This article explains how minority shareholders, including foreign investors, can use a special audit to obtain information in a Turkish joint stock company.
Foreign investors often hold minority stakes in Turkish joint stock companies (anonim şirket), typically through a joint venture with a local partner who runs the business day to day. When the relationship deteriorates, the first problem is usually information. The minority investor suspects that assets are being sold below value, that contracts with the majority's affiliated companies are not at arm's length, or that profits are being diverted, but it cannot see the documents that would prove it. Contractual information rights in a shareholders' agreement may not be enough, particularly if the local partner simply stops cooperating. The Turkish Commercial Code (TCC) provides a statutory tool that does not depend on the partner's goodwill: the special audit, carried out by an independent expert appointed by the commercial court. This article explains how the special audit works and how foreign minority shareholders can use it.
1. What a Special Audit Is, and Why It Matters for Foreign Investors
A special audit is not a general audit of the company. It is an investigation of specific events that a shareholder needs clarified in order to exercise its shareholder rights, for example the terms on which a property was sold, the price under a contract with an affiliate, unusual expenses in a given period, or the transfer of a subsidiary below value.
The right to a special audit is a mandatory minority protection. It cannot be excluded or made more difficult by the articles of association. For foreign investors this matters in two ways. First, it operates alongside any information rights in the shareholders' agreement, and does not depend on the local partner honouring them. Second, it is enforced by the Turkish courts, so it remains available even where the shareholders' agreement provides for arbitration abroad. The appointment of a special auditor is a matter for the Turkish commercial court; it is not a remedy an arbitral tribunal can grant in place of the court.
2. The Prerequisite: Exercising the Statutory Right to Information
A special audit can be requested only if the shareholder has first exercised its statutory right to information or inspection (TCC Article 438). Under Article 437, a shareholder may ask the board at the general assembly for information on the company's affairs, and the auditors for information on how the audit was conducted and its results. Inspection of the books and correspondence requires the express permission of the general assembly or a board resolution.
The most common mistake is to go straight to a special audit request without first asking questions at the general assembly. Foreign shareholders who attend general assemblies through a proxy should make sure their representative asks specific questions about the transactions of concern and has both the questions and the answers recorded in the minutes. Those minutes form the foundation of everything that follows.
3. Step One: Asking the General Assembly
Any shareholder, regardless of the size of its stake, may ask the general assembly to have specific events clarified by a special audit, even if the item is not on the agenda (Article 438). If the general assembly approves, the company or any shareholder may apply to the commercial court at the company's registered seat within thirty days to have a special auditor appointed.
In practice, a majority shareholder is unlikely to approve an investigation into its own management. The request at the general assembly is therefore usually a necessary formality before going to court.
4. Step Two: Going to Court After Rejection
If the general assembly rejects the request, shareholders holding either of the following may apply to the commercial court at the company's registered seat within three months for the appointment of a special auditor (Article 439):
- at least 10 percent of the share capital (5 percent in publicly held companies); or
- shares with an aggregate nominal value of at least TRY 1 million.
Several shareholders may combine their holdings to reach these thresholds. The TRY 1 million threshold is calculated on the nominal value of the shares, not their market value. In larger companies, a stake well below 10 percent can therefore still qualify, a point worth checking before the investment is structured.
The court grants the application if the applicants make it plausible that the founders or the company's bodies have breached the law or the articles of association and that this conduct is capable of causing loss to the company or the shareholders. Full proof is not required; the purpose of the audit is precisely to obtain the information needed for proof. General suspicions are not enough, however. The application should identify which transactions are said to be in breach, why, and the specific questions the audit should answer.
The court hears the company and the applicants, and, if it grants the application, appoints the special auditor and defines the scope of the investigation. A clearly and narrowly defined scope is key to an effective audit.
5. The Special Auditor's Powers
The special auditor conducts the investigation impartially and without unnecessarily disrupting the company's business. Members of the company's bodies and its employees must provide the auditor with information and documents relating to the events under investigation; disputes over access are decided by the court. The auditor's work is limited to the defined scope, and the company's trade secrets must be respected.
Special auditors are usually certified public accountants, independent auditors or academics with relevant expertise. Asking the court to appoint an expert suited to the subject matter, for example a valuation specialist where an asset transfer is in question, has a direct effect on the quality of the report.
6. The Report and the Costs
The special auditor submits a detailed report to the court. The report is communicated to the company, with due regard for its trade secrets, and the company is given an opportunity to comment. The board must present the report and the company's comments to the next general assembly, and shareholders may request copies.
The costs are, as a rule, borne by the company. The court may, however, allocate them wholly or partly to the applicants where special circumstances justify it. This makes the special audit a relatively low-cost tool for minority shareholders, while unfounded applications carry a costs risk. Foreign applicants should also budget for translations, as the proceedings and the report will be in Turkish.
7. Using the Report
A special audit does not itself impose any sanction; its output is a report. Its value lies in what it enables next:
- Director liability claims: the report can serve as key evidence of loss and fault in liability claims against board members under Article 553 et seq. of the TCC.
- Annulment of general assembly resolutions: it can establish the facts needed to challenge resolutions such as the release of directors or the approval of related party transactions.
- Dissolution for just cause: shareholders holding at least 10 percent of the capital may ask the court to dissolve the company for just cause under Article 531; the court may instead order that the claimant's shares be bought out at their value. The report can support the existence of just cause.
- Negotiation: in practice, the findings often create a strong basis for negotiating an exit at a fair price or a restructuring of governance.
Where the shareholders' agreement provides for arbitration, the special audit report can also be used as evidence in the arbitration. The interaction between court proceedings and arbitration clauses deserves careful planning; we discussed common pitfalls of arbitration clauses under Turkish law in this article.
8. Practical Recommendations for Foreign Minority Shareholders
- At the investment stage, check whether your stake will meet the 10 percent or TRY 1 million nominal value threshold on its own, and consider this when structuring the investment.
- Do not rely solely on contractual information rights; keep the statutory route in mind from the outset.
- Make sure your proxy at general assemblies asks specific questions and that they are recorded in the minutes, and request a special audit at the same meeting.
- Track the three-month deadline from the general assembly's rejection; arrange powers of attorney, apostilles and translations in good time.
- Support the court application with documents and define the scope narrowly and clearly.
- Treat the report as part of a wider strategy, whether liability claims, dissolution or a negotiated exit, and keep limitation periods under review.
9. Conclusion
For a foreign minority shareholder locked out of information by a local majority partner, the special audit is one of the most effective tools Turkish law provides. The key points can be summarised as follows:
- A special audit investigates specific events, not the company as a whole, and cannot be excluded by the articles of association.
- It is available alongside contractual information rights and is enforced by the Turkish courts.
- The shareholder must first exercise its statutory right to information, then request the audit at the general assembly.
- If the general assembly refuses, holders of 10 percent of the capital or TRY 1 million in nominal value may apply to the court within three months.
- The court requires the breach and its capacity to cause loss to be made plausible, not fully proven.
- Costs are generally borne by the company, and the report can support liability, annulment and dissolution claims or a negotiated exit.
For advice on minority shareholder rights, special audit applications, joint venture disputes and director liability in Turkish companies, please contact us at info@guzeloglu.legal.