Introduction
In order for the capital market to function in a fair and transparent manner, investors should be provided with access to the necessary information regarding the investment processes. In this regard, disclosure of certain information regarding the publicly held corporation ("PHC") in a timely, complete, and accurate manner on a publicly accessible platform is essential for the healthy formation of the will of investors and for the market to function under natural conditions. Accordingly, in order to protect the interests of investors to the extent required, PHCs are obliged to disclose certain matters related to themselves to the public.
Therefore, considering the regulated nature of capital market legislation; it is beneficial to examine and explain the scope and method of fulfilment of the public disclosure obligation of the PHC and the consequences that may be encountered in case of breach of the obligation.
1. Public Disclosure Obligation of Publicly Held Corporations
The public disclosure obligation of PHCs is mainly regulated in Articles 14 and 15 of the Capital Markets Law No. 6362 ("CML"). The public disclosure obligation has two different elements: periodic disclosure of financial reports and the provision of information on developments that may affect the value of the capital market instruments or the will of investors. Thus, while the continuous announcement of financial reports enables existing and potential investors to evaluate and analyse the performance of PHC, incident-based disclosures are intended to inform the public in a transparent manner by providing information about unforeseen and special developments that may affect the value of capital market instruments.
The PHC and according to their faults and as the occasions require, the members of the board of directors of the PHC shall be responsible for the preparation, submission and accuracy of the financial statements and reports in compliance with the legislation. The board of directors shall take a separate decision regarding the approval of the financial statements and reports to be prepared within the relevant scope, and additionally, it is regulated that in the notifications to be made to the public about the financial statements and reports by the managers of the corporation and the responsible members of the board of directors, their declarations regarding the true and fair presentation of financial statements and reports should also be included.
1.1. Continuous Public Disclosure Obligation
The procedures and principles regarding the fulfilment of the continuous public disclosure obligation are regulated in Article 14 of the CML are specified in the II-14.1 Communiqué on Principles of Financial Reporting in Capital Markets ("Financial Reporting Communiqué") published in the Official Gazette dated 13.06.2013.
1.1.1. Content of Financial Reports
Pursuant to the Financial Reporting Communiqué, the financial reports to be published by PHCs consist of 3 elements: (i) financial statements, (ii) board of director's reports and (iii) responsibility statements:
a. Financial Statements
Financial statements of PHCs are prepared in accordance with Turkish Accounting Standards and Turkish Financial Reporting Standards. In addition, it is mandatory to comply with the decisions and announcements while preparing the financial statements that may be published by the Capital Markets Board to ensuring that the financial reporting principles and procedures are clear.
b. Board of Director's Reports
The reports of the board of directors of PHCs shall be prepared in accordance with the general procedures and principles which are also applicable to non-PHC capital companies. However, PHCs are also obliged to include data and information specified in the second paragraph of Article 8 of the Financial Reporting Communiqué, such as PHC's commercial performance, its position in the relevant market, developments regarding its investments, sources of financing, etc. in their board of directors' reports.
c. Responsibility Statements
It is mandatory to obtain responsibility statements of the members of the board of directors of the PHC, stating that the financial statements and the board of directors' reports have been examined by them, that they do not contain any deficiencies that may be contrary to the truth or misleading, and that the information published reflects the truth honestly.
1.1.2. Publication and Announcement Periods of Financial Reports
In accordance with Article 6 of the Financial Reporting Communiqué, PHCs shall prepare their financial reports annually. However, pursuant to subparagraph (c) of the first paragraph of the following article; (i) corporations whose capital market instruments are traded in an exchange, (ii) investment firms, (iii) investment companies, (iv) portfolio management companies, (v) mortgage finance institutions are obliged to prepare interim financial reports for periods of 3, 6 and 9 months in addition to annual financial reports.
According to Article 10 of the Financial Reporting Communiqué, corporations the capital market instruments of which are traded in an exchange, are required to disclose their annual financial reports and their independent audit reports, within;
- 70 days following the end of their accounting periods, in presence of the obligation to prepare consolidated financial statements due to its parent company status,
- 60 days following the end of their accounting periods, in absence of the obligation to prepare consolidated financial statements
to the Public Disclosure Platform ("PDP") within the reporting period. Interim financial reports must be submitted in;
- 40 days following the end of the relevant interim period, if there is an obligation to prepare consolidated financial statements,
- 30 days following the end of the relevant interim period, if there is no obligation to prepare consolidated financial statements
to the PDP. However, the periods of time referred to in the first paragraph hereinabove for interim financial reports are increased by 10 days for (i) investment institutions, (ii) collective investment schemes excluding investment funds, (iii) mortgage finance institutions and (iv) corporations whose capital market instruments are traded in an exchange, whose are subject to independent audit.
1.2. Public Disclosure Obligation Regarding Developments of Material Events
As mentioned above, in addition to the continuous disclosure obligation, PHC also has an obligation to disclose information about specific developments that may affect the value of the capital market instruments issued.
Scope of the public disclosure obligation regarding special developments regulated by the II-15.1 Communiqué on Material Events ("Communiqué on Material Events") published in the Official Gazette dated 23.01.2014 is composed of:
- Inside information, which refers to "non-public information, events and developments that may affect the value or price of securities or the investment decisions of investors" and
- Continuous information that is outside the definition of inside information and mainly refers to changes and developments regarding the capital structure and management control of the PHC.
It should be indicated that, in addition to the publication by PHC of inside information such as price movements that would not be expected in the ordinary course of the market, confirmation or denial of news and rumours that may affect the market values of the issuance instruments; a public disclosure obligation is also established for persons outside the PHC, such as the publication by that person of developments such as the share of a person in the PHC reaching to or falling from certain ratios.
2. Breach of the Public Disclosure Obligation
Pursuant to Article 32 of the CML, the signatories of the public disclosure documents stipulated in the CML and its secondary legislation are jointly and severally liable for the damages arising from inaccurate or misleading information or incomplete information contained in the relevant public disclosure document.
In addition, pursuant to Article 103 of the CML, in case of breach of the public disclosure obligation, an administrative fine of between TRY-155.567 and TRY-1.944.578 is imposed on the real person who committed the breach according to the revaluation rate of 2023, and an administrative fine of up to the 1% of the gross sales revenue or 20% of the profit before tax in the previous annual financial statement, whichever is higher, is imposed on the PHC.
It should be noted that judicial sanctions may also be imposed in the event that the public disclosure obligation is violated in a way that constitutes the elements of offences such as market fraud, information misuse and irregularities in legal books, accounting records and financial statements and reports regulated under the CML.
Conclusion
The public disclosure obligation of PHCs arising from the CML refers to the accurate and timely disclosure of information that may affect the functioning of the market. In order to ensure that investor interests are adequately protected, PHCs are required to disclose information of a continuous nature regarding the financial condition of PHCs and disclosures regarding specific developments that may affect the value of market instruments.
However, in addition to the general public disclosure obligations of PHCs described above, PHCs with certain attributes, such as portfolio management companies and venture capital and real estate investment companies, are also obliged to disclose certain specific issues arising from their own legislation.
As a final point, it should be noted that in case of failure to fulfil public disclosure obligations, PHC and PHC managers may be held liable to compensate for the damage incurred, as well as administrative fines and judicial sanctions.
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