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I. The Principle of Equality in Capital Markets and The Noteholders Meeting
The raison d’être of modern capital markets is to establish a trust-based bridge between investors providing funds and issuers. The most fundamental dynamic of this structure is the principle of equality among investors. Unlike general private law rules, capital markets law aims not only to protect the freedom of contract of the parties but also to safeguard market integrity and stability. In this context, the Noteholders Meeting (BASK) mechanism is one of the most critical institutions determining how the relationship between the debtor issuer and the creditor investors is managed through a collective will.
II. The Investor Protection Regime under Capital Markets Law No. 6362 and Article 357 of the Turkish Commercial Code
Article 1 of the Capital Markets Law No. 6362 defines the purpose of the law as the protection of investors’ rights and interests. The fundamental basis of this protection regime is the principle of equal treatment set out in Article 357 of the Turkish Commercial Code No. 6102. Although this provision is literally aimed at shareholders, it is equally applicable to holders of debt instruments, who have a direct claim on the company’s assets and are primarily affected by any deterioration in the issuer’s financial position.
The principle of equality denotes a relative fairness applicable to those in the same legal position, rather than an absolute equivalence. From this perspective, the grouping of debt instrument holders into “classes” and the establishment of a separate BASK for each class is a consequence of the necessity to subject creditors within the same risk group to equal rules. Pursuant to the Noteholders Meeting Communiqué (BASK Communiqué) (II-31/A.1), any amendment to the principal terms of a debt instrument binds all investors included in that class. Here, the individual right to a claim is subject to collective will through a proportionate intervention aimed at preserving the economic value of the claim by preventing the company’s insolvency.
III. The Nature of Lex Specialis and the Resolution of the Collective Action Issue
Capital markets law constitutes a special law (lex specialis) in relation to general debt and enforcement law. Whilst the principle of creditor equality in enforcement law (Articles 206–207 of the Enforcement and Bankruptcy Code) is based on a formal order during the liquidation of assets, capital markets law focuses on dynamic equality and the sustainability of the issuer.
In contrast to the formal sequence-based structure of enforcement law, the BASK mechanism is a fundamental tool for overcoming the problem of coordinated action among creditors. When an issuer defaults, each creditor initiating enforcement proceedings individually leads to the uncoordinated and rapid fragmentation of the company’s assets, ultimately resulting in all creditors suffering significant value loss and recovering far less than they are owed.
As emphasised in the decisions of the 13th Chamber of the Council of State (Case No. 2023/3048, Decision No. 2024/5682), capital market regulations may provide for procedures differing from general enforcement provisions in order to protect market integrity. In this context, the suspensive effect (statutory stay) of BASK decisions on enforcement proceedings constitutes a special protective shield arising directly from the law (SPK Art. 31/A), independent of the general requirements regarding compliance with a court order or the finalisation of the enforcement process. It temporarily suspends the individual right to pursue enforcement in order to safeguard the collective interests of investors and to enable the issuer to continue its commercial operations.
IV. Protection of Small Investors Against Controlling Shareholders and the Balance of Property Rights
Another duty of capital markets law is to protect small investors, who have limited access to information and decision-making power. Although the will of investors holding high nominal values may mathematically prevail in votes within the BASK, the legislation has provided for strict quorums and oversight mechanisms to ensure that this will does not completely nullify minority rights.
The fact that BASK decisions (particularly the two-thirds majority quorum required under standard conditions) are binding on minority investors may, at first glance, appear to constitute an interference with the right to property. However, this interference is proportionate; for, in the face of the risk of total loss an investor would face in the event of the company’s liquidation, restructuring the debt to preserve its collectability is a far more rational and, at its core, less restrictive tool. Furthermore, the fact that this interference is not imposed by an external administrative authority but is taken directly by a qualified majority of investors within the same risk group strengthens its legitimacy.
V. The Formation of Collective Will and Decision-Making Dynamics in the Tranche and General Noteholders Meetings Structures
Debt instruments, one of the most dynamic tools for meeting companies’ financing needs among capital market instruments, represent a contractual creditor-debtor relationship established between the issuer and the investor. However, unlike a traditional debt law relationship, this relationship constitutes a collective structure in which thousands of investors are grouped within the same risk category. BASK, introduced into our legal system by Article 31/A of the Capital Markets Law (SPK), is the fundamental mechanism determining how this collective structure will exercise its will during financial crises or in the event of default. The BASK structure is not merely a procedural framework for meetings; it is also a corporate governance model that balances property rights with systemic stability, resolving the problem of collective action through legal instruments.
VI. The Scope of Authority and Qualified Majority Principles of the Tranche BASK as the Primary Decision-Making Body
Debt instrument issues are generally carried out in tranches with specific maturities and different interest/yield rates. Each tranche comprises investors with a similar risk profile. Pursuant to the Noteholders’ Meeting Communiqué No. II-31/A.1, the “Tranche BASK” established for each tranche is the principal decision-making body determining the fate of the relevant debt instrument. The scope of the Tranche BASK’s authority covers amendments to the principal terms and conditions of the debt instrument. This authority pertains to a process of such critical importance that it cannot be managed solely by the issuer’s unilateral decision or through objections raised by individual investors.
The qualified majority principle provided for in Tranche BASK’s decision-making mechanism is one of the most characteristic features of capital markets law. Pursuant to the Regulation, any amendments to the principal elements of a debt instrument—such as the principal amount, interest rate, maturity structure or payment schedule—require the affirmative vote of at least two-thirds (2/3) of the total nominal value of the relevant issue in circulation. This quorum ensures the democratic legitimacy of the intervention in property rights. The aim of risk prevention is the fundamental justification for subjecting individual will to collective will in this context.
The most significant legal consequence of decisions taken by a qualified majority is that these decisions are binding on all investors who did not participate in the vote, abstained, or voted against. This constitutes an exception to the principle of relativity in contract law. If the consent of each investor were sought individually, the objection of even a single small investor could block the entire restructuring process and lead to the company’s bankruptcy. The BASK mechanism aims to protect the collective interests of the investor group by eliminating the ‘hold-out’ (minority blocking the process) problem. In this context, the Tranche BASK ensures that investors act not only as creditors but also as a group with a stake in the issuer’s financial sustainability.
VII. Decision-Making Dynamics in the Structure of the Tranche and General BASK
Each debt instrument tranche comprises investors with a similar risk profile, and the “Tranche BASK” serves as the primary decision-making body for the relevant debt instrument. Decision-making processes are structured in a dual framework based on the level of intervention:
- Substantive Amendment Changes: These are economic parameters—such as principal, interest rate, maturity and collateral structure—that form the basis of the investor’s initial investment decision. Changes to these elements require the affirmative vote of at least two-thirds (2/3) of the total outstanding nominal value. This high quorum not only addresses the ‘hold-out’ problem—where a malicious minority could potentially block the restructuring process—but also ensures democratic legitimacy. Furthermore, the validity of these decisions is contingent upon the approval of the issuer company’s board of directors and their transparent disclosure via the Public Disclosure Platform (KAP).
- Amendments to Additional Covenants: These are operational rules such as the maintenance of financial ratios, disclosure obligations or restrictions on asset sales. A simple majority is deemed sufficient for these amendments in order to preserve the company’s commercial flexibility and accelerate its financial rehabilitation.
This procedural distinction reflects the principle of proportionality in capital markets law. In cases where there is no direct intervention in the amount or maturity of the investor’s claim (such as in amendments to additional covenants), the decision-making process is streamlined to support the company’s financial rehabilitation. However, when the substance of the claim is affected, the protective shield is raised to the highest level.
The BASK framework is further supported by an overarching oversight mechanism known as the ‘General BASK’. A restructuring decision taken in one tranche carries the risk of affecting the company’s cash flow and causing losses to other tranches. Investors holding at least 20% of other outstanding instruments not included in the restructuring may request a General BASK meeting, thereby exercising a veto power that ensures transparency and fairness among different creditor groups and filters out preferential transactions.
VIII. Investor Representation and Technological Infrastructure
The "Debt Instrument Holders’ Representative", established to address the information asymmetry between the issuer and thousands of dispersed investors, is a trusted authority with no organic ties to the issuer, subject to strict independence criteria and dedicated to defending investor rights. Acting as an early warning system in cases where the company defaults technically or its financial ratios deteriorate, the representative creates a corporate point of contact on behalf of investors.
The digital component of the decision-making process is provided by the Central Securities Depository (CSD). The Electronic General Meeting System (e-GKS) infrastructure eliminates physical distances, ensuring that voting processes and identity verification procedures are free from manipulation, transparent and auditable. Thanks to the MKK infrastructure, retail investors can access information as quickly and in real-time as institutional funds.
IX. The Institution of Debt Instrument Holders’ Representatives and Independence Criteria
The large number of debt instrument holders deepens the information asymmetry between the issuing company and individual investors and makes it difficult for investors to coordinate in the event of a potential financial crisis. To overcome this collective action problem, the "Debt Instrument Holders' Representative" institution, established by the Debt Instrument Holders' Council Communiqué No. II-31/A.1, ensures that investors' rights are defended on a professional and centralised basis. The Representative is not merely a communication bridge, but also a ‘fiduciary’ authority responsible for protecting investors’ interests against the issuer and third parties.
The Representative’s democratic legitimacy stems from the election process. In accordance with the Regulation, in transactions involving issuers other than banks, a representative may be appointed with the approval of investors representing more than half of the nominal value in circulation. This election process is the first concrete step in investors’ ability to determine their own destiny. However, the representative’s legitimacy is safeguarded not only by a majority vote but also by the strict independence criteria they must meet. The representative must have no organic ties with the issuing company, controlling shareholders or members of the board of directors; this is of vital importance in preventing conflicts of interest. To safeguard the representative’s impartiality, the legislator has stipulated qualitative requirements such as not having been convicted of any disgraceful offences and full compliance with capital markets legislation.
The representative’s scope of duties covers a wide range of activities, from convening BASK meetings to monitoring the issuer’s financial position and implementing restructuring decisions. In particular, where the company has fallen into technical default or its financial ratios have deteriorated, the representative acts as an early warning system on behalf of investors. As part of this systemic protection, the representative institution eliminates the vulnerability arising from the dispersed nature of investors, thereby establishing a corporate counterpart vis-à-vis the issuer. This professional representation ensures that investors’ property rights are protected not merely through majority control, but through oversight based on merit and independence.
X. Legal Status Differences Between Debt Instrument Holders and Shareholders
One of the most fundamental distinctions in capital markets law is the difference in status between shareholders, who contribute capital to the company, and debt instrument holders, who lend capital to the company. Whilst shareholders, as owners of the joint-stock company, hold rights to residual value and have a say in management; debt instrument holders, as creditors, have a priority claim and an expectation of a fixed return.
This fundamental distinction in legal status also alters the manner in which the principle of equality is applied. Whilst shareholders are treated equally under the same conditions in accordance with Article 357 of the Turkish Commercial Code No. 6102, this equality is a relative equality determined by the shareholders’ respective proportions of capital. For holders of debt instruments, however, equality is based on the principle that the rights of investors within the same class do not compete with one another and that no investor gains an unfair advantage over another in relation to the issuer’s assets.
This distinction in status becomes even more pronounced during restructuring processes. Shareholders are obliged to bear the company’s losses and to discharge the capital debt. As stated in legal doctrine, the capital debt is a debt of a special nature, and shareholders’ rights may be restricted in the interests of protecting the company. In contrast, debt instrument holders do not share in the company’s ownership risk; however, they may extend the maturity of their claims or alter interest rates through a BASK decision. At this point, the BASK compels debt instrument holders to exercise a ‘managerial discretion’ for a temporary period. In other words, whilst a creditor would not normally interfere in the company’s internal operations, through the BASK process they assume a responsibility akin to that of a semi-partner by voting on the company’s financial future.
The most striking consequence of this status distinction from the perspective of enforcement law is that debt instrument holders acquire a collective privilege through the BASK decision. Whilst shareholders are last in line in the event of the company’s insolvency, debt instrument holders ensure the company’s survival by restructuring their claims through the BASK mechanism and benefit from legal statutory stay protection during this process.
The distinction in the normative foundations of enforcement law and capital markets law crystallises here: In enforcement law (Articles 206–207 of the Enforcement and Bankruptcy Code), the principle of creditor equality, which governs the formal order of priority during the liquidation of the debtor’s assets, prevails; whereas capital markets law focuses on ‘dynamic equality’ and the management of the issue of collective action. Enforcement courts cannot extend judgments through interpretation; by contrast, capital markets law adopts a case-by-case and dynamic interpretation methodology to protect investors. The suspensive effect of BASK decisions on enforcement proceedings (statutory stay) constitutes a special protective shield deriving directly from the law (SPK Art. 31/A) and secondary legislation, independent of the processes of compliance with the judgment or the finalisation of enforcement under general enforcement law.
However, this lex specialis nature, whose boundaries are clearly defined in the normative sphere, frequently clashes in practice with the narrow and formalistic interpretation approach of enforcement courts. The courts’ tendency to assess disputes solely within the framework of the Enforcement and Bankruptcy Code and their disregard for the protective, dynamic structure of capital markets legislation leads to serious bottlenecks in practice. The failure of enforcement offices to directly take into account the legal statutory stay provided by the BASK decision, or the rejection by enforcement courts of requests to suspend enforcement proceedings on formal grounds following a complaint, effectively renders the collective rescue intent envisaged by the capital markets inoperative. These narrow interpretative practices by enforcement offices and courts not only hinder the issuer company’s restructuring efforts; but also undermine equality among creditors, leading to intractable and protracted legal disputes (repeated attachment pressures and unsatisfactory complaint processes), thereby severely undermining legal predictability in the market.
This protective shield represents a shift in the balance between shareholders’ property rights and debt instrument holders’ claims, favouring market stability at the expense of creditors. Consequently, whilst the shareholder remains at the centre of risk and management, the debt instrument holder is granted a special status whereby risk is managed and the claim is protected through democratic negotiation, thanks to BASK.
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.
