Turkey: Minority Rights Under The New Turkish Commercial Code

The new Turkish Commercial Code No: 6102, (the "New TCC") strengthens the legal status of joint stock companies' (the "JSC") shareholders and grants them more protection when compared to Turkish Commercial Code No: 6762 (the "TCC"). Such strengthening is ensured, on one hand, through the granting of new rights to seek recourse through litigation granted to shareholders and, on the other hand, materializing and enriching those rights that exist currently. All of the shareholders will benefit from the newly strengthened rights and, certainly, minority shareholders will realize their own share from the improvement. Beyond the enriched rights granted to all shareholders, "minority shareholders," as a defined shareholder group, are not ignored. While the definition of minority shareholders is that of "shares representing at least 10%1 of the paid-in share capital of a closely held JSC" remains untouched in the New TCC, some new rights are granted, and some that currently exist are improved. The aim of this article is to focus on the minority rights as stated in the New TCC.

I. Minority Rights under the New TCC:

Certain right that already exist in the TCC are strengthened and protected under the New TCC.

(i) Postponement of balance sheet discussions: (The New TCC, Article 420)

Minority shareholders are entitled to request postponement of balance sheet discussions for one month. The main purpose of this provision is to give the minority shareholders a chance to review the balance sheet in greater detail. If a satisfactory explanation cannot be given as to the issues objected to by the minority shareholders regarding the balance sheet, the minority shareholders may request the delay of balance sheet discussions for a second and final time.

Upon non-compliance with minority shareholders' requests regarding postponement of the balance sheet discussions, the general assembly decision regarding the approval of the balance sheet may be cancelled or deemed null and void by the relevant court.

(iii) Appointment of an Independent Auditor: (The New TCC, Article 438)

Every shareholder has the right to request the appointment of an independent auditor whenever it necessitates exercising its shareholders' rights in the general assembly meeting (the "GAM"), although it is not included in the agenda, and provided that the information or evaluation right has already been exercised. If such request is rejected by the GAM, then the minority shareholders, or shareholders whose total nominal value of shares are at least TL one million may request the appointment of an independent auditor from the commercial court of first instance who has jurisdiction in the area of the headquarters of the JSC. The court decides on the appointment of an independent auditor if the petition clearly refers to the damages incurred by the JSC due to acts of incorporators, or bodies of the JSC who are in violation of the law or the Articles of Association (the "AoA").

(iv) A Request for a GAM and Addition of an Item to the Meeting Agenda: (The New TCC, Article 411)

Minority shareholders may, via notary public, request that an extraordinary GAM be convened, or that an time to the agenda of the GAM be added, if a date has already been established for the meeting. The request for an additional agenda item should be submitted to the Board of Directors (the "BoD") prior to depositing the registration fee of the Turkish Trade Registry Gazette with respect to convening a GAM. If the BoD accepts the request of the minority shareholders, a GAM will be called to be convened within, at the most, 45 days. Otherwise, as per the provisions of the New TCC, the GAM may be called to be convened by the parties so requesting.

(v) The Rights with Respect to Settlement and Release: (The New TCC, Article 559)

Responsibilities of the BoD, auditors, and incorporators with respect to the incorporation and capital increase of the JSC cannot be settled or released unless four years have passed since the incorporation. Subsequent to such four-year period, a settlement or release may only be validated upon the approval of the general assembly. However, a settlement or release cannot be granted if the minority shareholders vote against such settlement or release.

II. Newly granted Minority Rights:

(i) The Right to Request the Dissolution of the JSC (The New TCC, Article 531):

For just cause, minority shareholders may request the dissolution of the JSC by filing a lawsuit before the commercial court of first instance that has jurisdiction over the headquarters' address of the JSC. Instead of dissolution, the court may decide upon the payment to the plaintiff shareholders of their share market value as of the date closest to the court decision, and termination of their shareholding, as well as any other appropriate and acceptable solution.

(ii) The Right to Request Issuance of Shares (The New TCC, Article 486/3):

In the event of a request by the minority shareholders, the JSC is obliged to issue registered share certificates and to distribute such to each shareholder holding registered shares. The provision's intention is to prevent share transfer restrictions by not giving share certificates, proof of shareholding and pressure, especially being exerted by the management of a closed JSC, or a family of companies, by not issuing/distributing share certificates.

(iii) The Right to Request the Replacement of the Auditor (The New TCC, Article 399/4-5):

The commercial court of first instance that has jurisdiction over the address of the headquarters of the JSC may replace the auditor upon the request of the minority shareholders or the BoD, if there are just causes regarding the auditor itself, especially if there is doubt as to the auditor's neutrality, by hearing both the auditor and those concerned. A lawsuit regarding the replacement of the auditor should be filed within three weeks following the announcement of the appointment of the auditor of the Turkish Trade Registry Gazette. In order for minority shareholders to file a lawsuit, they must have (i) voted against the appointment of the auditor; (ii) recorded their objection in the meeting minutes; or (iii) held the minority shareholder position for a period of at least three months prior to the GAM.

(iv) The Right of Representation in the BoD: (The New TCC, Article 360)

Minority shareholders and a certain group of shareholders may be granted the right of being represented in the BoD by the AoA. Accordingly, certain BoD members may be elected from amongst certain groups of shareholders or minority shareholders, or they maybe granted the right to nominate BoD members to be elected. The nominee of, or a shareholder amongst, minority shareholders, or a certain group of shareholders, must be elected as a member of the BoD, unless just cause exists not to do so. The representation right thereof cannot exceed 2/3 of the BoD in publicly held companies.

III. Qualified Quora

Apart from the rights mentioned above that have been specifically drafted to consider minority protection, qualified meeting and decision quora as defined under Article 421 of the New TCC should also be taken into consideration. For instance, consents of at least 75% of shareholders of a JSC are required: (i) to change the scope of the company entirely; (ii) to create privileged shares; or (iii) to resolve any restriction with respect to the transfer of registered shares. A decision quorum remains same for the second meeting. Moreover, shareholders who vote against (i) and (ii) shall not be subject to restrictions regarding share transfers for six months starting from the announcement of such resolution in the Trade Registry Gazette. Also, approval of at least 75% of shareholders is required for dissolution via a general assembly resolution. As stated under the TCC, an increase of shareholders' undertakings, e.g. injection of funds into the company to assist it in the recovery from a financially troubled situation, still requires unanimous approval.

Furthermore, the implementation of the new instrument, "squeeze-out of minority mechanism" given to the majority in the event of a merger under the New TCC is narrowed by a qualified quorum. Accordingly, if a merger agreement foresees squeeze-out compensation, such agreement should be approved by shareholders with 90% of the voting rights of such dissolving entity.

IV. Conclusion

Following the entry into force of the New TCC, minority shareholders will surely have new instruments to use as a shareholder of the company. However, the implementation of those instruments is yet to be tested.

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.

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