With new Turkish Commercial Code no. 6102, pre-emption rights of the shareholders have been renewed and extended with safeguarding provisions; the scope of limitations is explicitly defined. But the right of first refusal is still not regulated under legislation and is still subject to Code of Obligation provisions.
What is a pre-emptive right?
A pre-emptive right grants the shareholder priority to purchase (i) newly issued shares pro rata to its shareholding in case of capital increase, based on statute (pre-emption right) or (ii) the existing shares of other shareholders before third parties, by contract (right of first refusal).
Turkish Commercial Code no. 6102 dated 14 February 2011 (Türk Ticaret Kanunu; TCC) explicitly grants existing shareholders the right to purchase new shares to be issued by means of a capital increase pro rata to their shareholdings in the company (pre-emption right; rüçhan hakkı). The shareholder may thus maintain its existing participation in the company's share capital – a dilution risk is eliminated.
Exercise of the pre-emption rights of a shareholder may not be restricted or prohibited with a provision inserted in the articles of association (ana sözleşme) of the company. According to Art 461 of the TCC, pre-emption rights may be fully or partially restricted or prohibited only by adopting a resolution of the shareholders' meeting. However, such resolution requires the affirmative vote of at least 60% of the share capital at the shareholders' meeting. In addition, there should be a written report prepared by the board of directors justifying such restriction or prohibition, and the report should be announced and registered at the Trade Registry.
In each case, the restriction or prohibition of pre-emption rights must be based on a justifiable reason, and the restriction or prohibition decision must be in the company's best interest – and it may not lead to an advantage/disadvantage to someone for unjust reasons. The relevant TCC provision lists examples that can be deemed as justifiable reasons, such as a public offering; acquisition of the enterprise, parts of enterprise or subsidiaries; and participation of employees in the company.
The Board of Directors is required to define the specifics of the right to acquire new shares in its resolution, and give at least 15 days' notice to the shareholders in order to exercise the relevant right.
Right of first refusal
The right of first refusal (ön alım hakkı) is a contractual right that grants the holder to the right to purchase existing shares of other shareholders before third parties. It is not regulated under Turkish legislation. However, a right of refusal may be agreed by the parties in shareholders' agreements and articles of association. According to an executed shareholders' agreement, the right of first refusal can be exercised with the delivery of a unilateral statement from the holder of the right. In such case, the other shareholder must make the share transfer to the holder of such right.
Contractual v statutory pre-emptive rights
Pre-emption rights are regulated under the TCC as a statutory provision that may lead to cancellation of the share transfer upon request of the shareholder if his/her right is infringed. Such request would lead to an invalid share transfer and annulment of the shareholders' meeting.
On the other hand, shareholders' agreements are contracts executed between shareholders in accordance with the principles of the Code of Obligations. In case of an infringement of the right of first refusal, unlike with pre-emption rights, transferred shares would still be valid, but the breaching shareholder would be liable for damages; that is, the share transfer would become the subject of an action for damages.
Quote: Exercising pre-emptive rights may lead to different results depending on the nature of the right: statutory or contractual.
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