the Second Company Law Directive1 in Turkish law that when a company has incurred a loss equal to one half of the share capital the board of directors must promptly call a shareholders’ meeting and advise the meeting its recovery plans and make the meeting to take necessary steps in case of further capital loss. Directors’ duty to call a shareholders’ meeting when the company’s assets are depleted is closely related to the continental legal capital regime aimed at protecting creditors’ interests governed by the Second Company Law Directive. Both directors’ duty to call a shareholders’ meeting when a company has lost its subscribed capital substantially and the British concept of wrongful trading serve the same function that directors must consider creditors’ interests when the company is in financial difficulties. Therefore, I intend in this research to examine, in the light of wrongful trading provision of the Insolvency Act 1986 of UK law, directors’ duty to call a shareholders’ meeting when the company is in financial distress in Turkish law. Then, depending on the conclusion, I will propose either to enhance directors’ duty to call a shareholders’ meeting when a company is in financial difficulties or directors’ duty of wrongful trading of the UK to be implemented into Turkish Law. The implementation of wrongful trading provision at EU level was advised by the European Commission’s High Level Group of Experts when the Group considered abandoning the legal capital regime for public limited companies in the EU in 2002.2 Although the High Level Group’s proposal was not adopted for public limited companies, growing criticism of the legal capital regime of Europe, which has already taken place may lead the wrongful trading provision to play a role to protect creditors’ interests at EU level and in Turkish law in the future. The research limits itself to civil remedy of directors’ duty and wrongful trading.  

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