Table of contents:
INTRODUCTION
Article 88, paragraph 20 of the Social Security and General Health Insurance Law No. 5510 (“Law No. 5510”) stipulates that “If the insurance premiums and other receivables of the Institution are not paid within the periods specified in this Law without a justifiable reason, public officials in charge of accrual and disbursement of public administrations, senior executives or officials of other employers with legal personality, including members of the board of directors of companies, and their legal representatives are jointly and severally liable to the Institution together with their employers.” There are some hesitations regarding the implementation of this provision in terms of the members of the board of directors of associations. There is an established jurisprudence of our Court of Cassation on the basis of the General Assembly of Civil Chambers and chambers regarding whether the provision covers all members of the board of directors of associations or the authorized representatives, the criteria taken as a basis for determining the liability, and the liability for the debts incurred in the period after the board membership ends.
In this article, we will first address the primary legislation on associations, and then examine the decisions of the General Assembly of the Court of Cassation and more recent chamber decisions.
A. PRIMARY LEGISLATION ON ASSOCIATIONS AND ASSOCIATION BOARD OF DIRECTORS
The legislation on associations mainly consists of the Turkish Civil Code No. 4721 (“TCC”) and the Law on Associations No. 5253 and its secondary legislation. Article 85 of the TCC sets forth the following regulation regarding the duties and representation authority of the board of directors:
“The board of directors is the executive and representative body of the association; it fulfills this duty in accordance with the law and the association’s bylaws.
The duty of representation may be assigned by the board of directors to one of the members or to a third party.”
In addition, the second paragraph of Article 58 of the TMK reads as follows:
“The name, purpose, sources of income, conditions of membership, organs and organization of the association and the temporary board of directors must be indicated in the association’s bylaws.”
Our associations foresee and organize in their bylaws the distribution of duties for the members of the board of directors in the form of chairman, vice-chairman, secretary, treasurer and so on.
B. DECISION REVIEWS
In its decision dated 18.02.2015 and numbered E. 2013/1475 K. 2015/831 (the “Decision”), the General Assembly of Civil Chambers of the Court of Cassation decided by assessing whether a member of the board of directors of a sports association has the authority to represent and bind on behalf of the association during the period in which the debt accrued, in order to determine whether the member is liable for the association’s insurance premium debt. The analysis of the decision is as follows:
1. Liability of the board member
1.1. The criteria to represent and bind and distribution of duties
The dispute subject to the Decision has been examined in terms of whether it is necessary to investigate the representation and binding authority of the member of the board of directors of the sports association during the period when the debt accrued, in order to determine their liability for the insurance premium debt.
The General Assembly of Civil Chambers of the Court of Cassation decided that:
“In this context, in order for the conditions of joint and several liability with the employer to occur in the period when the premium receivable accrues and must be paid; (…) in other workplaces with legal personality, the employer must be authorized to represent and bind the legal entity in the capacity of senior manager or official and legal representative.
(…)
In terms of the dispute at hand, within the scope of the legislation explained above, since it is understood that there should be a distribution of duties among the members of the board of directors; those who actively serve in the management, in other words, those who have the authority to represent and bind, will be jointly and severally liable with the association for the premium debt of the association, on the other hand, the fact that they do not have executive powers as well as representation and binding powers constitutes a ‘just cause’ for other members, therefore, it should be accepted that they are not jointly and severally liable for the premium debt accrued during the period when they do not have representation and binding powers.”
considering the authority to represent and bind, together with other executive powers, as an important criterion for taking an active role in the management, and the failure to take an active role as a just cause. In addition, the Decision examined the bylaws of the association subject to the dispute, and in particular, the powers of representation and binding authority and the persons with financial duties were taken into account.
1.2. Comparison between Law No. 506 and Law No. 5510
The General Assembly of Civil Chambers of the Court of Cassation reached the above conclusion by considering the twelfth paragraph of the abrogated Article 80 of the Law No. 506. The current equivalent of the aforementioned provision is found in the twentieth paragraph of Article 88 of the Law No. 5510. In the new provision, the just cause criterion has been kept and an addition has been made in terms of the members of the board of directors of the company with the phrase “senior managers or officials of other employers with legal personality, including the members of the board of directors of the company”. Therefore, the current validity of the above-mentioned Decision should be questioned.
However, the 10th Civil Chamber of the Court of Cassation dated 27.02.2023 and numbered E. 2022/13367 K. 2023/1708 decided regarding the added phrase that;
“…for associations, in the period when the premium receivable accrues and must be paid, in order for the condition of joint and several liability with the employer to occur, it is necessary to be in the status of ‘…senior manager or official authorized to represent and bind…’.
Article 88 of the Law No. 5510 states that ‘…senior executives or officials of other employers with legal personality, including members of the board of directors of companies, and their legal representatives…’ The provisions in the regulation holding the members of the board of directors directly liable are for the board members of companies and do not apply to the board members of the associations who do not have the authority to represent and bind.”
ruling that the aforementioned provision covers only the board members of companies and is not applicable to the board members of associations.
Similarly, in terms of powers of representation and binding, the 10th Civil Chamber of the Court of Cassation ruled;
- in its decision dated 16.11.2021 and numbered E. 2020/11563 K. 2021/14315, examining the power of representation in terms of the authority to deposit premiums, that “since it is not possible for the plaintiff, who does not have any representation and binding authority against the institution, to deposit the premiums, with the acceptance of the existence of just cause…”,
- in its decision dated 16.3.2023 and numbered E. 2023/1088 K. 2023/2643, that “with the acceptance of the lawsuit on the grounds that the plaintiff was not a ‘senior manager and official authorized to represent and bind’ in the sports club, which is a non-suit association, when they were a member of the board of directors…”
- in its decision dated 27.03.2023, E. 2023/1911 K. 2023/3194, that “the payment orders (…) were canceled separately, on the grounds that the plaintiff would not be liable due to the lack of authority to represent and bind the Association and that the payment orders sent to the plaintiff from the follow-up files should be canceled.”
2. Responsibility of the board member for the period after their resignation
Members of the board of directors are not liable for any debts arising in the period after their resignation or when they are not a full member. As a matter of fact, the Decision reads as follows;
“Regarding the accrual of premiums and late fees for the 7th and 8th months of 2004; (…) since the plaintiff was not a full member of the board of directors and his membership as a full member of the board of directors ended on 12.07.2004, he was not responsible for the premium and late fees receivable of the A…Professional Club for the 7th and 8th months of 2004…”
CONCLUSION
In order for the members of the board of directors to be held liable under Article 88 of the Law No. 5510, it is not sufficient to be a member of the board of directors alone, and especially the power of representation and binding authority and the duties assigned to them in accordance with the association’s bylaws (especially the duties related to financial affairs) should also be considered. The case law of the Court of Cassation is of the opinion that the absence of representation and binding authority and other executive duties constitutes a just cause in terms of Article 88 of Law No. 5510. Finally, the board member cannot be held liable for the debts arising during the period after the resignation.
