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Liability of cooperative members, in short, determines under what conditions and to what extent creditors may have recourse to the members when the cooperative’s assets are insufficient to meet its debts. The Cooperatives Law regulates not only the rights but also the liabilities of members. The Law protects the cooperative and its creditors as much as it protects the members. In this article, we discuss the liability of the cooperative and of its members, additional contributions, liability in the event of bankruptcy, death, withdrawal and dissolution, the amendment of the liability provisions, and the limitation period.
Currency note
This article was prepared in accordance with the legislation and practice in force on the date of its publication. The names of ministries, the sample articles of association provisions and amounts cited as examples, and the statutory references in the article may have changed since then. You are advised to consult a lawyer on the current position.
Article 28 of the Cooperatives Law provides: ‘‘Unless the articles of association provide otherwise, the cooperative is liable to its creditors only with its assets’’. Accordingly, as a rule, the cooperative is liable to its creditors only with its assets. In this case, if the cooperative’s articles of association contain no provision, or contain a provision stating that ‘the cooperative is liable to its creditors only with its assets’, the cooperative’s creditors cannot have recourse to the members’ personal assets[1].
For example, the model articles of association for agricultural development cooperatives published by the Ministry of Food, Agriculture and Livestock contain the following provision: ‘The cooperative is liable for its debts with its assets and with 50 times the capital subscribed by its members and the additional payment obligations.’ By contrast, the model articles of association for housing construction cooperatives published by the Ministry of Labour and Social Security contain no provision on the liability of the cooperative.
Cooperatives cannot include in their articles of association a provision that they will be liable with only part of their assets. Nor can it be provided that cooperatives will be liable beyond their assets. However, if the members wish to assume additional liability, they may assume personal liability beyond the cooperative’s assets by providing for this in the articles of association.[2]
The concept of the cooperative’s assets comprises the asset items entered in the cooperative’s balance sheet, such as capital, receivables and rights. Receivables must also be taken to include the cooperative’s receivables from third parties. However, the cooperative’s members should not be regarded as third parties vis-à-vis the receivables[3].
As a rule, it is accepted that members are not liable for the cooperative’s debts. The reason for this is to prevent creditors from having recourse to persons brought together by the principle of mutual aid and solidarity. If the members wish to assume liability, they may adopt in the articles of association one of the types of liability provided for in the law: one is unlimited liability and the other limited liability.
Unlimited liability · Cooperatives Law Art. 29
Creditors may have recourse to the members’ assets without any limit; the liability is joint and several.
Limited liability · Cooperatives Law Art. 30
The member is held liable in addition to and beyond the capital share; this additional liability is limited to a specific amount.
Article 29 of the Cooperatives Law: ‘‘The articles of association may provide that, where the cooperative’s assets are insufficient to meet its debts, its members shall also be held personally and without limit liable. In this case, if the creditors cannot fully recover their claims upon the bankruptcy of the cooperative or its dissolution for other reasons, the members of the cooperative shall be jointly and severally liable with all their assets for the debts of the cooperative.’’
Kooperatifler Kanunu, m. 29
Under this provision, creditors may have recourse not only to the cooperative’s assets but also to the members’ assets, without being subject to any limit. Since the liability is joint and several, they may pursue whichever member they choose.
The legislature has protected cooperative members by stipulating that certain conditions must be met for creditors to have recourse to the members.
Unlimited liability has very onerous consequences for the members. For this reason, in practice, cooperatives do not favour the rule of unlimited liability and do not include such a rule in their articles of association.
Article 30 of the Cooperatives Law: ‘‘The articles of association may include a provision that, for the debts of the cooperative, each member shall be personally liable, after the cooperative, in excess of his or her own share and up to a specified amount. The amount for which the members will be individually liable may also be expressed in proportion to the amount of their shares in the cooperative.
Until the end of the bankruptcy, this liability is asserted by the bankruptcy administration.’’
Kooperatifler Kanunu, m. 30
The type of liability most commonly encountered in practice is limited liability. Indeed, the model articles of association for agricultural development cooperatives published by the Ministry of Food, Agriculture and Livestock contain the following provision: ‘‘The liability of the cooperative’s members is limited to 100 times the capital shares they have subscribed and the additional payment obligations.’’ Limited liability is an additional liability, since the member is held liable in addition to and beyond his or her capital share. This additional liability, unlike unlimited liability, is limited to a certain amount. Recourse is had to the member’s assets and a claim is made for a certain, limited amount.
By a provision to be included in the cooperative’s articles of association, it may also be agreed that the member is liable separately from his or her capital share and up to a specified amount, for example ‘‘up to 100,000 lira’’.
Certain conditions must be met for limited liability to apply:
Article 31 of the Cooperatives Law provides that members may be held liable for additional payment obligations. ‘‘The articles of association may impose additional payment obligations on the members. However, the additional payments must be used solely to cover balance sheet deficits . The additional payment obligation may be unlimited, or it may be limited to specified amounts or in proportion to the volume of business or to the shares.
In the event of the cooperative’s bankruptcy, the right to claim the additional payments belongs to the bankruptcy administration.’’
Kooperatifler Kanunu, m. 31
Additional contributions are not a type of liability but an obligation. The obligation is owed not to creditors but to the cooperative.
For the additional payment obligation to arise, the articles of association must have imposed an additional payment obligation on the members, the additional payments must be used to cover balance sheet deficits, and the balance sheet deficits must first be covered by the reserve funds.[6]
Article 32 of the Cooperatives Law: ‘‘Provisions of the articles of association that defer liability to a certain time or impose it on certain groups of members are invalid.’’
Kooperatifler Kanunu, m. 32
Under this provision, liability rests with all members, and it is not possible, through the articles of association, to defer liability to a certain time or to impose it on certain members. In other words, the inclusion in the cooperative’s articles of association of rules creating inequality in respect of the members’ liability is invalid. A similar provision is set out in Article 23 as follows: ‘‘Members are equal in rights and obligations within the principles accepted by this law.’’
Pursuant to Articles 124 and 16 of the Turkish Commercial Code, cooperatives are merchants as legal persons. Therefore, cooperatives may be pursued for all their debts. The bankruptcy of the cooperative may be ordered at the request of the creditors or of the cooperative. The procedure to be applied to the members where bankruptcy is ordered is set out in Article 33.
‘‘In the event of the bankruptcy of a cooperative whose members are personally liable or subject to additional payment obligations, the bankruptcy administration, while drawing up the ranking schedule, shall request each member to pay the debt falling to his or her share.
Amounts that cannot be collected shall be distributed among the other members . Any surplus of assets shall be returned upon the final determination of the share schedules. The members’ rights of recourse against one another are reserved. The members have the right to object, in accordance with the provisions of the Enforcement and Bankruptcy Law, to their provisionally determined debts and to the share schedule.’’
Kooperatifler Kanunu, m. 33
The ranking schedule referred to in that article is prepared by the bankruptcy administration and is one of its most important duties. Meanwhile, the bankruptcy administration requests the members to pay the debt falling to each of their shares. The amount that the bankruptcy administration will claim from the members is limited to the amount for which the member is liable.
If the members are personally and without limit liable and the creditors have not recovered their claims in full or in part, the bankruptcy administration may have recourse to the members for the remaining portion and collect the amount needed to cover the debt from whichever member it can obtain it. In this case, the members have rights of recourse against one another.
If the members are personally liable to a limited extent, the bankruptcy administration may request payment only of the amount for which the member is liable.
If the amount for which the member is liable is limited solely to his or her capital share and the member has paid that capital share in full, the bankruptcy administration will not be able to request payment from the member.
If the members are subject to additional payment obligations, the bankruptcy administration may request each member to pay the debt falling to his or her share.
What the bankruptcy administration may claim from the member according to the type of liability
| Position of the member | Bankruptcy administration |
|---|---|
| Personally and unlimitedly liable | For the remaining portion, it may have recourse to the members and collect an amount sufficient to cover the debt from whichever member it finds it with; the members have rights of recourse against one another. |
| Personally and limitedly liable | It may only demand payment of the amount for which the member is liable. |
| Liability limited solely to the capital share, and the share fully paid | It cannot demand payment from the member. |
| Under an obligation to make additional contributions | It may demand payment of the share of the debt falling to each member. |
The following paragraph states: ‘Amounts that cannot be collected shall be distributed among the other members shall be distributed among them.’ . The application of this provision differs according to the types of liability. It can be applied in cooperatives whose members are personally and without limit liable, and the members’ rights of recourse against one another are reserved. In cooperatives whose members have limited liability or are subject to additional payment obligations, the collection of uncollectable amounts from the other members and their distribution among them is possible within that limit. Even if there is an uncollectable amount, if a member has paid the amount for which he or she is liable, recourse can no longer be had to that member in respect of the cooperative’s remaining debts.
Since it is not possible to admit new members or for members to leave from the declaration of bankruptcy, the bankruptcy administration, while having recourse to the existing members, also pursues former members under Article 36:
‘’If a member with unlimited or limited liability dies or, for any other reason, leaves the cooperative and the cooperative goes bankrupt within one year, or such longer period as may be laid down in the articles of association, from the date on which the departure became final, the member shall not be released from liability for debts that arose before his or her departure.
Under the same conditions or within the same period, the additional payment obligation also continues to exist.
If a cooperative is dissolved and the opening of bankruptcy proceedings against the cooperative is ordered within one year, or such longer period as may be laid down in the articles of association, from the registration of the dissolution in the Trade Registry, the members shall likewise be liable together with the additional payments.’’
Kooperatifler Kanunu, m. 36
The liability of former members relates only to debts that arose before their departure. If, even though the bankruptcy administration has recourse to all members, including those who have left, the debt cannot be paid in full, the uncollected amounts are shared among the other members. The members have rights of recourse against one another.[7]
The members have the right to object, in accordance with the provisions of the Enforcement and Bankruptcy Law, to their provisionally determined debts and to the share schedule. If, after the creditors’ claims have been paid in full, a surplus of assets remains, this surplus is returned to the members. (Cooperatives Law, Article 33/2)
Considering that it would not be appropriate to accept that the members’ liability is unchangeable, the law has granted them this possibility. The cooperative’s development or the events it encounters in the course of its activities may make it inevitable to amend the members’ liability. To make the cooperative attractive, unlimited liability may be converted into limited liability or additional payments may be abolished. If a cooperative with few members that has adopted limited liability needs credit, it may be converted to unlimited liability.
Cooperatives Law, Article 34: ‘‘Amendments relating to the liability of the members and the additional payment obligations are possible only by amending the articles of association. The introduction or increase of liability and additional payment obligations takes effect in favour of all the cooperative’s creditors upon registration of the resolution to that effect. Resolutions on the reduction of liability do not cover debts that arose before registration.’’
Kooperatifler Kanunu, m. 34
The amendment can be made only by amending the articles of association.
Cooperatives Law, Article 51: ‘‘Resolutions amending the articles of association require a majority of 2/3 of the votes actually cast. The articles of association may lay down stricter provisions on the voting majority required for these resolutions.’’
Kooperatifler Kanunu, m. 51
Cooperatives Law, Article 52/1: ‘‘Resolutions on increasing the personal liability of the members or introducing additional payment obligations require the consent of 3/4 of all members.’’
Kooperatifler Kanunu, m. 52/1
Under the above provisions, if an amendment to the articles of association reducing liability is to be made, a majority of 2/3 of the votes actually cast is required. If an amendment to the articles of association increasing the personal liability of the members or introducing additional payment obligations is to be made, the consent of 3/4 of the members is required.
Amendment reducing liability
A majority of 2/3 of the votes actually cast is required.
Amendment increasing liability or imposing an additional payment obligation
The consent of 3/4 of the members is required.
The introduction or increase of liability and additional payment obligations takes effect in favour of all the cooperative’s creditors upon registration of the resolution to that effect. Registration here is constitutive.
Cooperatives Law, Article 52/3: ‘‘The resolutions do not bind members who did not participate in them if they give notice that they are leaving the cooperative within three months of the announcement. In that case, the declaration of withdrawal from the cooperative takes effect from the date on which the resolution enters into force.’’ It continues: ‘‘The exercise of the right to withdraw from the cooperative in this manner cannot be made conditional on the payment of a withdrawal indemnity.’’ , thereby introducing a provision in favour of the members.
Protection of creditors
Cooperatives Law, Article 34: ‘‘Resolutions on the reduction of liability do not cover debts that arose before registration.’’ In this way, creditors are prevented from suffering loss. The cooperative’s creditors may pursue their claims that arose before registration according to the previous liability position. Had no such provision been made, creditors could always have been caused loss by amending the articles of association to their detriment.
Cooperatives Law, Article 35: ‘‘In a cooperative whose members are personally liable or subject to additional payment obligations, a person who newly joins knowingly shall be liable, like the other members, for debts that arose before his or her joining. Contractual provisions to the contrary and agreements among the members have no effect vis-à-vis third parties.’’
Kooperatifler Kanunu, m. 35
A provision protecting the cooperative’s creditors and in their favour has been introduced. A member may join a previously established cooperative through the transfer of membership, by inheritance or by becoming a new member.
How ‘joining with knowledge’ is to be ensured is set out in Article 8. ‘’If the cooperative imposes on its members personal liability beyond its own assets or additional payments, the wish to become a member is valid only if these obligations are accepted in writing.’’ Thus, it will not be possible for a new member to claim that he or she did not know that the cooperative was one whose members are personally liable and subject to additional payment obligations.
In one of its judgments, the Court of Cassation[8] ‘‘The liability of new members joining a cooperative is regulated in Article 35 of Cooperatives Law No. 1163. Accordingly, since the person who takes over the cooperative membership has taken over that membership with all its rights and obligations, he or she is liable even for any previous debts. Where the transferring member and the transferee member agree that the previous debts belong to the transferring member, this provision is valid between the two of them and does not bind the cooperative. The transferee new member is obliged to pay the cooperative the debts of the transferring member as well. However, he or she may have recourse against the former member according to the relationship between them.’’ held.
Y. 11. HD. E:2004/2908 K:2004/12292 T:13.12.2004
The new member’s liability to the members and to third parties begins with the acceptance of the notice of joining. Where joining takes place without notice and acceptance, the act that takes the place of acceptance is taken as the basis.
Mandatory provision
Provisions of the articles of association, and agreements to be made among the members themselves, stating that a member who subsequently joins a cooperative whose members are personally liable and subject to additional payments will not be held liable for the cooperative’s debts prior to joining, have no effect vis-à-vis third parties. (Article 35, last sentence) This provision is mandatory.
Cooperatives Law, Article 36/1, 2: ‘‘If a member with unlimited or limited liability dies or, for any other reason, leaves the cooperative and the cooperative goes bankrupt within one year, or such longer period as may be laid down in the articles of association, from the date on which the departure became final, the member shall not be released from liability for debts that arose before his or her departure.
Under the same conditions or within the same period, the additional payment obligation also continues to exist.’’
Kooperatifler Kanunu, m. 36/1, 2
This provision protects creditors. Otherwise, where members realised that the cooperative was excessively indebted or that its affairs were deteriorating, they could leave the membership to escape liability.
The starting date of the liability period is the date of death in the case of a member’s death, and the date on which the withdrawal or expulsion became final in the case of a member’s departure. Membership ends upon death (Article 14). Since membership ends upon the death of the member, the liability provided for in the law in this case concerns the heirs of the deceased member. If the heirs of the deceased member have renounced the inheritance, the liability will have ended.[9]
For liability to arise, the bankruptcy must occur within one year or a longer period. The one-year period laid down in the law is a minimum, and a longer period may be set in the articles of association. A shorter period cannot be set by the articles of association. For example, in the model articles of association for housing construction cooperatives, ‘‘The liability of a member whose relationship with the cooperative has been severed continues for two years from the date of his or her departure.’’ is stated.
If a debt that will cause the cooperative’s bankruptcy arises after the member has died or left, and the cooperative goes bankrupt within the prescribed periods, then the liability of the deceased or departed member cannot be invoked.
Cooperatives Law, Article 36/3: ‘‘If a cooperative is dissolved and the opening of bankruptcy proceedings against the cooperative is ordered within one year, or such longer period as may be laid down in the articles of association, from the registration of the dissolution in the Trade Registry, the members shall likewise be liable together with the additional payments.’’
Kooperatifler Kanunu, m. 36/3
To invoke the liability of the members together with the additional payments, the cooperative must first have been dissolved and the dissolution must have been registered in the Trade Registry. Liability begins on the date on which the dissolution is registered.
Time limit
The bankruptcy of the cooperative must be ordered within one year, or a longer period set in the articles of association, from the date on which the dissolution of the cooperative is registered. If bankruptcy is ordered after the prescribed period has expired, it is not possible to invoke the liability of the members.
Cooperatives Law, Article 37: ‘‘Unless previously extinguished under a statutory provision, the creditors’ claims arising from the personal liability of the members may be asserted by each creditor for a further period of one year from the conclusion of the bankruptcy proceedings.
The members’ rights of recourse against one another are also time-barred one year from the moment the payment giving rise to that right is made.’’
Kooperatifler Kanunu, m. 37
The limitation period set out in this article is the limitation period applicable to the members’ liability in the external relationship. The limitation period concerning the members’ relationship with the cooperative or with one another relates to the internal relationship and is regulated in Article 147/4 of the Code of Obligations.[10]
The limitation period set out in the second paragraph is the limitation period for the members’ rights of recourse against one another. Accordingly, where a member who is jointly and severally liable for the cooperative’s debts pays a debt of the cooperative, or where a new member pays previous debts, he or she has a right of recourse against the other members within one year of the date of such payment. Since a special limitation period is provided here for the members’ rights of recourse against one another, the five-year period under the Code of Obligations cannot be applied in this case, even though it applies in other cases.[11]
The one-year limitation period begins from the conclusion of the bankruptcy proceedings. The conclusion of the bankruptcy proceedings means the closure of the bankruptcy (Article 254 of the Enforcement and Bankruptcy Law). Therefore, the one-year period starts from the date on which the court decision closing the bankruptcy is announced.
Finally, this article refers only to the bankruptcy of the cooperative; no provision has been made for liquidation. Article 29, mentioned earlier, provides: ‘‘if the creditors cannot fully recover their claims upon the bankruptcy of the cooperative or its dissolution for other reasons’’. If we apply this provision by analogy, the members remain liable to the creditors for a further year from the date on which the liquidation is completed.
Kooperatifler, are partnerships with variable membership and variable capital, having legal personality and established by natural and legal persons in order to secure and protect certain economic interests of their members, in particular their needs relating to their profession or livelihood, through mutual assistance, solidarity and guarantee by means of their labour and financial contributions.
The Cooperatives Law regulates the liabilities of the members as well as their rights. The law protects the cooperative and the creditors as much as it protects the members.
Outside the rules laid down in the law, the members may, of their own will, include provisions in the articles of association on their liability for the cooperative’s debts. Creditors may then recover their claims according to the liability so determined. Additional payment obligations may be introduced through the articles of association so that the cooperative can continue its activities, preserve its legal personality and cover balance sheet deficits. In the event of the cooperative’s bankruptcy, the members are liable to the creditors where the conditions set out in the law are met.
The law states that provisions of the articles of association that defer liability to a certain time or impose it on certain groups of members are invalid. This provision is parallel to the principle of equality in rights and obligations set out in Article 23 and prevents inequality among the members.
The provisions of the articles of association may be amended in the light of the cooperative’s development in the course of its activities or where there is an economic need. Different voting thresholds have been set for favourable and unfavourable amendments; an unfavourable amendment requires the approval of a larger number of members. A resolution does not bind a member who did not participate in it and who declares his or her withdrawal within three months of its announcement.
A person who knowingly joins a cooperative whose members are personally liable or subject to additional payment obligations is liable, like the other members, for debts that arose before his or her joining. In the event of a member’s death or departure, if the cooperative goes bankrupt within one year of the date on which the departure became final, or within a longer period if so provided in the articles of association, the member is not released from liability for debts that arose before the departure. In the event of the cooperative’s dissolution, if the opening of bankruptcy proceedings against the cooperative is ordered within one year of the registration of the dissolution in the trade registry, or within a longer period if so set in the articles of association, the members are likewise liable together with the additional payments.
In conclusion, it will be in the interest of those wishing to become members of a cooperative to be familiar with the provisions of the articles of association, so that they do not face surprises in the future and are aware of their liabilities in respect of the cooperative’s creditors.
[1] Gönen Eriş, Açıklamalı- İçtihatlı Uygulamalı Kooperatifler Hukuku, Ankara 2001, p. 688.
[2] Diğdem Göç Gürbüz, Kooperatiflerde Ortakların Sorumluluğu, Marmara Üniversitesi İİBF Dergisi, 2010, pp. 463–477
[3] Eriş, op. cit., p. 688.
[4] Ünal Tekinalp, Reha Poroy, Ersin Çamoğlu, Ortaklıklar ve Kooperatifler Hukuku, 10th ed., Istanbul, p. 993.
[5] Diğdem Göç Gürbüz, op. cit., p. 466.
[6] Court of Cassation 11th Civil Chamber, E: 7163, K: 6175, dated 04.10.1993. (Gönen Eriş, op. cit., p. 1176)
[7] Ünal Tekinalp, Reha Poroy, Ersin Çamoğlu, op. cit., p. 995; Diğdem Göç Gürbüz, op. cit., p. 471.
[8] Court of Cassation 11th Civil Chamber, E: 2004/2908, K: 2004/12292, dated 13.12.2004; Yusuf ÜSTÜN, Muhittin AYDIN, op. cit., p. 147.
[9] Diğdem GÖÇ GÜRBÜZ, op. cit., p. 474.
[10] Gönen ERİŞ, op. cit., p. 714. ‘‘Claims in a partnership arising from the partnership agreement between the partners themselves or between the partners and the partnership, and claims between the managers, representatives or auditors of a partnership and the partnership or the partners, are subject to a five-year limitation period.’’
[11] Diğdem GÖÇ GÜRBÜZ, op. cit. p. 476.
Related legislation: Cooperatives Law No. 1163 (mevzuat.gov.tr)
Under Art. 28 of the KoopK (Cooperatives Law), unless the articles of association provide otherwise, a cooperative is liable to its creditors only with its own assets. According to the article, where the articles of association contain no such provision, creditors cannot have recourse to the personal assets of the members.
Kural olarak ortaklar kooperatif borçlarından sorumlu değildir. Ortakların sorumluluğu, anasözleşmede Kanun’daki sorumluluk tiplerinden biri, yani sınırsız veya sınırlı sorumluluk kabul edilmişse söz konusu olur; ortak bu yükümlülüğü yazılı olarak kabul etmelidir.
According to the article, unlimited liability must be provided for in the articles of association, the cooperative must have gone bankrupt or been dissolved, and the creditors must have been unable to recover their receivables in full. In that case members are jointly and severally liable with all their assets.
KoopK m. 31’e göre anasözleşme ortakları ek ödemelerle yükümlendirebilir; ek ödemeler yalnız bilanço açıklarını kapatmada kullanılabilir. Makaleye göre ek ödeme bir sorumluluk türü değil, kooperatife karşı bir yükümdür; kooperatifin iflasında bunu isteme hakkı iflas idaresine aittir.
KoopK m. 35’e göre ortakları şahsan sorumlu veya ek ödemelerle yükümlü bir kooperatife durumunu bilerek giren kişi, girişinden önce doğmuş borçlardan diğer ortaklar gibi sorumludur. Buna aykırı anlaşmalar üçüncü kişiler hakkında hüküm ifade etmez.
KoopK m. 36’ya göre ayrılışın kesinleştiği veya ölüm tarihinden itibaren bir yıl ya da anasözleşmedeki daha uzun süre içinde kooperatif iflas ederse, ortak ayrılmasından önce doğmuş borçlar için sorumluluktan kurtulamaz. Makaleye göre ölüm hâlinde bu sorumluluk mirasçılar yönündendir.
A change is possible only by amending the articles of association. A change reducing liability requires two-thirds of the votes actually cast; increasing personal liability or introducing an obligation to make additional payments requires the consent of three-quarters of all members. A reduction in liability does not cover debts that arose before registration.
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