According to the Turkish Commercial Code numbered 6102, which introduced the terminology "group of companies" into the Turkish laws, the majority shareholder of group of companies ("Majority Shareholder") has right to purchase the shares of the minority shareholder of group of companies ("Minority Shareholder") under certain circumstances. This right, allows the majority shareholder to cease minority shareholder's status of being a shareholder, who is preventing or trying to prevent the group of company running in due course. In this memorandum, we will briefly explain the right of such squeeze-out and the way to exercise such right.
The main reason of regulating such right is to allow majority shareholder to purchase the shares of the minority shareholder who is preventing the company to exercise its activities in due course and provide better conditions to run the company. The draft of the Turkish Commercial code numbered 6102 was allowing the majority shareholder holding minimum 95% of the shares and voting rights of company to exercise such right. However, this rate has been reduced to 90% before the law has been adopted.
Requirements of Exercising Such Right
Holding shares & Voting Rights: According to article 208 of the Turkish Commercial Code, the majority shareholder, needs to own at least 90% of the shares and voting rights of the company. According to the TCC, exercising such squeeze-out right shall be valid after the approval of court which means, the requirement of holding 90% shares and voting rights, needs to be kept until the decision of court allowing the use of such right.
Acts of Minority Shareholder: To exercise such rights, it should be proven by the majority shareholder that minority shareholder acts against the benefit of the company. Article 208 has listed several examples that shall be considered as acts giving the majority shareholder the right to exercise the right of squeeze-out. According to article 208, the circumstances that gives the right to exercise such right is not limited to the examples given, so there may be other circumstances that shall cause ground to exercise such right. The examples given in article 208 are; acting in a way that prevents the company to carry out its business in due course, acting contrary to the principle of honesty, acting without care or causing the company problems during its operations. However, in any case, the court will decide whether an act can be considered as a valid reason to exercise such squeeze-out right.
Determination of the Value of Shares Subject to Squeeze-Out
Determination of the value of the shares shall be made by the court. According to article 208 of the Turkish Commercial Code, if the company is listed, the value of shares will be determined according to the stock exchange value. Otherwise, an expert shall be appointed by the court to determine the value of shares.
Procedure of Exercising the Right and Transfer of Shares
The majority shareholder who/which wants to exercise the squeeze-out right needs to apply to the court and request from the court to allow itself to exercise the squeeze-out right. The court will first check whether the applying shareholder holds enough shares and voting rights of the company subject to squeeze-out as per the TCC. The second issue that the court will check is whether there is an act of minority shareholder which shall be considered a valid reason for exercising squeeze-out right. If both requirements mentioned above are met, the court shall valuate the shares subject to squeeze out and give certain time to the applicant for depositing such amount into court. After such amount is deposited, the court shall order that the shares of minorty shareholder are transferred to majority shareholder.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.