Managers may encounter civil and criminal liabilities should they breach any of their duties. It is important to note that limited liability companies are subject to the same provisions as joint stock companies in terms of their liability.
“in the event that…board members… breach their duties stipulated under the laws and Articles of Association due to their fault, they will be held liable for the damage incurred by the company, shareholders and creditors of the company”
In such circumstances the company, shareholders, and/or creditors may claim their damages and losses and initiate a lawsuit against the managers whose actions or omissions caused such damage or losses. Moreover, the burden of proof in such a lawsuit is laid on the manager.
Furthermore, public debts (eg tax debts) which could not be fully or partially collected or were determined to be uncollectible from the company may be collected from the manager, provided that they are granted with representation and signatory powers of the legal entity. Such managers may then seek recourse of the amount paid to the respective authority from the Company, if possible.
Managers are also responsible for ensuring that all public duties are fulfilled. Where the managers do not fulfil their obligations and public debts cannot be totally or partially collected from the assets of the entity, these will be collected from the assets of the managers, provided that they are granted with representation and signatory powers and did not fulfil their obligations.
In several cases, misconduct of a manager can lead to criminal liabilities, eg:
In principle, a manager cannot be held liable if the actions undertaken by him were approved by a shareholder resolution, unless such actions are illegal. In such case the manager is obliged to ignore any instructions received by the shareholders.
The shareholders may grant full discharge to release a manager from his liability, to the extent that the shareholders are or could have been aware of the facts that would have led to a claim of the company against the manager. This does not apply to criminal offences or liabilities resulting from gross negligence or wilful misconduct.
Please note, a mangers’ liability to third parties cannot be limited.
Pursuant to Turkish Law, managers can be released from their liabilities against the company by a general assembly resolution (board of shareholders). However, such a resolution shall only mean that the company may not bring any claim against the manager for the damages incurred; it will not affect third parties.
However, it is necessary to mention that the decision on the release of such manager(s) must include and specify all substantial actions/ matters from which the manager(s) are released, otherwise it shall not be applicable.
Managers can delegate their representation and management powers to other Board members or third parties, wholly or partially, excluding their non-transferrable duties mentioned under duties – general.
However, it should be noted that such delegation does not remove or restrict the liabilities of the managers.
Managers’ liability insurance has recently been introduced following an update to Turkish law.