In joint stock companies, it is known that the shares are created automatically upon the establishment of the company or the increase of the capital and that the binding of the shares to a deed is not mandatory or constitutive. A share that is not attached to a share certificate is called a “naked share”. Since there is no difference between the shares that have been issued with a share certificate and the naked shares in terms of being subject to the transaction, it is accepted that the naked share is an asset value that can be seized just like a share certificate. In support of the aforementioned acceptance, it is also argued that naked shares are not included among the goods that are not subject to attachment under Article 82 of the Enforcement and Bankruptcy Law.
Article 94 of the Enforcement and Bankruptcy Law is the main regulation that allows the seizure of naked shares in joint stock companies. It is stated in the text of the law as follows:
Property disposed of in participation :
Article 94 – (Amended: 18/2/1965 – Article 538/52)
If a right of usufruct or an undivided inheritance or a share in a company or in a property held in partnership is seized, the enforcement office shall notify the relevant third parties whose residence is known. In this way, if the debtor’s share in a certain immovable at the end of the liquidation is seized, the bailiff shall notify the land registry office in order for the seizure annotation to be recorded in the record of the immovable. (Additional sentences: 17/7/2003-4949/25 Art.) If no share certificate or share certificate is issued for shares in joint stock companies, the debtor’s share in the company shall be seized by the enforcement office by notifying the company. This seizure must be recorded in the share ledger of the company; however, even if the seizure is not recorded in the share ledger of the company, it shall be deemed to have been made on the date of notification to the company. The seizure shall be notified to the Trade Registry by the enforcement office to be registered. In this case, the transfer of the seized shares shall be null and void to the extent that it violates the rights of the creditor. The sale of the seized shares shall be subject to the procedure for the sale of movable goods. In the case of other movables, the enforcement office shall take measures to prevent transfer to another person. (Repealed third sentence: 17/7/2003-494 9/25 Art.)
Based on the wording of the relevant article, the following conclusions are drawn:
*Seizure is possible for the shares for which no share certificate or share certificate has been issued, i.e. the debtor’s naked share in the joint stock company.
*The relevant seizure shall be deemed to have been realized with the notification of the letter by the enforcement office to the debtor company that the share has been seized. The notification of this letter appears as the constitutive element of the attachment.
*The seizure must be recorded in the share ledger by the company officials. However, this requirement is not mandatory for the seizure to be completed and is declarative in accordance with the predominant opinion in the doctrine. In other words, the company official is required to record the attachment in the share ledger; however, the attachment is imposed upon the notification of the letter sent pursuant to Article 94 to the company.
*The above-mentioned article stipulates that the attachment must be notified to the Trade Registry to be registered by the enforcement office. However, like the registration in the share ledger, registration in the registry is not constitutive, but declarative. As stated in the doctrine (KENDIGELEN – Seizure of Naked Shares p.397), even if no notification is made to the trade registry in the seizure of naked shares, the acquisition will not be protected in subsequent share transfers, even if the transferee is in good faith.
*After the seizure of shares, the transfer of the seized shares shall be null and void to the extent that it violates the rights of the creditor.
*The procedure to be followed for the sale in the seizure of the naked shares in a joint stock company is the procedure followed in the sale of movable property under the Enforcement and Bankruptcy Law.
Attachment Procedures for Attachment of Naked Shares
There are decisions of the Court of Cassation stating that the transaction can only be carried out by the executive director personally by going to the location, i.e. the company headquarters. In the decision of the 12th Civil Chamber of the Court of Cassation dated 09.11.2006 and numbered 17735 Main and 20771 Decision dated 09.11.2006, ” (…) If the share certificate has not been issued, the debtor’s share rights (…), which are in the hands of the third party and have not yet been attached to the negotiable instrument (…) can be done by the execution directorate by personally going to the place of execution and entering it into the share ledger. (…)”
However, the opinion of the General Assembly of Civil Chambers of the Court of Cassation is that it is not necessary for the executive director to personally visit the company headquarters in order to carry out the attachment procedure. In its decision dated 04.07.2007 and numbered 12/332 Main and 446 Decision dated 04.07.2007 (…) If no share certificate or share certificate has been issued for the shares in joint stock companies, the debtor’s naked share in the company is seized by the enforcement office by notifying the company. Accordingly, the enforcement director who decides on the seizure of the naked share is not obliged to go to the place of seizure to take protective measures regarding this seizure. Pursuant to Article 94/1c.3 of the EBL, the enforcement director may also be satisfied with sending a notice to the joint stock company.
It has been mentioned above that it is possible, but not obligatory, to seize the naked shares on site by the officer in person. However, if the seizure of the share at the place of seizure is preferred, the bailiff shall go to the headquarters of the company and notify the company of the report to be prepared there and carry out the seizure. In this minute, just like in the notification to be made without going to the neighborhood, the debtor’s naked share in the company is seized; this seizure should be recorded in the share ledger, and in the event that share certificates or certificates are issued in the future, the share certificates or certificates that will fall to the debtor’s share should not be given to the debtor but should be delivered to the enforcement office; henceforth, all notifications shall be made to the enforcement office; in all decisions and disposals where the debtor’s consent is required, the consent of the enforcement office shall be obtained instead of the debtor. If the share ledger is presented to the executive director who goes to the company headquarters, he or the company official shall enter the attachment in the ledger and the relevant matter shall be recorded in the minutes. If the share ledger cannot be submitted for any reason or if the company official refrains from submitting it, this situation will also be recorded in the minutes. However, as we have mentioned before, since registration in the share ledger is not a constitutive element, the attachment is realized with the existence of the minutes in any case. This minute does not need to be notified to the company. The minutes shall replace the notification.
One of the situations encountered in practice is the seizure of shares only by writing a letter to the Trade Registry Office. Such a practice is invalid as it is contrary to Article 94 of the EBL. Because the relevant notification must be made by the enforcement office by notification to the company in which the debtor has a share. Otherwise, the attachment will not be realized.
In addition, it is argued in the doctrine that the aforementioned notification within the scope of the article can be sent via 89/1 first attachment notice and is valid. Pursuant to the relevant opinion, it will also be valid to notify by means of 89/1, or to send a notification containing 94 or to send a writ containing only the necessary elements regarding the attachment. Their argument is supported by the fact that there is no legal provision preventing the notification in the form of 89/1.
Notifying the Debtor of the Attachment
If the attachment is made in the absence of the debtor, the debtor shall be notified of the attachment by serving a sample invitation paper in accordance with Article 103 of the EBL. The attachment shall not be effective against the debtor who is not aware of the attachment. The attachment is completed with the notification to the debtor.
Appraisal of the Naked Shares
Following the seizure, an appraisal must be made in accordance with Article 87 of the EBL. Since the enforcement office does not have sufficient information, it is carried out by an expert. For the sale, the appraisal report must be notified to the relevant parties and debtors and finalized.
The interested parties may submit their objections regarding the report to the Enforcement Court within 7 days from the notification of the report to them by way of complaint. ( Article 128/1 of the Execution Law by analogy)
Monetization of Naked Shares
The creditor is obliged to request the sale of the naked share within 1 year following the seizure of the share (Art. 106 of the EBL), otherwise the seizure will be dismissed. The term attachment stipulated in the Article refers to the date of the actual implementation of the attachment, not the date of the decision. As a movable property, the share must be sold within 1 month at the latest after the sale request. The aforementioned 1-month period is recognized to enable the bailiff to properly complete the preparation and sale procedures and refers to the period within which the sale must take place at the latest. Pursuant to Article 94 of the EBL, the procedure to be followed in the liquidation of the seized naked shares is the same as the procedure to be followed in the liquidation of the seized movables.
Circumstances in which the Sale Request Period will not run
1.Temporary Attachment and Precautionary Attachment
2nd installment payment
3. Appropriation Case
4.Extraordinary Deadline
5. Vacation in Extraordinary Circumstances
6.Opening of Bankruptcy
7. Decision by the Enforcement Court to suspend the proceedings
SOURCE
1. Av. R.Murat Dönmez Seizure and Monetization of Shares in Joint Stock and Limited Liability Companies 4th Edition
2. Prof. Dr. Timuçin Muşul Principles of Enforcement and Bankruptcy Law 5th Edition
3. Ankara University Onur Kalkan Share Seizure in Joint Stock Companies Master’s Thesis-Ankara 2009