Withdrawal from Partnership Due To Just Cause

It is important to examine the “just cause” phenomenon separately for every individual case when analyzing withdrawal from partnership due to just cause. Such examination constitutes the content of this article alongside interim measures during the withdrawal from partnership process, the nature of the court judgment regarding withdrawal and the enforcement proceeding regarding the judgment.

Just Cause

It is possible for the partner of the company to file a lawsuit to leave the partnership, claiming that there are justified reasons for leaving the partnership or that the right to exit the partnership is given to them in the articles of association. This situation is stated in Article 638 of the Turkish Commercial Code (TTK), stating that “The articles of association may grant the shareholders the right to exit the company, and may bind the exercise of this right to certain conditions. Each partner can file a lawsuit to decide to leave the company in the presence of justified reasons. (…)”. In the practice of the Court of Cassation, the "just cause" phenomenon is mainly gathered around the facts that the company is managed badly and/or unlawfully, is inactive, the purpose of the partnership has disappeared, and the continuation of the partnership can no longer be expected from the person. In this sense, the Court of Cassation accepted the following claims of the plaintiff that money was transferred from the bank account of the company to the bank accounts of the defendant partners through unlawful documents and there was no payment plan for this, the profit distribution was made illegally and the defendant partners showed the company at a loss and transferred money to other affiliates. The Court of Cassation ruled that it could not be expected from the plaintiff partner to continue the partnership and that the plaintiff partner had the right to withdraw from the partnership[1]. In another decision, The Court of Appeals affirmed the decision of the first instance court that the partners of the company established in a marriage union could not come together and take a decision due to their divorce, and that the company's inactivity since the date of divorce was a just cause for leaving the partnership[2]. Moreover, the Court of Cassation accepted the withdrawing partner not being included in the activities of the company by the other partners, the general assembly decision being taken with a forged signature and the company being in debt due to fraudulent behavior as just cause[3]. Therefore, it is possible to say that, in addition to the fraudulent and/or unlawful acts of the defendant partners, the deterioration of the relationship and communication between the partners to an extent that it prevents decision-making is accepted as a criterion by the Court of Cassation.

Protection of the Withdrawing Partner

The withdrawing partner may request interim measures from the court to avert the possibility of reducing the assets of the company through transactions and transfers. This situation is expressed in article 638/2 of the TCC. According to the aforementioned article, “(…) the court may, upon request, decide to freeze some or all of the plaintiff's rights and debts arising from the partnership, or to take other measures in order to secure the plaintiff partner's situation during the lawsuit.” In this case, the withdrawing partner may request measures prohibiting such transfers pursuant to articles 389 et al. of the Code of Civil Procedure (HMK), titled "Interim Measures”[4]. The partner requesting measures is under the obligation to approximately prove the justification of his request in accordance with Article 390 of the HMK. In a decision of the 13th Civil Chamber of the Istanbul Court of Appeals, the court decided that the request for the appointment of a management trustee to the defendant company as an interim measure should be rejected because the approximate proof requirement was not met[5]. The court, from which the interim measures are requested, will decide by creating a balance of rights, taking into account not only the rights of the partner who wishes to leave the company, but also the issues necessary for the continuation of the company. Accordingly, it is also possible for the court to limit the interim measure to the extent of equity. Istanbul Court of Appeals explained this situation with the statements “(…) that while the situation of the plaintiff is secured, the operation of the company should also be allowed, and measures should be taken so that both the plaintiff, who is the partner of the company, and the defendant company, will not be harmed (…)”. Further on, the court decided that the grounds of appeal were not appropriate as  the company was a construction company, the constructions required high costs and the interim measures regarding some immovable were lifted by the court of first instance[6].Conclusively, the withdrawing partner may request, within the framework of 638/2 of the TCC, that transactions reducing assets of  the company and in return making the payment of withdrawal funds difficult be prohibited during the continuation of the lawsuit. It is also possible for the court to appoint a trustee to the company and make asset reduction transactions subject to the approval of the trustee[7].While deciding on an interim measure, the court also evaluates the company's field of activity and takes care not to interrupt the company's activities. In accordance with Article 397/2 of the HMK, unless otherwise stated, the interim measure is valid until the finalization of the decision. The 12th Civil Chamber of the Court of Cassation expressed the matter as “Pursuant to HMK's 397/2.; the effect of the interim measure will continue until the finalization of the decision, unless otherwise stated. In the given case, it is clear that the interim measure will continue to be valid until the finalization of the decision as the decision regarding the dismissal of the action of debt had not been finalized at the time of restraints. What should be understood from the expression "unless otherwise stated" in the article is that there must be nothing contrary regarding the interim measure in the provision clause of the court decision”[8]

Enforcement Proceedings Regarding the Decision on Withdrawal

Court decisions regarding withdrawal from partnership due to just cause are of a constructive nature. The court also determines the withdrawal fund of the partner who left the partnership as part of the decision on leaving the partnership. Since the decision to quit the partnership is of a constructive nature, it is possible for this decision to be executed only after it is finalized. Before the decision is finalized, the receivables for leaving money cannot be subject to execution with a verdict. Otherwise, the debtor has an indefinite right to complain in accordance with Article 16 of the Enforcement and Bankruptcy Law (İKK) due to violation of public order. In its decision numbered T. 03.03.2016, E. 2014/23274, K. 2016/3803 (unpublished), the Court of Cassation upheld the decision of the enforcement law court in this regard: “(…) The phrase "court decision" in the texts of the law means the finalized decision. In addition, it is necessary that decisions that need to be registered in any registry are absolutely final in order to be executed.”[9] Similarly, in another decision of the Court of Cassation, the court used the phrases “(…) it is understood that the debtors are limited liability companies, the decision is made to be removed from the partnership of the company and payment of withdrawal funds and the nature of the decision is that it creates changes in the records and registry. Therefore it can only be executed after finalization”.[10]

Conclusion

The first matter that the court will examine in the case of withdrawing from the partnership of the company with just cause is the phenomenon of "just cause". Issues such as "the company's constant loss, the inability to realize its establishment and purpose, serious disagreements between the partners, the partner's default in paying the remaining capital debt" was accepted as a just cause by the Court of Cassation[11].The court will initially examine whether the justified just cause occurred or not. The partner who wants to leave the partnership may request an interim measure to protect the company's assets by proving that the receivable of the withdrawal fund is in danger. However, in order for the receivable of withdrawal fund to be subject to a verdict of enforcement, the constructive decision regarding withdrawing the partnership must be finalized.

Aysu Sarı, Legal Intern

BIBLIOGRAPHY

 (1) 11th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2019/923 Decision No: 2020/3963 Date: 08.10.2020

(2) 11th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2016/2571 Decision No:  2017/5023 Date:  04.10.2017

(3) 11th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2013/11477 Decision No: 2014/1443 Date:   23.01.2014

(4) The Maturity and The Payment of Financial Settlement in Limited Liability Companies, Prof. Dr. Mustafa TOPALOĞLU and Dr. Öğr. Üy. Işık ÖZER

(5) 13th CIVIL CHAMBER OF THE ISTANBUL COURT OF APPEALS Docket No: 2018/256 Decision No:  /229 Date:   21.03.2018

(6) 12th CIVIL CHAMBER OF THE ISTANBUL COURT OF APPEALS Docket No: 2018/596 Decision No:  2018/876 Date:05.07.2018

(7) POROY, Reha / TEKİNALP, Ünal / ÇAMOĞLU, Ersin: Ortaklıklar Hukuku II, 13. Publication, İstanbul 2017

(8) 12th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No:  2016/18239 Decision No:  2017/11125 Date:  21.9.2017

(9) TOPALOĞLU, ÖZER, ibidem, p. 20

(10) 12th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No:  2019/10942 Decision No:  2020/5968 Date:   30.06.2020

(11) 11th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2014/18024 Decision No:   2015/12808