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overseen by credit and finance institutions. The financial assistance
ban will not apply where the financing provided by the credit and
finance institutions are used in the acquisition of their own shares. In
other words, the financing provided by the target company from the
credit and finance institutions for the acquisition of its own shares is
beyond the scope of this exception. Accordingly, if the credit institu-
tion is not the company whose shares are acquired, TCC art. 380 would
lose its meaning, in a market where the majority of the sources of
financing are composed of banks.
Similarly, the ban does not apply to legal transactions, wherein a
company provides advances, loans, and securities to its own employ-
ees for the acquisition of the company’s shares. The justification of the
article specifies that this exception is recognized in order to provide
convenience for the company’s employees in acquiring the shares of
the company and its affiliates. However, this exception would not be
applied for the senior executives of the company. Otherwise, a man-
agement buyout, which is one of the sub-types of leveraged buyouts,
will be allowed, and the ban regulated under Art. 380 will be eliminated.
In order for the abovementioned exceptions to be applied, transac-
tions may not reduce company reserves, and must comply with the pro-
visions of art. 519 and art. 520 regarding the disbursement and separa-
tion of the reserves.
Conclusion
The financial assistance prohibition regulated under the TCC bans
the transactions of a company intended at financing the acquisition of
its own shares by third parties, or supporting third parties by granting
loans or providing security. By virtue of the amendment in 2006, this
ban, which is regulated under the Second Directive of the European
Union, has been softened, and assistance to third parties is enabled
under certain conditions. Consequently, leveraged buyouts are allowed
under EU law, under certain conditions. However, art. 380 of the TCC
did not incorporate such regulation and prohibited the application of
leveraged buyouts, a financing method used in acquisitions. However,
in order to harmonize the amendment with the Second Directive, and
to overcome financing issues in mergers and acquisitions, thus encour-
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