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Audit

Dr. S.Anlam Altay(LL.M, University of Galatasaray, Faculty of Law)

Dr. Serap Amasya (LL.M, University of Galatasaray, Faculty of Law)

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As you might recall, 12 months back, as Deloitte Turkey,we have published 3 seperate studies with regards to thenew Draft Turkish Commercial Code.

Our expectations by then was this law to be levied latestby December 2006.

3 books which were released:• Turkish Commercial Code and it’s impact on SMEs• Turkish Commercial Code and it’s impact on Holdings,and• Turkish Commercial Code and it’s impact on jointstock companies.

Since last autumn, following the election of the newGovernment, commissions in the Parlement expeditedtheir studies on the draft law with the intention to passit to the Parlement for voting.

Today, on Deloitte Turkey, we decided to issue this studywith all changes that have been made during differentcommissional studies. And we also added transportationand maritime as well as insurance law rules to the studiesafter we have received intense positive feedbacks to ourprevious studies.

I would like to extend our sincere appriciations to Yrd.Doç. Dr. Serap Amasya and Dr. Anlam Altay for theircontribution and support.

Best regards,

Ömer TanrıöverSorumlu OrtakDenetim

Draft of the new Turkish Commercial Code (hereinafter“TCCD”), consists of six main chapters: Enterprise Law,Company Law, Securities Law, Transportation Law,Maritime Commercial Law and Insurance Law. Comparedwith current TCC, TCCD treats Transportation Law with aseparate chapter. Reviewing the characteristics of eachchapter, it is very evident, that TCCD challenges to put acomprehensive law reform into practice. Consideringthat TCC, enforced fifty years ago, has been formulatedtaking into account the modern developments inGerman and Swiss law, has not been mainly reformedwithin fifty years, despite many developments inEuropean Law. As a consequence of this, Turkish Ministryof Justice has formed a commission for the preparationof a new TCC Draft. This commission, consisting ofacademics, judges, attorneys, bureaucrats and experts,has carried out a in depth research on the EuropeanEconomic Law doctrine and jurisprudence. In thisresearch, solely main characteristics of the new legalregime shall be reviewed in brief.

New Company Law involves a comprehensive reform byTCCD. First of all, the first subchapter refers to generalprinciples and certain institutions, such as therestructuring of the company and group of companies.Particularly, joint stock companies face a broad new legalregime, which implements modern rules of CompanyLaw and which regulates certain new legal institutions.On the other hand, the equity character of limitedliability companies is reinforced thoroughly.

In addition, Transportation and Maritime Law rules havebeen reformed in line with international agreementsrelating to these disciplines. Particularly, the chapter ofInsurance Law has been revised taking into account theactual problems of Turkish insurance sector and newdevelopments as well as new institutions of ModernInsurance Law. In this framework, each chapter of TCCDhas been demonstrated with its main characteristicsbelow. Regarding the scope and the concept of thisresearch, each chapter may not be analyzed by all of thelegal problems and institutions of the related chapterbut a general view and a focus on new institutions hasbeen aimed.

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I. Enterprise Law 1A. New Accounting Principles and Commercial BooksB. Commercial RegisteryC. Business NameD. Unfair CompetitionE. Agency Contract

II. Company Law 3A. General AspectsB. Reforms on Joint Stock Companies

- Division Of Powers Between Bod and General Assembly- General Assembly: A Shareholder-Oriented Perspective- Quorums in Respect with The Statutory Amendments (Art. 421 TCCD)- TCCD In The Light Of Corporate Governance Principles - Challenges For Auditing Companies- Shareholder Rights As The Central Point Of TCCD- Structural Changes Proposed For Joint Stock Companies - Mergers- Scissions- Fundamental Changes Referring the Capital Augmentation

of Joint Stock Corporations- Termination of the Corporation and Dissolution on Fair Grounds

C. Limited Liability Companies

III. Securities Law 12

IV. Transportation Law 12First Chapter: General PrinciplesSecond Chapter: Carriage of GoodsThird Chapter: Carriage of Relocation Goods Fourth Chapter: Multimodal TransportationFifth Chapter: Transportation of PassengersSixth Chapter: Freight Forwarding

V. Maritime Commercial Law 16First Chapter: The Ship Second Chapter: The Shipowner or Affreightment ConsortiumFourth Chapter: Maritime Commercial AgreementsFifth Chapter: Sea AccidentsSixth Chapter: Liens on the ShipSeventh Chapter: Restriction of the Liability and the Compensation of the Damages Arising from Oil PollutionEighth Chapter: Special Rules Referring Legal Executions

VI. Insurance Law 20TerminologyFirst Chapter: General PrinciplesSecond Chapter: Special Rules for Different Sorts of Insurance

Conclusion 22

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1

Preserving the characteristics of TCC, TCDD is orientatedto harmonize the Turkish Enterprise Law with EuropeanLaw. Main points regarding this reform refer toaccounting principles for enterprises, commercial books,commercial registry, unfair competition and further toagency contract.

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One of the most remarkable reforms of the TCCD isenforcing modern accounting rules and new norms forcommercial books. In this framework, TCCD prescribesthat all the accounting systems of Turkish enterprisesshall be arranged in conformity with Turkish accountingstandards, which have been and will be further enforcedaccording to internationally accepted financialstandards. In addition to that, the enterprise shall holdand document all of its commercial transactionselectronically, which means that electronic registrymechanisms shall be integrated within the accountingsystem of an enterprise (Art. 64/2 TCDD). On the otherpart, any records to appear in the commercial books of amerchant shall be complete, correct, on time andsystematic ( Art. 65/2 TCCD). The most distinctive aim ofthe lawmaker is, as reflected in the Draft, “to enable anexpert to achieve a proper picture of the operations andof the financial situation of the enterprise within areasonable period”. In connection with this hypothesis,rules referring to commercial books, accounting systemsand auditing shall be regarded as a whole and thepractice shall be conducted in a manner to enabletransparency and reliability.

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Establishing an electronically based registry system is oneof the most crucial concerns of TCDD. Electronic registrywill serve to implement the principle of “ true and fairview”. Through the electronic registry, the transparencyof the enterprise records will be reinforced, whereaspositive and negative functions of the registry systemshall be conducted in a more efficient manner. Inaddition, the State and the Chamber of Commerce,which shall hold the commercial registry, are successivelyresponsible for the damages arising from thetransactions carried out by the registry holder (Art. 25/2TCCD). With a global approach, the rules regarding theelectronic registry and the rules in respect with theinformation technologies shall serve for a betterimplementation of the transparency.

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The rules referring to the business name have beenreformed in order to enable a transparent and reliablesystem. In this system, the lawmaker aims to enable thirdparties to get proper information about the legalsituation of the enterprise. Particularly, the TCCDunderlines the principles of transparency and true andfair view (Art. 39 TCCD ff.). In addition to that, Art. 39TCCD evidently demonstrates the correlation betweenthe legal regime surrounding the business name and therules related to information technologies.

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Competition law and the regime concerning unfaircompetition are two disciplines, which are continuouslytreated with a modern view in European and Swiss lawsystems. The new legal regime concerning unfaircompetiton defines the concept of unfair competitionand demonstrates the connection between this legalregime and the competition law. Other dimensions ofthe reform shall be mentioned as the enumeration ofseveral versions of unfair competition and further moreefficient rules for the compensation of the damagesarising from unfair competition.

First of all, the definition of unfair competition has beendrafted with a modern view. TCCD defines its concept bymentioning “true and fair competition” (Art. 56 TCCD).This definition shall be regarded as a bridge betweentwo regimes: Unfair competition on one side andcompetition law on the other. Evidently, TCCD,enumerating the unfair competition cases, intends tobenefit from extensive and comprehensive experience ofSwiss law. As seen in the view of unfair competitionrules, Turkish law tends to preserve its correlation withSwiss law, which has been regarded as the main sourcefor Turkish private law. Some examples for unfaircompetition are as follows:

• Fraudulent sale and advertisement practices• Procuring a person to invade or dissolve his contract. • Benefiting from other’s products in an inequitable

manner • Acquiring and declaring other’s business secrets.• Invading certain rules enforced for a certain branch

of profession• Utilizing inequitable general terms and conditions,

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TCCD pays special attention to preserve the Turkishjurisprudence evolved by the Turkish Court of Cassationup to date. Despite adopting the Swiss law reform inrespect with unfair competition, the draftmaker intendsto maintain the formation of Turkish law in thisdiscipline. New rules for unfair competition distinguishthemselves by safeguarding consumer rights. In spite ofthe existence of special regulations for consumerprotection, TCCD equivalently elevates the consumervalue, since competition restrictions invade theconsumer’s legal status. The core of unfair competitionlaw is orientated to protect all the market participators.

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As the focal point of foreign investment, the agencycontract is very common in practice. For this reason, thelegal regime concerning the agency contract faces anextensive legal reform. On the contrary, other similaragreements such as franchising agreement and exclusivesales agency agreement are not treated by TCCD.Apparently, TCCD seems to restrict the practice of theseagreements solely with general principles of law andwith certain regulations of Competition Law.

The most remarkable points of the new rules are asfollows: The rule for the unauthorized agency haschanged in a manner, that in the event that a contracthas been concluded by an unauthorized agent andfurther in the event that the mandator does not assumethis contract at once after he has been informed of theconclusion of this agreement, the unauthorized agent isresponsible to fulfill this agreement (Art. 108 TCCD).

On the other hand, TCCD reinforces the agent’s right toacquire the agency fee. Accordingly, the agent shalldeserve a fee for each of his transactions, equivalentlyfor the transactions not implemented by the agent butimplemented in his geographic area. Art. 113 TCCDpreserves the right of fee, even in the case that theagency contract has been terminated. The agentdeserves the claim for fee for the transactions startedbefore the termination of the contract.

The obligations of the mandator have been equivalentlyenumerated in TCCD, whereas TCCD demonstrates whichobligations shall be fulfilled by the mandator in order tourge the agent to effectuate his obligations (Art. 120TCCD). As mentioned in the preamble, TCCDcharacteristically safeguards the rights of the agents,since Turkish enterprises appear as agents rather thanmandators. As a consequence of this, the parties to anagency contract are deprived of replacing the rules inTCCD to the disadvantage of the agent.

Another new dimension of agency contracts is portfoliomanagement. In spite of the lack of regulation, TurkishHigher Court has implemented portfolio compensationfor the agency agreements dissolved without the fault ofthe agent. Taking into consideration the regulation inSwiss Law and the decisions of Turkish jurisprudence,

TCCD enforces a specific norm for portfoliocompensation, namely Art. 122 TCCD. According to thisregulation, in the event that the agency contract has notbeen dissolved on the basis of the fault of the agent,further in the event that the mandator acquires eminentbenefits from this dissolution and further in the eventthat the agent is deprived of putting forward a legalclaim, which he is entitled to put forward under normalcircumstances and finally provided that the principle ofequity necessitates the payment of such a compensation,the agent may ask for a portfolio compensation, whichshall balance the enrichment of the mandator thanks tothe clients acquired by the agent for the mandator andthe loss faced by the agent because of the dissolution ofthe contract without the fault of the agent. TCCDadvances to release a concrete norm which allows theportfolio compensation for other similar types ofagreements such as exclusive sales agency agreements.

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Through TCCD, Turkish company law experiences acomprehensive reform. In this research, we will solelyfocus on the reforms referring to general principles ofcompany law as well as to joint stock companies andlimited liability companies.

The first chapter of Company Law is dedicated to generalprinciples. Considering modern developments inEuropean and Swiss law systems, the Draft proposes toenforce many principles and legal institutions which areto a large extent new to Turkish law. TCCD encompassesdetailed rules concerning mergers, scissions andtransformations of enterprises (Art. 134-194 TCCD).Existing rules are inadequate to meet the needs of thepractice. Considering many decisions of TurkishCompetition Authority, there is a very evident lack ofrules with material law character, subject to regulate thetransformation of enterprises. New rules of this disciplineoriginate from European and Swiss law systems.

Another novelty of the TCCD is the legal regimeprescribed for the group of companies. Taking intoaccount the academic acquisition of the “High LevelGroup of Company Law Experts”’, TCCD enforces acomprehensive legal system for the group of companies.First of all, TCCD demonstrates main elements of thegroup of companies and enumerates fundamentalinstruments of control. As well as these instruments,TCCD equivalently raises a presumption of control, thismeans that the rules related to the group of companieswill have a critical role in Turkish Company Law. The newsystem implements special liability regimes for parentcompanies. Such liability grounds on the misuse of thecontrol or on the confidence restored by the parentcompany in the view of third parties.

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Foundation Existing rules related to the foundation of the joint stockcompanies enable “gradual foundation”, which meansthat the founders, undertaking a certain part of thecapital, may make announcements in order to raisecapital. In this alternative, the company shall be foundedupon the collection of the whole capital. It shall berecorded that this method of foundation has not gainedcurrency in Turkish practice. As a consequence of thisevent, TCCD renounces the method of gradualfoundation and replaces this method with the method ofpublic offer. In this new alternative, the company shalltransform a certain part of the capital into pecuniaryshares and execute the public offer of these shareswithin a period of 2 months from the foundation of thecompany. With this perspective, TCCD elevates essentialcharacteristics of joint stock company, by raising itsanonymous character. Through this method, even private(not listed) companies may benefit from the advantagesof capital markets.

Renouncing the “Ultra Vires” Principle According to Art. 137 TCC, any transactions of acompany which fall outside the scope of the businessactivities prescribed in the articles of association aredeemed as invalid. Such transactions are named as “ultravires” transactions, since all the transactions referring tothe core business activities stated in the articles ofassociation of the company are valid and “intra vires”. Inline with the 1st Company Law Directive of EU, TCCDrenounces this principle.

Joint stock company with a sole shareholderConsidering the developments in EU Law, TCCD launchesthe joint stock company with a sole shareholder (Art.338/1 TCCD). Three essential functions of this regulationare 1) to reconcile the legal regime with the economictruth 2) to establish a new model for investors whorequire limited liability 3) to constitute a modelfacilitating the launching and the conduction of groupof companies, institutionalization of enterprises andfurther the establishment of foundations. On the otherhand, this reform enables a shareholder to buy othershareholders’ shares and turn the company into acompany with a sole shareholder. In the event of such atransfer of shares to a sole shareholder, the board ofdirectors is bound to register this fact with thecommercial registry within seven days from the transfer.Otherwise the board of directors shall be liable for thedamages borne by third parties because of this transfer.

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Registered Share Capital TCDD allows the joint stockcompanies to adopt registered capital (Art.332 TCCD).Particularly, it shall be stated that even joint stockcompanies which are not publicly-held may equivalentlybenefit from this system. This reform reflects TCCD’stendency to diminish the distance and differencesbetween several kinds of joint stock companies. Evencompanies with a limited circle of shareholders, whichconsciously refrain from becoming publicly-heldcompanies, may need to adopt registered capital. Thestart-up capital for the companies, adopting the systemof registered capital amounts to 100.000 YTL.

New Rules and Limitations to Qualified ShareCapital Any property rights and property items may besubmitted as a part of capital to a joint stock company(Art. 342 TCCD). Considering the evolution of technologyand implementing related modern rules, intellectualproperty rights are classified as a sort of qualified sharecapital, whereas it is enabled to propose a web site as aqualified capital instrument. TCCD implements thegeneral principle for qualified share capital, namely thatthe instrument shall be alienable and shall not be subjectto any liens or legal executions. For preserving the assetsof the corporation, TCCD prescribes that credits whichare not of due date, may not be submitted as a part ofcapital to the joint stock company (Art. 342/1 TCCD).

Division Of Powers Between Bod and GeneralAssemblyConfusion of authorities between the general assemblyand board of directors threatens the efficientperformance of the governance mechanisms. In order toprevent such confusion, TCCD advances to enumeratecertain powers of the general assembly and of the boardof directors and to determine the mutual position ofboth decision mechanisms. According to theseregulations,

* Absolute and inalienable powers of the board ofdirectors have been enumerated in Article 375 TCCD.

* Similarly, absolute and inalienable powers of thegeneral assembly have been enumerated in Article408 TCCD and in some other articles.

* For decisions which are not within the absolute areaof each organ, the statute may appoint thecompetent organ. In the absence of such aregulation, the board of directors is competent toresolve the matter.

General Assembly: A Shareholder-OrientedPerspectiveArticles 407-451 TCCD, which are regulating the legalregime for the general assembly and obviouslypreserving the essence of TCC, evaluate shareholder’srights much more as a central point. In TCCD,shareholder is not considered as an obligatory body forthe existence of the corporation but it is evaluated as a“conditio sine qua non” for the effective conduction ofthe corporation. This new characteristics of thementioned rules may be observed in the followingmechanisms.

Representation of the Management in the GeneralAssemblyCEO’s, at least one member of the board of directors andthe independent auditor appointed for the inspection ofa certain transaction such as mergers shall participate inthe general assembly (Art.407 / 2 TCCD). This regulationis oriented to enable an efficient coordination amongseveral units of the corporation and to serve for a betterinformation service to shareholders.

By-Laws The board of directors shall arrange by-laws referringthe mechanisms and the conduction of general assemblyand register these by-laws with the commercial registry (Art. 419/2 TCCD). The preparation of by-laws as acomplementing source in addition to the statute of thecorporation will serve to the establishment of atransparent and efficient corporate organization.

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Quorums in Respect with The StatutoryAmendments (Art. 421 TCCD)a. As of the statutory amendments, TCCD differs

between listed companies and private (unlisted) jointstock companies. In listed companies, decisions suchas capital augmentation, particularly theaugmentation of the authorized share capital andthe transformation of the company shall be formedwith usual quorums (Art. 418 TCCD).

b. Statutory amendments which impose secondaryobligations or the obligation to cover the balancelosses on shareholders may be solely formed withunanimity (decision quorum).

c. The amendment of the subject of the company, thecreation of preference stocks, restrictions referringthe transfer of the shares shall be decided andresolved with the votes of the shares amounting to75 % of the whole capital (decision quorum).

d. All other sorts of statute amendments shall bedecided on a basis of 50 % of the whole capital(decision quorum).

e. Contrarily to TCC, in the event that the statuteamendment shall not be decided at the first generalassembly, the quorums at the second assembly arethe same as the ones at the first general assembly.

Representation of the Shareholder in the GeneralAssembly For achieving a more efficient participation, TCCDappraises a comprehensive regulation for therepresentation of the shareholder at the generalassembly. In this context, the representatives areclassified as corporate representative, independentrepresentative and institutional representative (Art. 427TCCD). Besides efficient participation, the rules in respectwith representation of the shareholders equivalently aimto draw the framework of the representatives.

Right of InformationExisting rules in respect with the information right of theshareholder is not preserved satisfyingly. Considering thisfact, TCCD expands the scope of the information right ina manner to restrict the exceptions solely by commercialsecrets and company benefits (Art. 437 TCCD).

Invalidity of General Assembly DecisionsThe existing regime referring the validity of generalassembly resolutions has been preserved to a largeextent in TCCD. However, the grounds of absoluteinvalidity have been enumerated in order to provide amore secure system of invalidity (Art. 447 TCCD). Therules referring the invalidity of such decisions areadopted from Swiss law.

General Assembly Online TCCD enables the arrangement of online generalassembly meetings, where the shareholders mayparticipate and vote online. In listed companies, thearrangement of online general assembly meetings isobligatory.

TCCD In The Light Of Corporate GovernancePrinciplesCorporate governance principles influence ModernCompany Law in a very efficient manner. These principleshave evident reflections in TCCD. These reflections maybe demonstrated as follows:

* TCCD underlines an expectation upon the efficient,fruitful and responsible conduction of the board ofdirectors. The economic reality, that directorsrepresenting the interests of the controllingshareholder might participate in the board, has beenperceived in TCCD, whereas the obligations ofprudence and fidelity of these directors have beenunderlined in TCCD. TCCD elevates the professionalmanagement of the corporation.

* The concrete differentiation in TCCD betweenexecutive and non executive directors enables thecorporation to establish a monist- or dualist-structured management organization.

* Specialization At least half of the directors of the board or the soledirector shall have graduated a college (Art. 359/3TCCD). This is a clear indication that TCCD regardsgenerally accepted corporate governance principles.

* Shareholders rightsShareholders rights have been thoroughly reinforcedin TCCD. The participation at the general assemblyand the utilization of administrative rights has beenfacilitated through several mechanisms. Therepresentation of the shareholder at the generalassembly has been treated with an institutional view.Principle of equality has been safeguarded by anevident regulation (Art. 357 TCCD).

* Besides the concept of shareholder, the concept ofstakeholder is equivalently taken into account byTCCD. The rights of the stakeholders, such ascreditors, bond holders, etc. have been safeguardedin TCCD.

* Enterprises and corporations are classified as small-big enterprises/ small- big corporations. Such aclassification will determine the legal regimeapplicable to financial accounts and to the auditingprocess of the enterprise or corporation.

* Information TechnologiesEvery joint stock company is obligated to involveinformation technologies in order to reflect thecorporate governance level of the company.Information technologies serve to the transparency ofthe corporation, which is one of the most eminentdimensions of corporate governance.

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* Economic relations between the corporation and theshareholder, out of the scope of the shareholderstatus constitute an eminent concern. Such relationsmay probably invade the corporate governancestructure of the corporation, since controllingshareholders may misuse the assets of the companythrough these mechanisms. In this respect, apart fromthe contracts related with the activities of thecompany, a shareholder may not benefit from theassets of the company. Particularly, the shareholdersmay not borrow money from the company (Art. 358TCCD).

* Insurance Against the Damages Caused byDirectorsSuch insurance is not mandatory. Despite this fact,arrangement of such insurance serves to theconformity with corporate governance principles (Art.361 TCCD).

* Committee for Early Inspection of Risks Listedjoint stock companies whose shares have beenregistered with the stock exchange, are bound toconstitute such a committee in order to detectcurrent risks in an early stage (Art. 378 TCCD). Thelogic of this regulation is to secure the existence andthe development of the company by involvingexperts to the mechanisms of the company.

Challenges For Auditing CompaniesRealizing corporate governance principles necessitatescontinuous and effective auditing of the corporation. Inthis regard, independent auditing companies shall play avery efficient part in the new system. It shall be stated,that independent auditing companies are expected to bethe real guards of corporate governance in the newsystem.

Current TCC prescribes that joint stock companies shallbe audited by one or more auditors, who shall be electedby the general assembly. It is an accepted fact, that themajority appoints certain persons, who are not ineconomic conflict with the majority. As a result of this,auditing in joint stock companies is not an objective andefficient process actually. Regarding this event, TCCDadvances to abandon the institution of internal auditingin joint stock companies. The new system obligates thecompanies to involve an independent auditor to auditthe financial structure of the company. The legal statusof the auditor shall be prescribed by complementingregulations. TCCD differentiates between small and bigjoint stock companies. Such differentiation refers to thefact, whether the auditing process shall be carried out byan independent auditing company or by certifiedauditors. Principally, independent auditing companiesmay conduct this auditing process, but small joint stockcompanies may equivalently appoint two certifiedauditors in state of an independent auditing company(Art. 400/1 TCCD).

Persons holding shares at the corporation or at affiliatedcompanies, appearing as employee at these companies,performing for the preparation of the financial tables orfor the arrangement of commercial books of thesecompanies or persons employed by other persons whoare deprived to serve as auditors, may not serve asauditors.

An auditor may serve a corporation maximally six timeswithin a period of ten years (Art. 400/ 2 TCCD). Thisregulation will enable the rotation of auditors, whichwill serve to preserve the objective character of auditingprocess. In this regard, a corporation shall be observedand reviewed by two independent auditors within acertain period of time.

The statement of accounts and annual report shall beaudited by the chartered auditor. Statements of accountsor annual reports which have not been approved by theauditor shall be deemed as invalid (Art. 397/1 TCCD). Anyamendments referring this statement and report shallsimilarly be audited properly.

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Article 398 TCCD prescribes the subject and the scope offinancial auditing. This subject and scope may besummarized as follows:

a. Specific Subject of AuditingThis subject encompasses the inspection of thestatement of accounts and the annual report of acompany or of a group of companies. Evidently, thisinspection equivalently covers the auditing of thewhole accounts of the company or the group.

b. CriteriaAs criteria, TCCD introduces Turkish accountingstandards which shall be further formed in line withinternationally settled accounting standards. Theauditor shall inspect whether the accounts of thecompany or of the group have been conducted in linewith these standards.

c. ComparisonThe auditor may not be satisfied solely by analyzingthe statement of accounts and the annual report.Evidently, the auditor shall collect necessary data forauditing and additionally compare the resultsacquired by these data with the statement ofaccounts and annual report.

The board of directors is bound to support and facilitatethe performance of the auditor (Art. 401 TCCD). In thiscontext, the board shall submit all the records of the company. This obligation serves to a carefulconduction of the auditing activity.

Principal rules related to the content of the auditingreport are as follows (Art. 402 TCCD):

a. The auditing report shall be definite and clear,whereas its content shall be express and intelligible.The report shall contain a comparison of the last twoyears’ financial status.

b. The auditor shall equivalently evaluate theassessments of the board of directors and announceits own attitude referring the current situation of thecompany.

c. Further, the auditor shall evaluate whether the boardof directors have acted in line with law, whetherthere were events threatening the financial situationof the corporation, whether the commercial recordsare held in accordance with mandatory rules andinternationally settled financial standards, whetherfurther the statement of accounts presents a true andfair view of the corporation.

Obviously, the final evaluation of the auditor is of criticalimportance. Particularly, the approval or abstention ofthe auditor exercises an essential function: In the eventthat the auditor arrives at the conclusion that thecorporation acts in line with mandatory rules, whereasthe accounts of the corporation have been held inconformity with internationally settled standards, theauditor shall announce an approval for the financialstatement of the corporation. This approval shall reflectthe auditor’s argumented opinion, whereby the auditorshall evidently record possible risks threatening thecorporation.

On the other hand, the approval may be limited or maycontain certain drawbacks. In the event that the auditordeclares an approval with drawbacks or an abstentionand in case that these drawbacks or grounds forabstention refer for the misuse of control by the parentcompany on the subsidiary company, which results in adamage of the subsidiary company, the commercial courtmay decide for a specific auditing.

Finally, auditors shall conduct a specific auditing processin case of fusions, scissions or transformations.

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Shareholder Rights As The Central Point Of TCCDTCCD encompasses several rules reinforcing shareholders’legal situation. These rules may be summarized asfollows:

1. TCCD prescribes the right of information and theright to attend the general assembly in a veryefficient manner. First, several obligations ofdeclaration and reporting imposed on the board ofdirectors serve for a functioning participation of theshareholders to the decision mechanisms of thecompany. Moreover, the representation of theshareholder in the general assembly has been treatedwith detailed rules.

2. Shares with restricted transfer are appraised with aprogressive view. In this aspect, TCCD treats usualshares and shares with stock exchange quotationdifferently. In brief, TCCD restricts the restriction ofthe transfer and enforces a very definite system forthe restriction and its exceptions. Actually, thetransfer of the files may be solely restricted for theinterests and independency of the company.

3. Preference StocksFirst, TCCD specifies that the right to be representedat the board of directors shall no be deemed as apreference (Art. 360/2 TCCD). Secondly, preference invotes is restricted to 15 votes per share (Art. 479/2TCCD). The assembly of shareholders with preferencestocks has been regulated with consistent rules (Art.454 TCCD).

4. Rule of Agenda Existing law approves the principle of “rule ofagenda”. This principle commands that shareholdersmay solely discuss certain subjects, which have beenannounced by the board of directors within a certainperiod before the general assembly, Whereas theright of objection is limited, such objections do notyield effective results in practice. TCCD advances torestrict this principle with evident exceptions. Such aprogress will surely serve for a more efficient generalassembly. Moreover, the right to require for theappointment of a special auditor for the inspection ofparticular issues is reinforced (Art. 438- 440 TCCD).

5. TCDD furnishes the minority shareholders with a newcategory of shareholder rights. In the event of fairreasons, minority shareholders may ask claim for thedissolution of the company on fair reasons. Certainly,the dissolution on fair grounds is a last resort. In caseof such a claim, the judge shall attempt to find outother solutions. For instance, the judge may ex officiodecide for the discharge of the applicant, wherebythe applicant shall be paid for his shares as of theactual value. In the event that no other solution shallbe convenient, the judge may decide for theliquidation of the corporation.

6. Moreover, the list of shareholders’ rights has beenextended in a manner to encompass new kinds ofshareholders’ rights. Apart from the right to claim forthe dissolution on fair reasons, the minorityshareholders are further furnished to ask the boardof directors to print the shares, further with the rightto leave the corporation in case of a merger, withoption rights in the event of conditional capitalaugmentation and the right to revoke the merger,the scission or the transformation.

Structural Changes Proposed For Joint StockCompanies Considering the new legislation regarding thetransformations, mergers and scissions in Swiss law,further considering the progressive legislation in EU Law,TCCD attaches importance to these legal institutions andenforces a comprehensive legal regime for restructuringof the corporations. Particularly, until TCCD, scissions aredeprived of a proper legislation. New legal regimebrought by TCCD reflects many challenges for thecommercial law practice in Turkey.

MergersIn the last decade, Turkish commercial law practice facesa wave of mergers and acquisitions. In this respect,material rules regarding the merger process wereurgently needed. In this regard, TCCD inaugurates a newsystem. First of all, the content of the merger agreementhas been formulated in a very concrete manner. The newsystem comprises the concept of “merger project”. Thearrangement of this project is obligatory. In the light ofthis project, beneficiaries shall be enabled to observe themerger process in an efficient manner.

Rules referring the exchange unit in mergers appear forthe first time in a regulation and the persons concernedare furnished with the right of objection against thisunit. TCCD prescribes that any conflict referring this unitshall be resolved by the court, so that any benefits of thecreditors and shareholders shall be preserved properly.Actually, the claim referring the revocation of thegeneral assembly resolutions is not a sufficientmechanism to achieve this result. Contrarily, theintervention of the court is an efficient mechanism,where the corporation is bound to declare the logic ofthe exchange unit. In addition, the merger process shallbe audited by an independent auditor. All these newrules are orientated to carry out a legally securemechanism of merger.

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ScissionsScission of corporations deprives of any legislationexcept from the tax legislation and certain decreesenforced for covering the needs of the practice’sminimum needs. Taking into account EU’s legislation,TCCD enacts detailed rules for scissions, whereby specialattention has been paid to secure the rights and benefitsof the creditors. Obviously, the role of the auditor duringthe division process shall be underlined.

Fundamental Changes Referring the CapitalAugmentation of Joint Stock CorporationsCapital share augmentation has caused many legalconflicts in the TCC practice. TCCD advances to facilitateand effectuate the augmentation process withdependable rules as follows:

1. According to the principle of capital maintenance,the company may not augment its share capitalunless the whole capital subscriptions have beenfulfilled. Despite preserving this principle, TCCDenacts a rational exception: Minor failures infulfillment of these subscriptions shall not deprive thecompany from augmenting the capital (Art. 456/1TCCD).

2. The powers of the board of directors has beendetermined considering the fact that even privatecorporations may involve registered capital

3. The decision referring capital augmentation shall beregistered with the commercial registry within fourmonths from the decision of the general assembly(Art. 456/3).

4. In order to implement the capital augmentation, theauditor shall examine the conditions of the companyand approve the augmentation (Art. 458 TCCD).

5. TCCD enacts a new sort of augmentation: The sharecapital may be augmented on conditions. Such anaugmentation shall not exceed the half of the sharecapital (Art. 463 TCCD). Conditional share capitalaugmentation serves to enable the exchange of loanstocks issued by the corporation with the shares ofthe corporation.

Termination of the Corporation and Dissolution onFair GroundsTCCD renews the system referring the termination of thecorporation considering concrete legal problems ofTurkish practice, as well as the reform in SwissCorporation Law of 1991. Besides many new rules, thenovelty in respect with the dissolution on fair grounds isquite remarkable. The termination rules of TCC do notallow the dissolution of the corporation on fair grounds.Contrarily, TCCD releases a new rule (Art. 531 TCCD).TCCD treats the rights to claim for dissolution on fairgrounds as a minority right. In the event that there existcertain objective grounds such as the demolition of theconfidential relationships between the shareholders orthe fact that the corporation is not profitable for a longperiod may cause the dissolution of the corporation. Thedissolution may be claimed through an action versus thecorporation. Evaluating such an action, the judge shallcarefully examine the concrete situation of thecorporation. In the event that the judge comes to theconclusion that there exist objective grounds enablingthe dissolution of the company, the judge may notimmediately decide for the dissolution, but examineother alternatives which may replace the dissolution. Thedissolution is a “ultimo ratio”, which means that adecision for dissolution may solely be formed in theevent that there are no other legal alternatives. As aresult, the dissolution on fair grounds is an institution,which grants the judge a wide and creative area ofjudicial discretion.

9

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LLC is a hybrid company, which harbors several elementsof equity corporations, as well as certain characteristicsof other sorts of companies. TCC prescribes a facilitatedprocedure for the foundation, whereas the minimumcapital requirement is quiet low. For this reason, manyundertakings have been organized as LLC, which maynot be organized as an equity company under normalcircumstances. On the contrary to the intention of thelawmaker, LLC has become the default company for anyundertakings in the course of time. This fact equivalentlymeans that LLC’s in the practice are deprived of acorporate organization with efficient decisionmechanisms and transparent structure.

Taking these facts into consideration, TCCD’s view of LLCsis the exact opposite of the LLC in the actual practice.Obviously, TCCD intends to treat LLC as the usefulsubstitute of joint stock corporation. As a consequenceof this perspective, LLC in TCCD has been formed as aproper equity corporation.

Foundation The statute of LLC is treated as an essential instrumentfor the organization of the LLC. Whereas the mandatorycontent of the statute is regulated by TCCD, the Draftequivalently enumerates certain regulations, which shallappear in the statute in order to be validly enforced inthe corporate sphere (Art. 577 TCCD).

LLC with a sole ShareholderThe idea to reconcile the economic truth with the legalregime equivalently plays an important role for the newlegal regime of limited liability companies. LLC with asole shareholder is an evident reflection of this idea.Through this mechanism, the entrepreneurs shall not bebound to pick other persons in order to fulfill theminimum number of shareholders. Secondly, the soleshareholder will act consciously as the sole controllingsubject in order to prevent the application of the theoryof “piercing the veil”. In other words, the soleshareholder shall manage the company in bona fides inorder to prevent third parties to claim for the soleshareholder’s personal liability. Thirdly, the fact that allthe shares of the company shall be transferred to a soleshareholder, shall no more be a ground for dissolution.

Capital StructureIn the new system, LLC requires a minimum capital of25.000 YTL. Compared to the actual legal regime, theminimum standard specified in TCCD is quite high. Thepurpose of this regulation to reinforce the warrantyfunctions of the share capital for the creditors of thecompany.

General AssemblyActual regulation due to the decision making process inLLCs prescribe that at least more than half of the votes isnecessary for forming a usual decision at the generalassembly. Evidently, the articles of association mayprescribe a higher proportion of votes for forming adecision. In this context, it is an accepted fact that thisquorum causing deadlocks in many LLC, particularly inLLCs with two equal shareholders. Even in the absence ofshareholders disposing on the half of the share capital,the company may not conduct its own decisionmechanisms and such situations result in deadlocks.TCCD releases a new rule and enables that decisions inthe general assembly shall be formed upon more thanhalf of the votes, which are represented in the generalassembly (Art. 620 TCCD). It is clear, that TCCD prescribeshigher proportions of votes and that the articles ofassociation may equivalently enforce higher proportions.Consequently, certain eminent decisions may only beformed upon 2/3 of the votes represented in the generalassembly. Creation of new preference stocks, sharecapital augmentation, amendment of the commercialactivities of the company are examples for eminentdecisions ( Art. 621 TCCD).

As of the validity of general assembly resolutions, therules relating to joint stock corporations shall apply (Art.622 TCCD). The new system serves for the certainty andpredictability of law.

Organization of LLCTCCD advances to cover the lack of a detailedorganization of LLC. At the first step, TCCD enumeratesabsolute and inalienable powers of the general assembly(Art. 616 TCCD) and equivalently of the directors (Art.625 TCCD). In respect with the decisions within theauthority of the directors, the directors may apply to thegeneral assembly for its approval, but such anapplication does not exclude the directors from theliability arising from the relevant transactions (Art. 625TCCD).

Financial Tables, Reserves and AuditingConsidering the fact that LLCs in Turkey are to a largeextent deprived of a systematic financial structure, TCCDchallenges a tough system for LLCs. According to newrules, LLCs are subject to the regulations prescribed forjoint stock corporations in respect with the statement ofaccounts and the reserves ( Art. 514-527 TCCD).Consequently, the statement of accounts of a LLC shallbe arranged in conformity with Turkish AccountingStandards and further with International FinancialAccounting Standards. Moreover, this conformity shall beexamined by an independent auditor (Art. 635 TCCD).This regulation has innovative effects on LLCs and evenon the auditing activity in Turkey.

10

Accessory Obligations and Obligation of AdditionalPaymentLLC is not a pure equity corporation. The most evidentcharacteristics of the LLC are that this company dependson the personal relationships between the shareholdersand the company in most cases. Many LLCs survive andfunction thanks to the contributions of the shareholders.Considering the practice, TCCD enforces a detailedregime for accessory obligations and obligation ofadditional payment (Art. 603-607 TCCD). Accessoryobligations are obligations, which may arise providedthat such obligations are regulated in the articles ofassociation. The scope of such obligations depends onthe specific preferences of the company. On the otherhand, obligation of additional payment may arise in theevent that the assets of the company are not adequateto cover the obligations of the company (Art. 605 TCCD).Regulating these two exceptions of the limited liability,TCCD intends to formulate a secure legal regime for theshareholders.

DissolutionPreserving the current legislation in some aspects, TCCDintroduces certain new rules regarding the dissolution ofLLCs. For instance, the absence of a corporate organ fora long period, has been handled with detailed rules (Art.636/2 TCCD), whereas the principles of “proportionality”and “subsidiarity” have been underlined for thedissolution on adequate grounds (Art. 636/3 TCCD).Apart from the dissolution on adequate grounds and inthe event that a shareholder intends to leave thecompany through an action before the court, othershareholders may equivalently declare to leave thecompany (Art. 642 TCCD). In such a case, TCCD regulatesthe conditions of the payment of the share price to theshareholders.

11

TCCD preserves the legal regime of TCC in respect withthe securities to a large extent and does not enact anextensive reform in this area. TCCD solely reform severalarticles which contain translation failures. Evidently,Company Law reform and the expected Stock ExchangeLaw reform will indirectly influence this legal discipline.

Regulating Transportation Law as an independentchapter is one of the fundamental reforms implementedby TCCD. Originating from the former TCC, the rules ofTCC in this area, are not in line with moderntransportation rules and do not cover the needs of thepractice. TCCD is orientated to enact a moderntransportation law regime based on general principles ofinternational transportation law. First subchapterincludes general principles, whereas the secondsubchapter is assigned to the transportation of goods.Consequently, the third subchapter encompasses thelegal regime formed for relocation goods. Whereas thefourth subchapter concerns with multimodaltransportation, the fifth subchapter includes detailedrules for passenger transportation. Finally, freightforwarding is regulated in the last subchapter.

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12

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General principles reflect the main characteristics of acode or of a chapter. General characteristics ofTransportation Law, as accepted in TCCD, have beenformulated by CMR and by German Transportation LawReform.

In this framework, CMR has a very eminent influence onthe new rules regarding transportation. Although CMR ismainly an international convention subject to regulatecross border transportations, this legal source has beenadopted even for internal transportations, since thisConvention equivalently includes several rules forinternal transportation. Such rules refer to material rulesas well as rules referring to conflict of laws. Thisapproach of TCCD reflects the tendency to harmonizethe Turkish law system with international transportationlaw.

The chapter dedicated to general provisions includescommon rules applicable to carriages of goods by roador railway, which fall outside the scope of internationalconventions, further to transportations of passengers,carriage of relocation goods, to multimodal carriagesand freight forwarding.

The definition of the carrier reflects a wide perspectiveand includes any persons carrying goods, passengers,relocation goods and any persons involving a part ofmultimodal carriage. This definition is similarlyapplicable to carriages by railway. On the other hand,this definition underlines that the carriage shall beconducted according to a carriage contract. Actually, thisrule is a clarification for the carriages performed on thegrounds of personal relationships in state of aprofessional agreement. Evidently, a carrier, who carriesgoods or persons on the ground of a non- professionalrelationship, is not a carrier in the framework of TCCD.As a consequence of this, general principles related totransportation are not applicable to suchtransportations.

Another reform to be mentioned in this context is thatthe railway transportations are subject to the rules of thefirst and second chapters of this book. On the contrary,maritime and air transportations which are handled byseparate regulations, are not subject to these rules.Transportations on inland waters are equally subject tothe rules of maritime transportation.

Due to all claims arising from transportation transactionsare subject to a prescription of one year.

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In TCCD, the rules in respect with the transportation ofgoods are enacted in consideration of CMR and the newGerman Commercial Code. According to TCCD, thearrangement of a bill of loading is not necessary for thevalidity of the transportation contract. The bill ofloading shall be arranged upon the request of a party.Usually, the bill of loading shall be arranged by thesender upon the request of the carrier, whereas thesender may arrange the bill of loading without such arequest. On the other hand, the delivery of the goods tothe carrier shall be evaluated as a presumption of theexistence of the transport contract. Respectively, in theevent that the parties have not undersigned any writtenagreement, the delivery of the goods may serve asevidence.

In this framework, bill of loading is not classified as asecurity, but it serves as an instrument of thetransportation contract. The burden of proof, achievedby the bill of loading is effectuated by the delivery of thegoods and functions on behalf of the carrier. The bill ofloading may be classified as a delivery receipt providedthat the carrier has undersigned this document.

TCCD restricts the liability of the carrier. Gross weight ofthe shipment shall be taken into account as of thecalculation of the limits, whereas the freight fee shall beconsidered in case of delay. In the event of demolition ordamage, the carrier of the liability is limited to 8.33calculation unit per each kilogram. On the other part,the liability is limited to three times of the freight fee, incase of delay. Damages arising from other reasons shallbe limited to three times of the compensation, whichshall be paid in the event of whole damage.

Due to the restriction of the liability, the concept of faultis defined and approved in line with internationalconventions. This concept shall be defined as actingincautiously and acting in a conscious manner of the factthat the damage may probably arise”. This concept offault shall be deemed equal to the concept of animus.

TCCD equivalently regulates the legal situations of“contractual carrier” and “de facto carrier” in the eventthat the carriage is conducted partly or wholly by a thirdparty in spite of the existence of a contractual carrier. Onthe other hand, the right of retention has been apprisedin conformity with the general rules in Turkish Code ofObligations and with the general theory in respect withthe property rights on ships.

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TCCD assigns a separate chapter for the transportationof relocation goods. For a proper application of theserules, TCCD defines the relocation goods as “any goodsto be transported from a house, an office or productionunit to another, provided that these goods are utilized ina lodgment or for business related purposes”.

These rules originate from German Commercial Code.The reason to enact special rules for relocation goodsdepends on the specific nature of these goods. Actually,packaging, unpacking, mounting and dismantling ofthese goods necessitate specialization.

In the event that the sender is a consumer, TCCDenforces a different system for the transportation ofrelocation goods. In such a case, the obligations of thesender are moderated, while the obligations of thecarrier are expanded. Under these circumstances, TCCDintends that the carrier may not to easily achieve theliability exclusion. Carriers and his assistants, who do notfulfill certain conditions, may not benefit from liabilityexclusion.

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The articles of this chapter originate from the GermanLaw of Transportation Reform. Multimodaltransportation means that the transportation shall beconducted on a basis of a transportation contract and atleast by two different vehicles. To resolve legal problemsarising from multimodal transportations, relevant normsshall be applied in this order: Specific norms of thischapter, relevant international conventions, generalprinciples specified in the first two chapters of this book.This order is similarly applicable for maritimetransportations. With respect to this fact, for multimodaltransportations encompassing equivalently maritimetransportation as a part, the rules in the first twochapters of the Fourth Book of TCCD are applicable instate of the rules imposed for maritime transportation inTCCD.

This general principle has an exception: This exception issolely applicable in the event that the place of damage isalready known. For determining the place of damage,TCCD enforces a presumption, whereby the specific lawis applicable, which is the certain law applicable to theliability of the transporter, which would be applicable asif the parties would intend to undersign a soleagreement for the certain part of the transportation, atwhich part the loss has arisen.

As a consequence of this, in the event that it isdeterminable, whether the loss has come true at acertain part of the transportation, the specific legalregime which is normally applicable to this certain partshall be applied as of the liability of the transporter.

Finally, in the event that the multimodal transportationconcerns with the transportation of relocation goods,specific rules for the relocation goods in the thirdchapter shall be applicable. In this context, even if theplace of damage is determinable, mentioned rules in thethird chapter shall govern the legal conflict. Contrarily, inthe event of an international contract, the exceptionspecified above shall take place.

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The rules regarding the transportation of passengershave been delivered from TCC to TCCD to a large extent.In addition to that, TCCD prescribes that complementaryregulations shall be enforced in order to safeguardpassenger’s rights.

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For the rules regarding freight forwarding, GermanCommercial Code has been considered as the model act.Firstly, TCCD perceives a new terminology. TCCDmentions “freight forwarder” in state of“commissioner”. Through this terminology, TCCD aims tounderline that the forwarder organizes the transport.Evidently, the forwarder is the exact subject, who shalldetermine the scope and the manner of transportationand exactly the conductor of the carriage. In thisframework, the freight forwarder shall conclude anyagreements with the carriers on behalf of himself or onbehalf of the sender. Further, the freight forwarder mayhave to conclude other agreements referring storage,loading and discharge.

According to TCCD, the freight forwarder may conductthe carriage solely in the event that the parties haveconcluded this fact. Contrarily, TCCD does not necessitatesuch an agreement between the parties, so the freightforwarder may equivalently act as carrier. In such cases,the contracts referring freight forwarding or carriagewill exist together and the freight forwarder may claimfor freight forwarding and freight fees.

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Throughout TCCD, Turkish maritime law faces achallenging reform. On one part, existing institutionshave been revised, whereas modern institutions havebeen integrated to TCCD. TCCD advances to removeinadequate rules and to replace these rules with newnorms in the light of modern maritime law.

One of the most important aims of TCCD is to reformTurkish maritime law in line with internationalagreements. For this reason, Visby London Rules of 1968-1979, London Convention of 1976 on Limited Liability ofthe Carrier, London Convention of 1989 on MaritimeAssistance, Geneva Convention of 1993 on Liens, LondonConvention of 1992 on Oil Pollution, Geneva Conventionof 1992 on the Arrest of the Ships and finally AthensConvention of 2002 on the Transportation of Passengershave been implemented in TCCD.

Many institutions which have fulfilled their function,such as disciplinary powers of the captain, seamen’sobligation to comply with orders, crimes conductedabroad, maritime loans are not regulated in TCCD.

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General Principles In TCCD, many institutions andrelevant definitions have been amended in considerationof the opinions demonstrated in the doctrine. As thelegal nature of the ships is one of the most problematicconcerns of Maritime Law, TCCD emphasizes that theship is a movable. The exceptions of this rule haveequivalently been demonstrated in the TCCD.

Identity of the Ship The rules related to hoisting Turkishflag have been preserved in TCCD to a large extent.However, the rules referring to acquire Turkish identityhave been treated more flexible. In respect with shipssubject to joint property, TCC prescribes that foracquiring Turkish identity, the shares relating to a shipshall be owned 100 % by Turkish personalities. TCCDtreats this rule more flexible in a manner that foracquiring Turkish identity, it is sufficient that more thanhalf of the shares belong to Turkish personalitieswhereas most of the controlling shareholders shall be ofTurkish identity. For the ships owed by corporations, it isrequired that more than 50 % of the shares belong toTurkish personalities.

Maritime Registry TCCD intends to establish a moretransparent and systematic registry system. This system iscompleted by the legal regime enacted by a specific code(Code Number: 4490) in respect with internationalmaritime registry.

Property Rights The rules due to the property rights onships have been retreated and systematized in TCCD.Acquiring and losing the property of the vessels, which isnot thoroughly treated in TCCD, have been appraisedwith detailed rules. In state of the TCC’s system TCCDrequires a transfer agreement and the transition of theship’s possession for the alienation of the ship. For otherrules related with the sales agreement, general rules inrespect with sales contract in Turkish Code of Obligationsshall apply.

TCCD enacts a new regulation for the demolition of theproperty on the ship. In principle, the demolition of theship gives rise to the demolition of the property.Contrarily, there may exist a property right on the shipdespite the demolition. Evidently, in the event thatwreckage is remained, it is possible to conclude theexistence of property rights. Moreover, TCCD underlinesthat the existence of wreckage shall be evaluated inrespect with the rules referring to the removal of thewreckage and environmental pollution.

Finally, regulations referring maritime lien (pledge) andconstruction lien have been treated in the framework ofa new systematic whereas the wordings of several rulesoriginating from German Law in this chapter have beencorrected carefully.

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In this chapter, the legal status of the ship owner and ofthe affreightment consortium has been appraised withan innovative approach. Particularly, the definition of“ship-owner” has been amended in a manner that theelement of “conducting the ship in maritime commerce”by the element of “conducting the ship on waters foracquiring benefits”.

Art. 948 TCC, regulating the restriction of the shipowner’s liability is tacitly abrogated by the “InternationalConvention on the Restriction of Liability versusMaritime Loans” of 1976. For this reason, TCCD records areference to international conventions, whereas itenforces a detailed regime in conformity withinternational conventions on the restriction of liability(Art. 1328-1349).These rules originate from TCC to alarge extent.

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17

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This chapter has been renewed in respect with itswording. Since maritime loan is no more treated in TCCDand since maritime loan is appraised with a new system,certain rules in respect with the captain do not appear inTCCD.

On the other hand, the “International Convention ofLiability Restrictions Versus Maritime Claims” of 1976have been reserved in TCCD with a reference. As aconsequence of this, the captain’s liability may berestricted in conformity with this Convention.

TCC contains several regulations related with themaritime labor law. Since Turkey has undersigned severalinternational conventions in the area of Labor Law, laborrelations, such as the relation between the captain andthe employees are not treated in TCCD.

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TCCD inaugurates a new legal regime for maritimecommercial agreements. First, maritime loan agreementsdo not appear in TCCD contrarily to TCC. However, twonew contract models, namely, time charter and bare boatcharter contracts have been incorporated to TCCD. Onthe other hand, the rules regarding the freight contractsoriginate from TCC. Compared to Art. 1020-1060 TCC,TCCD enacts a distinct and advanced legal regime forthese agreements, particularly with respect to new rulesrelated to lading, discharging and dead freight.

In addition, many rules in respect with the liability of thecarrier are manifested in TCCD. These new rulesoriginate from Visby Rules of 1968 revising BruxellesConvention of 1924 and London Convention of 1978. Onthe other hand, the rules in TCCD are completed withHamburg Rules of 1978. In this framework, non-liabilitygrounds arising from technical failure and fire have beenpreserved whereas the following institutions have beenreformed in line with international conventions: Liabilityarising from delay, liability of the de facto carrier, theextension of the prescription periods by contract, liabilityper package or unit restricted with the right of towage,application of liability limits on torts.

Regarding the rights of the carrier, TCCD specifies thefreight debtor and the due date of the freight. On theother hand, TCCD leaves the system of abstention fromdelivery or right to mortgage but bases its new systemon the right of detention in the event of the default ofthe debtor. In addition, the liabilities of the freightforwarder and of the loader have been enforced in TCCDfor the first time in Turkish Law.

Regulations Referring Bill of Ladings Regarding theseregulations, Bruxelles Convention of 1924, Visby Rules of1968, London Convention of 1979 and as acomplementary source Hamburg Rules of 1972demonstrate the main rules. Certain reforms may beenumerated as follows: (1) The arrangement of the billof lading on mechanical and electronic instruments hasbeen enacted. (2) The validity of the incorporation clausehas been safeguarded (3) In the event that the carrier isnot identifiable through the bill of lading the ship ownershall be deemed as the carrier, whereas a new rule hasbeen enforced enabling the claim for the compensationarising from the delay of the announcement of thecarrier’s identity. (4) Letter of guarantee on clear bill oflading has been imposed regarding the model ofHamburg Rules. (5) Another article has beenincorporated to TCCD which enacts the arrangement ofother valuable papers apart from the bill of lading.

In state of enforcing general rules for prescription, thelawmaker prefers to determine each prescription datespecifically in the certain article dedicated to the relatedinstitution. Apart from this, all the prescription periodsdue to maritime commercial agreements last one year.Considering that maritime transportation which isacceleratedly growing in Turkey, TCCD is predicated onthe “International Athens Convention on the MaritimeTransportation of Passengers and Baggages” of 2002.

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This chapter consists of three subchapters, namelygeneral average, stacking and maritime assistance. Eachsubchapter comprehends extensive reforms.

General Average Despite the lack of an internationalconvention on general average, York Antwerp rules havebecome the relevant legal source applicable on generalaverage cases. In order to keep the legal regime update,TCCD refrains from incorporating these rules but prefersto regulate general average by complementingregulations to be issued by a higher council of experts tobe constituted by Secretary of Maritime Affairs,International Law Association and General Office ofInsurance in Turkey. Thanks to this approach, anyamendments in the mentioned rules may be easilyreflected to Turkish law. The above mentionedinstitutions shall implement these amendments ex officioor upon a request of any persons. On the other hand,certain issues which are not treated in York AntwerpRules have been enacted in TCCD.

Stacking Turkey is a party to the “InternationalConvention on the Harmonization of Certain Rules onStacking on the Sea” of 1910. TCCD has revised certainrules adopted from this Convention and enforced anarticle regarding the relation between the rules onstockings with the rule regarding the nonliability of thecarrier in the event of technical failure. In this context,the carrier may use the technical failure exception,equivalently in case of stackings. Moreover, the legalstatus of the guide has been treated with more evidentrules and the collection of evidence in case of stackingand the arrangement of the relevant report has beenenacted with distinct rules.

Maritime Assistance TCC includes certain rules referringmaritime assistance originating from an internationalconvention of 1910. However, these rules do not covercurrent needs of the practice. Taking into account thislegal fact, TCCD enacts certain rules on maritimeassistance originating from the “InternationalConvention on Maritime Assistance” of 1989.

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Resembling TCC, TCCD equivalently encompasses certainrules on vessel liens. In this regulation TCCD considersthe “International Convention on Preferences andMortgages on Vessels” of 1993. Since this convention isin line with the “International Convention on theSequestration of Vessels”, both conventions complementeach other. In this framework, short prescription periodshave been prescribed for vessel mortgages. On the otherhand, TCCD does not include any rules regarding theright owed by the creditor of freight.

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As already mentioned above, Turkey has undersigned the“International Convention on the Limitation of theLiability versus Maritime Creditors” of 1976. Accordingly,the rules of TCC, restricting the liability of the ship-owner solely with the vessel and the freight have lapsedwholly. In addition to that, Turkey has equivalentlyundersigned the “International Convention on theLiability Arising from Oil Pollution” and the“International Convention on the Compensation of theDamages Arising from Oil Pollution “enforced in Londonin 1992. These conventions encompass certain norms,which are directly applicable. For this reason, these ruleshave not been incorporated to TCCD, whereas solelycomplementing rules have been enforced in this draft.

Moreover, two other international conventions onliability have been incorporated in TCCD First of theseconventions is the “International Convention on Liabilityand Compensation for Damage in Connection with theCarriage of Hazardous and noxious Substances by Sea”of 1996. The second convention is the “InternationalConvention on Civil Liability for Bunker Oil PollutionDamage”. In the event that these conventions shall bevalid and binding for Turkey, new regulations referringthese conventions will be incorporated to TCCD.

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One of the most troubling matters in maritime law is thelegal execution on vessels. Whereas material maritimerules originate from German Law, Turkish Procedural Lawand Turkish Execution Law base on Swiss law. Thisdifferentiation as of the source of two legal regimes hascaused many problems in practice. As a consequence ofthis, a new chapter referring legal executions has beenincorporated to TCCD. This chapter consists of foursubchapters: Applicable law, complementary rules,special rules for the execution on vessels and special rulesfor the execution on the freight. In state of enacting anindependent regulation for maritime executions, TCCDsolely enforces necessary specific rules, which shallequivalently complete by general rules of Turkish Codeof Execution and Bankruptcy.

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Current regulations regarding Insurance Law are noteligible to answer actual legal problems in practice.Moreover, originating from the former TCC, Turkishinsurance rules are deprived of satisfying the needs ofthe insurance sector. For this reason, Turkish InsuranceLaw experiences a fundamental reform by TCCD. Asreferred in the preamble, international theory andpractice constitutes the orientation and the concept ofthis reform. Since mostly all the insurance rules are ofmandatory character, the developments of contract lawhave been disabled in TCC. This fact makes itindispensable to enact a comprehensive reform oninsurance rules. Moreover, TCC rules on life insurance donot conform to the characteristic of the life insurance tobe an investment medium. Considering that lifeinsurances create extra funds for the economic systemand constitute an assurance for a person’s property, therules regarding life insurance had to be reformed to alarge extent. The tendency of the practice to overcomethis problem by utilizing general terms and conditions inthe agreements, did not involve positive results.

Actually, the reform regarding the insurance rules arebased on four main grounds:

Obligation of InstructionSince EU has not enforced any directives on insurancecontract law but solely on insurance supervision, TCCDhas not considered EU law as a main source. Despite thisfact, EU Law has influenced TCCD in two main points:First, the insurance company shall inform and instructthe insurance holder and regard his legal position asconsumer. Secondly, TCCD enables the establishment oftontines.

German Contract LawRegarding the rules on insurance agreements, TCCD ismainly influenced by German Code of InsuranceContracts. The influence of German law on Turkishtransportation law and maritime law have caused thatthe mentioned code has been evaluated as the mainsource for the insurance rules of TCCD.

General Terms and ConditionsTCCD has equivalently taken into account the generalterms and conditions, which are widely used in Englishand German law practice. Particularly, general terms andconditions of English law have a great influence oninternational practice. In this context, current insurancepractice is either orientated by insurance agreementsformulated according to English law or moreconservatively by German Law. In this respect, theinsurance regulations worldwide are equivalently underthe influence of these systems. As a genuine regulation,TCCD advances to harmonize the more liberal approach

of English system with the realist approach of Germanlaw, which attracts more attention to the balance ofinterests.

Critics in Turkish Doctrine and Material Rules inTurkish Insurance Law These two final grounds have similarly influenced thenew rules in TCCD, particularly in implementing evidentand systematic rules.

Terminology of InsuranceThe formulation of the insurance rules in TCC is notbased on a definite conception. Particularly, the conceptssuch as policy holder, insurance holder or beneficiaryhave not been used for correct terms. TCCD is orientatedto resolve the problems arising from the failure ofterminology.

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20

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The chapter dedicated to general principles in TCC isindisputably insufficient. It shall be stated that manygeneral principles of insurance law have beendemonstrated in the chapter of property insurances. Onthe contrary, TCCD includes 50 articles dedicated togeneral principles. Regarding general concepts, the rulesin respect with the insurance agreement include thelegal regime to be applicable to the agreement and therules regarding the mutual obligations of the parties.

General concepts of this chapter cover insuranceagreement, mutual insurance, reassurance whereas theinvalidity of this agreement has been regulated in linewith the general principle in Turkish Code of Obligations.Particular issues enacted in the framework of insuranceagreement are representation, lack of interest, scope,insurance period, notifications regarding the abrogationof the agreement and insolvency of the parties, as wellas the bankruptcy of the insurer.

The new system obliges the insurer to inform theconsumer thoroughly. Before the conclusion of theagreement by the parties, the insurer shall inform theconsumer about the important aspects of theagreement, about the rights of the insurance holder,about the periods regarding the termination. After theconclusion of the agreement, the insurer shall inform theinsurance holder about the developments influencingthe insurance. The obligation to issue a policy is treatedin line with TCC. Despite this, there is no regulation inTCCD, which resolves the probable legal problems in theevent that the content of the agreement differs from theoffer.

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Loss InsurancesTCCD particularly considers that insurance law involvesmercurial dynamics. As a consequence of this, TCDDinitiates to enforce flexible insurance rules. Since TCCDintends to demonstrate separate rules for different kindsof insurance, many new insurance subjects such asinsurances for fire, agriculture or theft have beenenacted in TCCD.

Most of the insurance rules incorporated in TCC are ofmandatory character. This character of the rules hasprevented a progressive approach and disabled flexiblesolutions for legal conflicts. As it is generally known, lawof contracts necessitates a certain degree of flexibility inorder to enable the parties to formulate the content ofthe contract. Considering this fact, TCCD tends toevaluate the insurance as a medium of investment. Forthis reason, TCCD enforces rules which are not ofmandatory character to a large extent, in order tosafeguard freedom of contract. Mandatory rules havebeen solely released for safeguarding necessary interests.

As it is thoroughly known, insurance has a technicaldimension. In this respect, TCCD enacts severalregulations in conformity with the technical dimensionof the insurance, such as actuarial rules and themeasurement of risks.

On the other hand, the reference to different legalsystem in maritime and land insurances has caused manyproblems in Turkish law practice. Accordingly, byremoving the rules regarding the maritime insuranceTCCD intends to dissolve the conflict between the twolegal systems.

Passing from the traditional society to modern society,risks of loss grow and differentiate, whereby new areasof profession arise, which create troubling new risks offatal character. Since it is indispensable to benefit fromthe harvest of technology, liability insurances attractmore attention. Even many kinds of these insurances areobligatory. Lack of regulation has caused many legalproblems in Turkish Law. Considering this fact, TCCDreleases a detailed and comprehensive legal regime forliability insurances, taking into account the genuinecharacteristics of this sort of insurance. Particularly, theserules will serve to overcome the difficulties arising fromthe absence of insurance value.

Life InsurancesLife insurances consist of personal life assurances andpersonal accident insurances. Considering the lack ofspecific regulation, the articles referring to accident rulesmakes a reference to health insurances. Although theinvestment character of life insurances shall bewelcomed, it shall be taken into account that specificinsurance rules shall be implemented in order to resolvethe conflicts of legal nature. In the light of thesedevelopments, TCCD treats life insurances with anencompassing and distinct legal regime.

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TCDD announces two cardinal reforms for Turkish Law:

1. Turkish Commercial Law practice until thepreparation of this Draft has not been put aside,whereas concrete solutions have been developedfor prevailing legal problems.

2. Turkish Commercial Law has been harmonizedwith Swiss Law as well as EU Law.

In this context, certain legal institutions deprived of anylegislative regulation have been appraised in the Draft,whereas inadequate norms have been replaced bymodern rules.

Principal characteristics of TCDD

1) A draft which considers current commercial andeconomic developments and mechanisms,

2) A draft which conforms with several disciplinessuch as Banking Law, Securities Law, CompetitionLaw as a part of Economic Law,

3) A draft which may answer crucial legal questionsraised by current conflicts thanks to itscomprehensive reasoning,

4) A draft which constitutes the main discipline ofEconomic Law, particularly with itscomplementing regulations.

Viewed from these characteristics and its comprehensivereasoning, TCCD is a distinguished draft, which reflectsthe tendency of Turkish lawmaker to harmonize its ownlegal system with modern Law. The enforcement of TCCDwill set out a legislation, which may propose dynamicmechanisms in line with international law andeconomics.

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22

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