Law No. 7222 regarding Amendments to the Banking Law, as well as Certain Other Laws ("Law No. 7222") entered into force through its publication in the Official Gazette dated 25.02.2020. Law No. 7222 amended, among others, Article 23 (Significant Transactions of Corporations) and Article 24 (Retirement Right) of Capital Markets Law No. 63621 ("Capital Markets Law") and this required the Communiqué on Common Principles Regarding Significant Transactions and the Retirement Right (II-23.1) ("Repealed Communiqué") to be revised. The Repealed Communiqué has been repealed by the Communiqué on Significant Transactions and the Retirement Right (II-23.3) ("Communiqué"), which entered into force through its publication in the Official Gazette dated 27.06.2020. The transactions to be deemed significant ("Significant Transactions") are redetermined, the common applicable procedures and principles including, but not limited to, the retirement right and its utilisation, cases where such retirement right does not arise, exemptions to the retirement right are regulated, and the transition provisions are further stated under the Communiqué. This article will mainly focus on the common scope of the procedures and principles related to the Significant Transactions and and the retirement right detailed under the Communiqué.
As stated under the Repealed Communiqué, instead of all merger and demerger transactions of the publicly held corporations, only the mergers and demergers, the qualifications of which are stated under the new Communiqué, as well as any change of type, transfer of significant size of assets according to the criteria specified under the Communiqué or grating limited rights in rem over such assets, or changing the scope or subject of the existing concessions, are regarded as Significant Transactions.
Although not regarded as a Significant Transaction under the Communiqué, the Capital Markets Board of Turkey ("Board") would make an assesment on the basic transactions related to the structure of the Corporation, which will result in changes in the investment decisions of the investors by making fundamental changes in the core business of the corporation, as a whole, and decide whether the respective basic transaction is considered as a Significant Transaction. Transactions specified as Significant Transactions in other regulations are subject to the provisions of the Communiqué
Delisting, dissolution, change in the subject of activity through amendment to the articles of associaiton and acquisition of assets from related parties has not been regarded as Significant Transactions and, thus, would not fall within the scope of the Communiqué.2
Principles regarding Realization of Significant Transactions
In order to carry out a Significant Transaction, it is mandatory for the board of directors to adopt a decision in which the principles of the transaction are determined, and then the transaction is approved by the general assembly. It is envisaged that there is a maximum of three months between the decision of the board of directors (or, if later, the permission-approval date of the relevant institutions) and the date of the general assembly, in which the transaction will be approved.
Prior to the announcement of the agenda for the general meeting to be discussed, the board of directors of the corporation would decide to leave the final decision to the approval of the general assembly to waive from the referred transaction in case the total cost that the company may have to bear will exceed the determined amount as a result of the use of the retirement right, or although the general assembly decision has been taken despite the negative vote of the shareholders who have more shares than the specified ratio, or that of the specified shareholders.
In the general assembly resolutions regarding Significant Transactions, unless a higher quorum is stipulated in the articles of association, without seeking a meeting quorum, it is required that two-thirds of the shares that have the right to vote in the corporation general assembly meeting must vote positively. However, in the event that at least half of the shares with the right to vote representing the capital are present at the meeting, a decision will be taken by the majority of the shares with the right to vote, unless a heavier quorum is clearly stipulated in the articles of association.
Retirement Right and Utilisation Process
The Shareholders who have the Retirement Right and Quantity of such Shares
The Board prepared a guideline containing the explanations regarding the regulations made within the scope of the Communiqué, including determinaton of the shareholders and the methods of calculating the share amounts, and announced the Application Guide for the Communiqué on Significant Transactions and the Retirement Right ("Guide") in the press release on the same day as the Communiqué.
Shareholders who have a shareholding in the corporation as of the dates specified in the Communiqué, and who have attended the general assembly meeting and voted negatively on the agenda item related to the significant transaction and recorded such opposition, have a retirement right by selling its shares to the corporation.3 In accordance with the Communiqué and Guide, even if the statement on the date taken as the basis for determining the ownership of the shares and quantity of such shares is made within the session, while determining the ownership of the shares and quantity of such shares, all matched orders till the end of the day will be taken into consideration (regardless of the completion of the exchange).
The list showing the shareholders who have the retirement right, and the amount of shares that may be subject to the exercise of the retirement right, would be delievered by Merkezi Kayit Kurulusu A.S. (Central Registration Agency) to the relevant corporation within one business day prior to the general assmebly meeting.
Exercise Price of Retirement Rights and Timeline
According to the Repealed Communiqué, the exercise price of the retirement right is the arithmetic average of the adjusted weighted average prices that occurred in the stock exchange within thirty days (excluding the date announced) prior to the disclosure of the transaction to the public. Unlike the previous regulation, with the amendment made in the Capital Markets Law, the fair price method is applied for the exercise price of retirement rights. Accordingly, the exercise price of retirement right is the arithmetic average of the daily adjusted weighted average prices formed in the stock exchange for the last one month prior to the date for the companies whose shares are traded on the BIST Star as of the date of the public announcement of the transaction, and for the other corporations within the last six months prior to this date.
With the Communiqué, the timeline for using the retirement right under the previous regulations is also changed. Accordingly, the exercise of the retirement right starts within six business days at the latest, and the period of use is 10 business days from this date.
Proposal of Shares Subject to Retirement Right to Other Shareholders or Investors
With the new regulations, the Board of Directors may decide to recommend the shares subject to the retirement right to the other shareholders or investors at the exercise price of the retirement right prior to their purchase by the corporation. Shares subject to the retirement right are distributed to all shareholders or investors who demand to purchase on a pro rata basis, without creating inequality thereinbetween. Shareholders or investors can agree on the distribution method amongst themselves. The part of the shares subject to the retirement right, which is not requested by other shareholders or investors, is purchased by the corporation.
Shareholders or investors who offer to purchase shares subject to the retirement right must deliver their written requests regarding the amount of shares they would like to receive within three business days following the general assmebly meeting to the intermediary to be determined by the corporation, and block the funds in the amount to cover the purchase. The intermediary transmits the purchase requests to the corporation at the end of the third business day. On the fourth business day, the board of directors of the corporation should adopt a decision as to the start and end date of the purchase by declaring the number of people who will make purchases in case of demand, and the amount of shares each of them will make or, if there is no demand, by declaring that the purchase will be made by the corporation. Such a decision should be announced on the public disclosure platform on the same day. Ten business days shall be applied for the transmission of their demands to the intermediary, from the date upon which the right is begun to be used.
Cases Not Leading to Retirement Right and Exemptions
With the introduction of the amendments to the Capital Market Law, the Board is authorized to exempt from the obligation to exercise the retirement right. Transactions, such as voluntary take-over bid, removal or change in privileges, the merger and dissolution of special-purpose a merger company are included among the exemptions under the Communiqué. As such, the Board is able to make an exemption decision by taking an assessment of such transactions. Transactions. such as sales to banks with repurchase rights and rescue mergers are added to cases where the retirement right is not raised. With this addition, it is aimed for corporations to carry out the necessary transactions for the continuity of their activities without any cost. In order to encourage public offerings, the Board also listed the transactions of selling affiliates' shares through public offerings amongst the cases that do not lead to retirement right.
The non-contradictory provisions of the Repealed Communiqué will continue to apply to the Significant Transactions announced to the public prior to the effective date of the Communiqué. However, in determining the amount of persons and shares that may benefit from the retirement right to be allocated to these transactions, (i) 25.02.2020 for the transactions announced to the public prior to 25.02.2020, and (ii) the disclosure date of the respective transaction announced to the public between 25.02.2020 and 27.06.2020, when the Communiqué entered into force, will be taken as the basis.
Many innovations come with the Communiqué published in the Official Gazette dated 27.06.2020 within the scope of the amendments made to the Capital Market Law with Law No. 7222. Firstly, the cases regarded as Significant Transactions are redefined, and some of the transactions accepted as Significant Transactions with the Repealed Communiqué are excluded from the scope of the Communiqué. Apart from this, it has been regulated that the shareholders, whose shares are traded on the stock exchange, are entitled to the retirement right for the shares they hold uninterruptedly until the date of the general meeting. With the new regulation, a fair price application commences for the exercise price of the retirement right. Unlike the previous regulations, the shares subject to the retirement right are offered to other shareholders or investors at the execise price of the retirement right before they are purchased by the corporation. Finally, the cases that do not lead to retirement rights are reorganized, and the Board is authorized to be exempt from the obligation to exercise the retirement right.
Originally published on June 2020
1. Capital Market Law No. 6362, OG No. 2851330, 12.2012.
2. The Press Release of the Board on the Communiqué on Significant Transactions and the Retirement Right (II-23.3) dated 27.06.2020, https://www.spk.gov.tr/Duyuru/Goster/20200627/0 (Access date: 30.06.2020).
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.