Turkey: Demerger Of Companies Under The Draft Turkish Commercial Code

Last Updated: 4 September 2009
Article by Şebnem Işık and Yegan Ureyen


As a result of the global economic crunch, recently, companies are inclined to reorganize their corporate structures through various corporate reconstruction methods to achieve operational efficiency and profitability. In Turkey, mergers and acquisitions, spin-outs and demergers are the most preferential reconstruction methods.

Currently, demerger of companies is governed by the Corporate Tax Law dated June 13, 2006 and numbered 5550 (the "CTL") and the Communiqué on the Partial Demerger of Joint Stock and Limited Liability Companies dated September 16, 2003 and numbered 25231 (the "Communiqué"). However, the existing legislation is far from satisfying the needs of the business world as it does not contain explicit provisions regarding the procedures to be followed during a demerger process. To this end, the Draft Turkish Commercial Code (the "Draft Code"), which is on the agenda of the Turkish Council of Ministers and awaiting ratification, contains explicit provisions on demerger of companies. This article will focus on the new provisions of the Draft Code governing demerger of companies.


Demerger of a company or a cooperative takes place when all or any part of the assets of the company or cooperative (the "Transferring Company") is transferred to another company or cooperative (the "Acquiring Company"). Title of the assets of the Transferring Company is transferred ipso iure to the Acquiring Company and the shareholders of the Transferring Company receive shareholding rights in the Acquiring Company in return. The Draft Code contemplates two types of demergers; full and partial demergers. Pursuant to the Draft Code, full and partial demergers can either be in the form of a symmetric or an asymmetric demerger.

A. Full Demerger (Split Up) and Partial Demerger (Divestment)

Pursuant to Article 159 of the Draft Code, in a case of a full demerger, all of the assets of the Transferring Company are divided into sections and transferred to the Acquiring Company and the shareholders of the Transferring Company acquire shares and shareholding rights in the Acquiring Company. Upon the completion of the demerger process, the Transferring Company will be de-registered from the records of the Trade Registry and shall cease to exist.

In case of a partial demerger, only one or more parts of the assets of the Transferring Company are transferred to the Acquiring Company. Unlike a full demerger, the Transferring Company continues to exist after a partial demerger. Depending on the intention of the related parties to the partial demerger agreement, either the shareholders of the Transferring Company or the Transferring Company itself shall acquire shares and shareholding rights in the Acquiring Company in return for the transferred assets. In the latter case, the Acquiring Company becomes a subsidiary of the Transferring Company since the transfer of assets shall be deemed a "capital in kind" subscription by the Transferring Company to a capital increase of the Acquiring Company.

B. Symmetric and Asymmetric Demerger

In a symmetric demerger, the shareholding percentages of the shareholders of the Transferring Company remain the same in the Acquiring Company. However, in an asymmetric demerger, the shareholders of the Transferring Company end up holding different shareholding percentages in the Acquiring Company.


A. Demerger Agreement – Demerger Plan

The Transferring Company can be demerged by transferring all or some of its assets either to an existing company or to a new company to be established. In the former case, the managing bodies of all companies participating in the demerger shall enter into a demerger agreement. In the latter case, the managing body of the Transferring Company shall prepare a demerger plan. The demerger agreement and the demerger plan must be in writing and be approved by the general assembly of shareholders. The Draft Code provides a list of the items which shall be specifically addressed in a demerger agreement and plan.

B. Interim Balance Sheet

One of the pre-transactional obligations imposed on the companies participating in a demerger is the preparation of an interim balance sheet. Pursuant to Article 165 of the Draft Code, a company must issue an interim balance sheet if (i) the last balance sheet of a company participating in the demerger was issued at least six months before the signature date of the demerger agreement or the preparation of the demerger plan, or (ii) there have been substantial changes in the assets of a company participating in the demerger as of the date of the last balance sheet.

C. Demerger Report

The managing bodies of the companies participating in the demerger must prepare a demerger report. Instead of preparing separate demerger reports, companies participating in the demerger can prepare a mutual report. Article 169 of the Draft Code stipulates a list of items which must be included in a demerger report. If a new company shall be established, the articles of association of this company must be attached to the demerger report.

D. Audit

Demerger agreements and plans must be audited by an expert auditor in order to protect the rights of shareholders and creditors of the companies participating in the demerger. The related companies are also obliged to provide the auditor with all necessary information and documentation during the term of audit.

E. Invitation to Creditors

The companies participating in a demerger must invite their creditors to notify them of their receivables and request a guarantee for their receivables. The invitation shall be made through the Trade Registry Gazette and three nationally published newspapers. This invitation must also be announced on the website of the companies participating in the demerger. These companies have to secure the receivables of their creditors within the two months following the date of the abovementioned announcement.

F. The Right to Review

During the two months prior to the general assembly meeting to be held in relation to the demerger, shareholders of the companies participating in the demerger are entitled to review the demerger agreement, the demerger plan, the demerger report, the audit report, the balance sheets, activity reports and the interim balance sheets relating to the last three years of the companies participating in the demerger.

G. Approval of the General Assembly

After securing the receivables of creditors, the managing bodies of the companies participating in the demerger must present the demerger agreement or the demerger plan to their general assemblies for approval. The Draft Code contemplates a special voting quorum for the approval of demerger agreements and plans depending on whether the demerger is symmetric or asymmetric.

H. Registration

Since a demerger can be effective only after it is registered with the Trade Registry, the managing bodies of the companies participating in the demerger must apply to the Trade Registry for the registration of the demerger. Upon the registration of the demerger, all receivables and debts appearing in the inventory of the Transferring Company will automatically be transferred to the Acquiring Company as of the registration date.


Demerger is a reconstruction method which can be used for various purposes in the commercial arena. The current legislation provides shallow provisions for demergers which do not completely satisfy the needs of commercial life. Conversely, the Draft Code regulates the demerger procedure in detail and aims to protect the rights of shareholders and creditors of companies participating in a demerger. Draft Code's provisions are in line with the provisions of the European Union legislation indicating Turkey's commitment to bring its national legislation parallel to the European Union legislation.

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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