On July 21st, 2016, Capital Markets Board of Turkey ("Board") announced via a press release that certain limitations set out by the Board's Share Repurchase Communiqué, published on the Official Gazette of January 3rd, 2014 ("Communiqué"), shall not be applicable until the Board announces that they shall be applicable again.
On July 25th, 2016, a second press release was announced by the Board on the matter, stating that over 35 companies had declared that they would engage in share repurchase. The Board also detailed within the same press release which limitations shall and shall not be applicable regarding share repurchases.
Our aim here is to provide information on the content and possible implications of the aforementioned two announcements of the Board.
1. Content of the Announcements
The first press release states that the publicly-traded companies, which did not already adopt a share repurchase program as per a general assembly resolution, could engage in share repurchase without being bound by any limitations, upon condition that they disclose this matter by way of publishing a Material Event Disclosure on the matter. The press release further states that the publicly-traded companies, which are currently engaged in a share repurchase program as per a general assembly resolution already adopted, could engage in share repurchase without being bound by any limitations, upon conditions that they inform their authorized organs on the matter and that they disclose this matter by way of publishing a Material Event Disclosure thereon.
The second press release further details the first press release on the matter. Accordingly, the authorization principle and the limitations as to the total amount of shares, which could be repurchased, and the daily transaction amount shall not apply. Information as to what these are as per the legislation and regulation still in effect will be provided below.
The second announcement goes on to explicitly state that the publicly-traded companies, which currently exceed the 10% threshold (the current upper limit as to the total amount of shares, which could repurchased), may engage in further repurchase of shares, that certain sub-clauses of Article 12 of Communiqué, regarding announcement requirements, shall not apply, and that the shares to be repurchased within scope of the announcements shall be repurchased only after adopting a board of directors resolution on the matter and disclosure thereof by way of publishing a Material Event Disclosure thereon.
2. What the Legislation and Regulation Currently in Force Rule
The most specific piece of regulation on the subject is the Communiqué. Article 5 of the Communiqué rules that the general assembly of a relevant company should authorize the board of directors of the said company for the relevant company to be able to adopt a share repurchase program, by way of approving the share repurchase proposal brought before the general assembly by the board of directors. Exceptions to such authorization and conditions under which the board of directors could act without an authorization are also stipulated within the same article.
Article 9 of the Communiqué stipulates that the nominal value of the repurchased shares cannot exceed 10% of the paid-in or issued capital including the previous repurchases.
Both of the aforementioned are in line with what is stipulated as per Articles 379 and 381 of the Turkish Commercial Code No.6102 ("Code"). The said articles of the Code regulate these matters under the heading "Joint-Stock Companies", without making a distinction on whether they are publicly-traded or not.
The Communiqué also sets forth certain requirements with respect to the announcement of the share purchase program itself and its start and end dates (Article 12) and brings a limitation of 25% with respect to the transaction amount (Article 15).
3. Effect of the Announcements
With the second announcement, the Board has announced that over 35 companies had disclosed by way of publishing Material Event Disclosures that they would repurchase shares. As stated above, the first Board announcement was published on July 21st, 2016 and the second on July 25th, 2016. Within four days, with a weekend inbetween, the number of companies disclosing that they would repurchase shares became 35. Other publicly available sources convey that this number is likely to increase. This being the case, there are fundamental legal issues arising as an outcome of the said announcements.
The first matter is that the basic principles of law require that a communiqué is only amended (or annulled) through another communiqué. From a legal perspective, a press release (or two or more, for that matter) would not suffice to halt the enforceability of a communiqué.
The second and equally, if not more, important matter is that such liberties, as introduced to the share repurchase regime via the press releases, are against the aforementioned articles of the Code. Even if the Board had issued a communiqué bearing the same content as the relevant press releases, to accept such comminiqué as valid and enforceable could again be interpreted to be in violation of the basic principles of law, as such principles mandate that a communiqué should be in line with a law.
As for the second point we have put forward, it could be argued that Article 330 of the Code serves as a relaxing point. Article 330 of the Code rules with respect to the companies subject to specific laws that specific laws shall override the general provisions of the Code. That said, the official reasoning of the Code explicitly states that the "specific laws" shall mean specific laws and no other piece of legislation or regulation bearing weaker effect than laws.
4. What to Do Now?
From a purely legal perspective, the announcements could be claimed to be bear no effect as it could be claimed that they have not been duly put in force and they are against the Code. That said, Board's relevant announcements suggest that the Board would highly likely not deem the share repurchases realized within scope of its announcements to be against the relevant legislation and regulation. Looking at the disclosures made so far and considering that such move of the Board could be deemed to be in the interest of the economic environment in general, markets seem to be finding Board's relevant announcements supportive of and promotive for the economic necessities of the time.
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2016. A link to the full Legal Insight Quarterly may be found here.
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.