Turkey: Evaluation On Prohibition Of Financial Assistance Within Certain Scenarios

Last Updated: 7 August 2019
Article by Melisa Sevinç Atılganer

Most Read Contributor in Turkey, August 2019


The prohibition of financial assistance is one of the most significant changes introduced with Turkish Commercial Code No. 6102 ("TCC). The said prohibition is regulated in connection with limitations on the acquisition of a company's own shares. In principle, Article 380 of the TCC was regulated to in order to prevent the evasion of Article 3791. Through Article 380, in line with the restrictions on the purchase of a company's own shares, the legislator aims to avoid potential losses that might arise due to financing the purchase of the shares through its own assets, to be incurred by the shareholders, who do not participate in such transaction, and by creditors of the company.

Article 380 of the TCC foresees that "legal transactions concerning granting advance, loans or securities concluded between the company, and another person for the acquisition of its own shares are null and void". Even the literal meaning of the Article appears to list a limited number of transactions that are subject to the prohibition. It is accepted in the doctrine that these transactions are considered to be exemplary based on the statement given in the preambles of the Article2. In the said preambles, it is stated that "considering the ratio legis of the regulation, the expression of legal transactions concerning granting advance, loans or securities should be broadly interpreted. The said expression covers all types of the said transactions."

Applicability of the conditions of Article 380 with respect to the prohibition points to the presence of a purposeful connection, and does not call for the chronological order, or any other element for the same. However, due to the difficulty to evidence such purposeful connection by third parties, the existence of a purposeful connection is assumed to exist upon the existence of a temporal or functional connection. Accordingly, within the scope of the prohibition of any financial support, both merger transactions, as well as various other methods, are discussed in many different aspects by the scholars. One of the most discussed aspects is the direction of the merger. In addition, there are certain scholars who attribute importance to different aspects on the determination of the applicability of the prohibition of financial assistance, such as the timing of the merger, and the material and functional link between the merger and acquisition. Consequently, due to the ambiguity created by the Article, and the fact that the sanction to be implied in breach of such prohibition is null, this subject is frequently discussed in the doctrine.

In such case, determination of the conditions and elements of the prohibition of financial assistance for the assessment of applicability to certain transactions is of significant importance. The following three conditions must coexist in order for the prohibition of financial assistance to be applicable, and these are: (i) share acquisition; (ii) financial assistance; and (iii) purposeful connection between the financial assistance and the share acquisition3.

In light of the foregoing, in this study, three commonly discussed scenarios will be evaluated in terms of the said prohibition.

Downstream Merger

In the event that a company acquires the shares of another company, through third party financing, and then merge with the target company, it is controversial whether the target company is, or should be, deemed 'to be providing financial assistance' in the course of the acquisition of its own shares4. Correspondingly, one of the common practices used for the elimination of the prohibition of financial assistance, and to procure the financing of the shares through the target company's assets, is the merging of the purchaser and the target company under the target company's legal personality, following the acquisition of the shares of the target company.

In such instance, the obligations arising from the financing of the acquisition are transferred to the target company as a result of the complete succession applicable in mergers. Upon completion of the transaction, the target company becomes the obligor arising from the financing of the acquisition of its own shares5; in other words, the assets of the target company are used for the financing of the acquisition of its own shares6. Therefore, the matter as to whether such transaction should be deemed to be within the scope of the said prohibition has been discussed amongst the scholars.

Upstream Merger

In the event that an upstream merger is implemented, the purchaser and the target company merge under the purchaser's legal personality following the acquisition of the shares. In the evaluation of the prohibition as to financial assistance, the doctrine embraces a distinction on the direction of the merger realized in relation to the acquisition7. Such distinction originates from the fact that the legal entity of the company, whose shares have been acquired in the upstream merger, has terminated, and that such legal entity is not indebted with respect to the obligations arising from the financing of its own shares at any stage of the transaction8. It is further affirmed that the provisions as to mergers provide adequate protection to the shareholders and the creditors in such transactions. Nevertheless, the authors alleging invalidity of such transactions base their claim on the fact that financial obligations are fulfilled through the assets of the target company.

Dividend Distribution

Another transaction discussed in the doctrine within the scope of the prohibition of financial assistance is dividend distribution following the acquisition. In such case, the financial obligations arising from the financing of the acquisition of the shares are performed through the dividends that are distributed by the target company. Unlike a merger, dividend distributions are, principally, less likely to be deemed to be within the scope of the prohibition as these are regular corporate transactions. However, the fact that the said transaction facilitates the acquisition of the shares of the target company by the purchaser necessitates the review of this transaction under the prohibition of financial assistance9. Having said this, it is commonly accepted that the dividend distribution, by the target company following acquisition of its shares, should not be deemed to be within the scope of the prohibition of financial assistance10.


The scope of the prohibition on a company's financial assistance as to the acquisition of its own shares is often discussed by both Turkish and foreign scholars. No consensus has been reached on the scope of the prohibition, nor the methods that are subject thereto. Many scholars evaluate that there is a risk to mergers through the acquisition of shares to be deemed subject to such prohibition in the presence of certain conditions, since the financing for the acquisition of the shares ultimately procured from the assets of the target company11.

Under the doctrine, and depending on the direction of the merger, certain scholars consider whether the prohibition is to be applied or not. On the other hand, there are also experts who argue that this distinction is not clear due to the fact that the provisions of the merger may not differ in terms of the protection of creditors and shareholders with respect to the transferred and acquired company12. Nevertheless, the opinion that performance of the obligations arising from the financing of the acquisition of the shares from the dividend distribution by the target company is not deemed to be the prevailing subject of the prohibition.


[1] Tekinalp, Ünal: Sermaye Ortaklıklarının Yeni Hukuku, İstanbul, 2013, p. 85.

[2] Gürel, Murat: Şirket Birleşmelerinde Finansal Destek Verme Yasağına ilişkin TTK 380.1 Uygulanabilir mi?, BATIDER, 2013, p. 211.

[3] Paslı, Ali/Veziroğlu, Cem: Hedef Anonim Ortaklığın Kâr Dağıtımı ve Bu Yöndeki Taahhüdü Finansal Yardım Yasağını (TTK 380/1) İhlal Eder Mi?, İstanbul Hukuk Mecmuası, 2018, 76 (1), p. 259.

[4] Yanlı, Veliye: Şirketin Kendi Paylarını Edinmesinde Finansal Destek Yasağı, Banka Hukuku Dergisi,

29(2012), p. 38.

[5] Yanlı, p. 40.

[6] Yanlı, p. 32.

[7] Yanlı, p. 39.

[8] Gürel, p. 196.

[9] Paslı/Veziroğlu, p. 260.

[10] Paslı/Veziroğlu, p. 273.

[11] Gürel, Murat: Anonim Şirketin Kendi Paylarının İktisabı Amacıyla Finansal Destek Verme Yasağı (6102 sayılı Türk Ticaret Kanunu Madde 380.1), Ankara, 2014, p. 162.

[12] Gürel, 208.

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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