Notification, Registration and Announcement Liability Under Article 198 of Turkish Commercial Law 12 February 2020

1. GENERAL INFORMATION REGARDING THE GROUP OF COMPANIES

Although it was not regulated in the former Turkish Commercial Code no. 6762, the concept of the group of companies that appeared in practice was regulated with Turkish Commercial Code (“TCC”) no. 6102’s entry into force. With the provisions regarding the group of companies regulated in articles 195 to 210 of the TCC, the concepts of controlling and associated companies came to the fore.

Within this framework, pursuant to TCC Article 195; if a commercial company directly or indirectly;

• Holds the majority of the voting rights of another commercial company, or
• Has the right to ensure the election of members forming a resolution quorum in the management body of another commercial company, or
• Has the majority of the voting right of another commercial company alone or with other shareholders or partners based on a contract in addition to its own votes; or

• If a commercial company is able to hold another commercial company under its control in accordance with a contract or through other means,

the former company is the controlling company and the latter is the dependent company. In addition, TCC has accepted the existence of control by the first company as a presumption “if a commercial company holds the majority of the shares in another commercial company or holds adequate shares to make the decisions enabling it to manage the company”.

In the following provisions, some rights and liabilities imposed on these companies are regulated. One of them is the notification, registration and announcement liability introduced in the article 198.

2. NOTIFICATION, REGISTRATION AND ANNOUNCEMENT LIABILITY

As is known, in limited companies, the assignment of the shares is made in accordance with the notarized share assignment agreement and this assignment is subject to the approval of the general board and the registration. In joint stock companies, there is no registration requirement for the assignment of shares; also via the contract or if the certificate is issued, with negotiation of these and transfer of possession to transferee, assignment of share may be done. TCC article 198 includes exceptional provisions regarding the assignment of shares in joint stock companies and imposes the liability of notification, registration and announcement in cases mentioned in the article. The text of the relevant article is as below:

“(1) In case that an enterprise directly or indirectly owns an amount of shares representing five, ten, twenty, twenty five, thirty three, fifty, sixty seven or one hundred percent of the capital of a capital stock company or if its shares fall under these percentages, the enterprise shall notify the capital stock company and the competent authorities indicated in the New Law and other laws, of the situation within ten days following the completion of the said transactions. Acquisition or disposition of the shares in the above-mentioned ratios shall be declared under a separate heading in the annual and audit reports and announced on the capital stock company’s web site. Article 196 shall apply to the calculation of percentages of the shares. The managing directors and board members of the enterprise and capital stock company shall make a notification in relation to the shares in that capital stock company owned by themselves, their spouses, children under their custody and a commercial company in which they hold at least twenty percent of its capital. Notifications shall be made in writing, registered in the trade registry and announced.

(2) Unless the notification, registration, and announcement liabilities set forth in paragraph one are fulfilled, other rights including the voting right pertaining to the relevant shares shall be suspended. The provisions related to other legal consequences regarding the breach of the notification liability are reserved.

(3) For the control agreement to be valid, the agreement must be registered with the trade registry and be announced. The invalidity of this agreement shall not prevent the application of the provisions in this Law and other laws relevant to the liabilities and responsibilities pertaining to the group of companies.”

The purpose of the provision, as stated in the justification of the article, is to explain the participation relations and especially the mutual participations, and in in this way to ensure public disclosure and transparency.

1. In Terms Of Enterprises

The notification liability in terms of enterprises arises if the shares of an enterprise in the capital stock company increase or decrease in excess of the rates stated in the TCC Article 198. Not only the amount exceeded but also the percentage reached must be notified. It is stated that TCC Article 196 will be applied in the calculation of shares. The reason for the increase or decrease in the shares has no effect on the notification liability.

The liability of notification and registration has been imposed on the enterprise instead of the commercial company and the notification will be made written to the competent authorities (BRSA, Ministry of Treasury and Finance, Competition Authority, CMB, EMRA etc.) and the respective capital stock company. At this point, it is conscious to emphasize the concept of “enterprise”. In the article, the concept of enterprise is used consciously. An enterprise is a concept that encompasses not only the shareholder capital stock companies but also the community units or entities that do not have legal personality but can make independent decisions by forming an economic integration.

The concept of enterprise is broadly interpreted and its definition is not regulated in the TCC. In this sense, doctrine sheds light on the definition of enterprise in the Law No 4054. Although the broad interpretation of the Law provides benefit in terms of transparency by encompassing all community units, it is seen that in practice, the interpretation is occasionally excessive and leads to the idea that real person shareholders are under this liability. It is useful to state that the concept of enterprise should be interpreted within the frame of group of companies law.

The persons obliged for the notification are the managing bodies of the enterprises (such as the board of management in joint stock companies, directors or the board of directors of limited companies, the managing body of the foundation in the family foundation) and all natural persons that constitute the enterprise (for example, the community of heirs) if they do not have a legal entity.

The period of notification is 10 days. The primary consequence of the failure to do notification within 10 days is the suspension of the rights related to the share ownership (rights to vote, privileges, etc.). With the fulfillment of the notification, registration and announcement liability, the suspension on the rights of the shareholder ends. Provisions regarding other legal consequences of non-fulfillment of the notification liability are reserved.

In addition to the notification liability, it is required the case of the acquisition or disposition of the shares exceeding the rates mentioned in the article shall be declared under a separate heading in the annual and audit reports and announced on the capital stock company’s web site. However, certain sanctions may be imposed in accordance with the TCC Article 562/2 and 1524/2.

Upon the notification, the notified amendments shall be registered with the trade registry and announced in the Trade Registry Gazette.

2. Liability of Notification of the Enterprise and Members of the Board of Management and Managers of Capital Stock Company

In the article 198, it was also aimed to increase the transparency by introducing a notification liability to the members of the board of management and managers of the enterprise or the capital stock company in terms of the shares acquired by them or their first-degree relatives, and tried to prevent fictitious transactions with the passage of the law.

3. In terms of the Validity of Dominance Agreements

In the third paragraph of article 198, there is a requirement for the validity of the control agreements. Pursuant to this, for the control agreement to be valid, the agreement must be registered with the trade registry and be announced in the Trade Registry Gazette. However, in accordance with the provision, the invalidity of this agreement shall not prevent the application of the provisions in the TCC and other laws relevant to the liabilities and responsibilities pertaining to the group of companies.

3.  CONCLUSION

The liability of notification, registration and announcement regulated within the provisions regarding the Group of Companies provides an exception to the provisions of the Turkish Commercial Code regarding the transfer of shares of joint stock companies and introduced the obligation of notification, registration and announcement in case of acquisition or loss of the shares belonging to the controlling enterprises in capital stock companies. If this notification is not made, the rights related to the shareholder suspend; upon the notification, suspension of the rights ends. The Law has extended the scope of control by using the concept of enterprise in the relevant provision. However, during the interpretation of this situation, it is necessary for the liability to not be sought for all share acquisitions of joint stock companies.

Türkçe versiyonu için: http://www.kasaroglu.av.tr/tr/Turk-Ticaret-Kanunu-madde198-kapsaminda-bildirim-tescil-ve-ilan-yukumlulgu