Turkey: Financial Assistance Rules Under The New Turkish Commercial Code

Last Updated: 21 October 2014
Article by Hakki Gedik and Efra Aydin

The New Turkish Commercial Code which entered into force on 1 July 2012 introduces novelties regarding financial assistance. By contrast, the previous Turkish Commercial Code (the Previous TCC) contained no clauses limiting or prohibiting subsidiaries (to the extent they are not public companies) from providing financial assistance to their parent companies by way of giving loans and/or securities for debts of their parent companies.

Abuse of Power

The New Turkish Commercial Code (the New TCC) introduces certain principles relating to assistance that subsidiary companies provide to their controlling companies for the purposes of facilitating transactions undertaken by such controlling companies (the Subsidiary Assistance).

However the New TCC also provides a relaxation procedure as an exception to its prohibition on providing Subsidiary Assistance. According to the relaxation procedure, the controlling company will not be deemed liable if it compensates for the loss of the subsidiary or provides equivalent claim rights within the same financial calendar year.

Despite the restriction applicable to controlled subsidiaries, the New TCC sets forth a different regime for wholly owned subsidiaries. Under the New TCC, the board of directors of the controlling company, as long as its specified and factual policies require, is entitled to give instructions regarding the management of its subsidiary provided that it holds, directly or indirectly, 100% of the shares and voting rights of its subsidiary. In this case, even if such instructions might result in loss for the subsidiary, the management and other bodies of the subsidiary must comply with such instructions. However, instructions clearly exceeding the subsidiary's solvency, jeopardizes its existence, or results in the loss of significant assets of the subsidiary, shall not be given.

Legal Consequences of Abuse of Power

Any of the subsidiary's shareholders have the right to request compensation for damages if the controlling company does not cover the loss of the subsidiary, or does not provide an equivalent form of compensation within the same financial calendar year. In such case, the transaction supported by the Subsidiary Assistance shall remain enforceable, however, the controlling company's board of directors will be liable against the creditors of the subsidiary together with the controlling company.

In case the parent company does not compensate the losses incurred by the subsidiary, the shareholders and creditors of the subsidiary are entitled to recourse to the parent company and to the board members of the parent company for compensation of losses. The dissenting shareholders of the Subsidiary may resort to courts in order for their shares to be purchased or their loss to be indemnified by the controlling company upon certain conditions.

Financial Assistance Under Acquisition Financings

Article 380 of the New TCC sets forth that a target company may not advance funds, provide loans, security or guarantee to a third party to facilitate the acquisition of its own shares. The methods stipulated under the New TCC to grant interest to third parties are not exhaustively listed and any direct or indirect attempt to facilitate such interest may fall into the territory of this prohibition.


Transactions carried out by banks or financial institutions in performance of their ordinary course of business; and share acquisitions by the employees of the company or the employees of a subsidiary are exempted from the prohibition to provide financial assistance in acquisition of a company's own shares.

There is no agreed interpretation of the scope of the exemption granted to banks or financial institutions in performance of their ordinary course of business. Some scholars claim that this wording is meant to exempt all transactions whereby banks or financial institutions give loans that are secured by the collaterals provided by the target company itself for the purposes of acquisition of its own shares. Whereas some scholars stress that the exemption would apply only to cases where the banks provide financing to third parties to enable them to purchase the shares of the bank itself. It is more likely that the latter scenario would be applicable based on the interpretation of the prohibition in accordance with the underlying EU Directive issued in 1976.

Legal Consequences of Financial Assistance

In case the target company conducts any act to violate this prohibition, the relevant transaction security shall be deemed void. The wording of this provision leads to the conclusion that the share purchase transaction for acquisition of the shares of the target company shall still be enforceable but any security given by the target company shall be null and void..

Position of Transactions Carried Out in the Era of the Previous TCC

As the Previous TCC does not include any specific provisions on financial assistance and abuse of power, these matters were covered by the general provisions under Turkish law governing the so-called concept of "undertaking the performance of a third party." Accordingly, the Law on Implementation of the New TCC immunized the transactions performed during the Previous TCC era from the financial assistance prohibitions stipulated under the New TCC. The financial assistance prohibition shall only be applicable to the transactions that took place after 1 July 2012. However, in case there is a need to provide additional collaterals to secure the transaction that was completed when the Previous TCC was in force, then such prohibitions will be applicable to those additional collaterals.

Potential Gateways

  • Limited Liability Companies: There are no restrictions under the New TCC in relation to the financial assistance provided by a limited liability company.
  • Upstream Merger: The Target could be merged with the acquisition vehicle following the completion of the share acquisition. Accordingly, the assets of the Target will be acquired by the acquisition vehicle and the creditors of the acquisition financing will be able to enjoy the entire security package whereby the merger transaction itself would offer protective measures for the benefit of the shareholders or creditors of the Target.
  • Mezzanine financings: Mezzanine financings may be an alternative to overcome relevant restrictions to the extent that the acquirer, as the borrower of the acquisition facility, will only be required to provide security over the shares of the Target which belongs to the acquirer itself.
  • Combined tranches involving different types of facilities: In the event that the Target becomes party to such a facilities agreement composed of different types of facilities for different purposes, it can provide security for the facilities made available thereunder other than the acquisition facility. On top of being a borrower, if the Target becomes a guarantor and guarantees the obligations of other group entities, it is very likely that a default under the acquisition facility would trigger cross-default under other facilities that are either borrowed or guaranteed by the Target company. Consequently, this would indirectly enable the creditors to foreclose upon the Target's security package.

  • Layered acquisitions structures: In this scenario, another company is introduced to or involved in the transaction to disguise the Target aimed to be acquired or the organization of the relevant group requires an indirect acquisition of the Target's shares from a higher level.

    Once the acquirer purchases the shares of the MidCo, it will indirectly own the Target which enables it provide collateral to secure the loan extended to the acquirer to finance the acquisition of the MidCo.

    Having said that, neither the gateway in relation to the layered acquisition structures nor the combined tranches alternative mentioned above have been blessed by the courts or agreed amongst a wider group of scholars yet.


The EU Directive regulating the financial assistance prohibition was issued in 1976 but the amendments made to such directive in 2006 adopted a more reasonable approach on the implementation of the financial assistance rules1. However, the New TCC adopted the primary regulation of the EU which restricts both public and private companies to provide financial assistance without introducing any gateways to whitewash the prohibition.

Therefore Article 380 of the New TCC needs to be amended in order to attain to the economic order of the world by bringing distinctions between private and public companies as well as providing explicit guidelines to a controlled financial assistance mechanism.

Originally published December 2013


1 For instance, financial assistance must be facilitated under fair market conditions; the company willing to acquire the target company must be financially consistent; the financial assistance to be provided must not depreciate the value of the target company; both target company and the acquiring company must calculatingly approve the financial assistance; and the target company must reserve an amount which is equal to the prospective financial assistance provided.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions