NEWSLETTER 2021 PROF. DR. H. ERCÜMENT ERDEM Editor
Editor Prof. Dr. H. Ercüment ERDEM GALATASARAY UNIVERSITY SCHOOL OF LAW EMERITUS PROFESSOR OF COMMERCIAL LAW NEWSLETTER 2021 ERDEM & ERDEM Law Office Ferko Signature, Büyükdere Caddesi, No. 175, Kat 3 Esentepe - Şişli 34394 İSTANBUL
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Editor Prof. Dr. H. Ercüment ERDEM GALATASARAY UNIVERSITY SCHOOL OF LAW EMERITUS PROFESSOR OF COMMERCIAL LAW NEWSLETTER 2021 ERDEM & ERDEM Law Office Ferko Signature, Büyükdere Caddesi, No. 175, Kat 3 Esentepe - Şişli 34394 ISTANBUL
PREFACE In 2021, as in 2020, the pandemic continued to increase its impact on social, economic and commercial life on a global and national scale. In order to reduce these impacts of the pandemic and ensure the continuity of our operations, our habits have evolved and we have begun to digitalize. With the impact of climate changes and forest fires that we experienced last year, in an effort to contribute to the sustainability of the natural world and to improve environmental awareness, we are honored to present to you our new book, Newsletter 2021, only as an e-book. We have been compiling articles that are posted monthly on our website into a book for 12 years. We are very pleased and proud to see that this book of articles that we have prepared with devotion as a whole team, has attracted remarkable interest from our clients and business partners, as well as from fellow practitioners over the years. While the book has been well-received by many of our readers, we maintain our desire to further develop and expand our work. Our most significant reward is to see that our articles are frequently cited in several scientific studies, and are considered reliable academic resources. While sectoral practices are increasingly digitizing, many new regulations have been published in 2021. For this reason, in Newsletter 2021, we focused on e-court system, open banking, e-marketplace platforms, electronic notifications, e-signature, and remote working. Last year, we published eleven articles in the field of commercial law. In this section, we addressed several issues, such as the legal nature of representations and warranties in share purchase agreements, general assembly summons lawsuits, share subscription agreements,
VI null and void resolutions of the general assembly in joint-stock companies, institutionalization in family businesses and family constitution, and the practice of unforeseen circumstances in EPC contracts. 2021 was quite active when considering the competition investigations issued on the grounds of the increasing costs due to the inflation and currency crisis in our country. We published eight articles in this field and addressed many topics, such as e-marketplace platforms industry review, the Turkish Competition Board’s retailers, WhatsApp and Trendyol decisions, hub and spoke cartels, European Commission fines against banks for participating in a forex cartel, and competition law concerns regarding human resources practices. As a GAR100 listed law firm with a proven track record in international arbitration, we published nine articles and discussed several topics, including dispute resolution in the digital age, the 2020 IBA Rules, UNCITRAL Expedited Arbitration Rules, arbitration of corporate law disputes, and public policy as grounds for refusal of recognition. In addition, we also examined some court decisions, such as the Komstroy decision and the Halliburton decision. Within the field of capital markets law, very significant legal regulations were made. Basic principles regarding the public offering, the practice of green bonds in the World and in Turkey, portfolio management companies and Turkish mortgage-covered bonds were just some of the topics analyzed in our articles. With respect to civil procedure law, we discussed appealing final court decisions, the start of the legal period for electronic notifications in the light of judicial decisions, and also supreme court decisions, such as the unification of judgments decision of the court of cassation on notification law, and a recent decision of the court of cassation general assembly of civil chambers on the conditions of unquantified debt lawsuits. In terms of tax law, we addressed revaluation of immovables, valuable house tax, stamp tax, withholding tax issue in digital advertising services, limitation on financing expense deduction, the tax consequences of failure to fulfill capital commitments payable, valueadded tax aspects of disguised profit distribution through transfer pric-
VII ing, and taxation of social media content producers’ earnings in light of recent changes. In addition, we discussed current issues in the fields of sports law, energy law, business law, intellectual property law, information technology law and protection of personal data. We also looked into topics of interest, such as the administrative supervision of advertisements in light of advertisement board decisions and parent-subsidiary liability within the scope of the foreign corrupt practices act. 2021 was a year that saw significant changes in the law. The chapter on legal developments provides global insight into material developments in international agreements, laws, presidential decrees, regulations, communiqués, the decisions of the Turkish Competition Board Authority, important developments in energy law legislation and also extracts of key precedents that were adopted in 2021. We believe that this last chapter provides an executive summary at legal developments. This book contains a total of 72 articles and an extensive Legal Developments section. We prepared this comprehensive content with strong teamwork. Our team exhibited extraordinary devotion, dedication, and believe in the importance of scientific research and its supremacy. We are sincerely grateful and are truly appreciative of the great effort of every author of these articles and other members of our team who edited, proofread, translated and uploaded the articles to our website. We would also like to thank Sevil Öcalan, who performed the typesetting work with great care. We hope that this publication will be a useful resource and guide for our clients and business partners, as well as for legal experts and students. We wish that 2022 brings health, prosperity and joy to all of us, as well as peace and tranquility to our world. Levent, January 2022 Att. Piraye Erdem Founder and Managing Partner Prof. Dr. H. Ercüment Erdem Founder and Senior Partner
CONTRIBUTORS Prof. Dr. H. Ercüment Erdem Piraye Erdem Prof. Dr. H. Murat Develioğlu Özgür Kocabaşoğlu, LLM Tuna Çolgar, LLM Mert Karamustafaoğlu, LLM Alper Uzun, LLM Canan Doksat, LLM Ecem Süsoy Uygun, LLM, MBL Sevgi Ünsal Özden Merve Bakırcı, LLM Melissa Balıkçı Sezen, LLM Mehveş Erdem, LLM Duygu Öner Ayçiçek Tilbe Birengel, LLM Hazel Coşkun Baylan, LLM Rüştü Mert Kaşka, LLM Özge Kısacık, LLM Ece Özsü Tolga Sevinir Can Yıldız Helin Akbulut Abdullah Bozdaş
X Aslı Su Çoruk Ceren Eke Beyza Günsel Sürücü Defne Pırıldar Ece Şahin, LLM İdil Uz İdil Yıldırım, LLM Yağmur Zeytinkaya Nezihe Boran, LLM Ecem Çetinyılmaz Ayca Bengü Köksal, LLM Tutku Şen Zeynep Ezgi Yanarateş, LLM Merve Demirkaya İlbey Kolaylı Zeynep Nazlı Tosyalı Melis Uslu Arzu Tağhan Tahir Mersin Gözde Erseven
SUMMARY OF CONTENTS PREFACE.......................................................................................................V CONTRIBUTORS...................................................................................... IX SUMMARY OF CONTENTS....................................................................XI LIST OF ABBREVIATIONS................................................................ XVII COMMERCIAL LAW. ................................................................................. 1 The Legal Nature of Representations and Warranties in Share Purchase Agreements. ............................................................................................3 General Assembly Summons Lawsuits...............................................................9 Share Subscription Agreements.........................................................................16 Receivable Rights in the Context of Capital Contribution......................... 23 Null and Void Resolutions of the General Assembly in Joint Stock Companies...............................................................................................................29 Institutionalization in Family Businesses and Family Constitution.........37 Articles of Association in Family Businesses..................................................43 Shareholders’ Agreements in Family Businesses........................................... 49 The Practice of Unforeseen Circumstance in EPC Contracts................... 56
XII Actual Carrier in Carriage of Goods by Sea....................................................62 The Carrier’s Right of Retention on Goods....................................................65 BANKING AND FINANCE LAW. ..........................................................69 European Union Payment Services Directive and Its Effects on the Turkish Payment Systems Legislation..............................................................71 A Draft Regulation on Sharing of Confidential Information Has Been Published.......................................................................................................75 CAPITAL MARKETS LAW...................................................................... 81 Basic Principles Regarding Public Offering................................................... 83 The Practice of Green Bonds in the World and Turkey............................... 88 Portfolio Management Companies 101............................................................95 Turkish Mortgage Covered Bonds.................................................................. 100 COMPETITION LAW. ............................................................................105 E-Marketplace Platforms Industry Review Preliminary Report: “Captain, an object is approaching”. .............................................................. 107 Interim Injunctions Under Competition Law: The Turkish Competition Board’s Retailers, WhatsApp and Trendyol Decisions......114 Hub and Spoke Cartels.......................................................................................118 The European Commission Fines Banks for Participating in a Forex Cartel.......................................................................................................... 126 Competition Law Concerns Regarding Human Resources Practices... 130 On-Site Inspections in Light of the Recent Decisions of the Competition Authority. .................................................................................... 134 Coca Cola’s Commitments in the Recent Competition Investigation. . 139
XIII Settlement Regulation Enters into Force...................................................... 145 ARBITRATION LAW..............................................................................151 Dispute Resolution in the Digital Age........................................................... 153 IBA Rules on Taking of Evidence in International Arbitration 2020. ... 159 UNCITRAL Expedited Arbitration Rules. ................................................. 163 Arbitration of Corporate Law Disputes: The Swiss Example, Lessons to be Learnt and Suggestions. .......................................................... 167 Public Policy as Grounds for Refusal of Recognition. ................................174 Regulation Models for Third Party Funding in Investment Arbitration - Part I.............................................................................................. 182 Komstroy Decision: End of an Era for Intra-EU ECT Arbitration or Not?........................................................................................................................ 188 Constitutional Court Decided That Lack of Jurisdiction Decision Rendered due to Arbitration Agreement Does Not Violate the Right to Property................................................................................................ 194 Halliburton Decision on Apparent Bias: Violation without Consequences...................................................................................................... 198 LAWOF OBLIGATIONS. .......................................................................205 The Prohibition of Inconsistent Behavior. ................................................... 207 Electronic Signature Under Turkish and German Laws. .......................... 212 CIVIL PROCEDURE LAW..................................................................... 217 Appealing Final Court Decisions. .................................................................. 219 The Start of the Legal Period/Notice Date for Electronic Notifications in the Light of Judicial Decisions. ......................................... 224
XIV The Consequences of Not Specifying the Reasons for Appeal in a Petition of Appeal to The Regional Courts of Appeal............................... 229 The Unification of Judgments Decision of the Court of Cassation on Notification Law. .......................................................................................... 235 A Recent Decision of the Court of Cassation General Assembly of Civil Chambers on the Conditions of Unquantified Debt Lawsuits...... 241 The General Assembly of Civil Chambers Decision on the Scope of the Prohibition of Expanding and Amending Claims and Defenses and Failure to Respond to the Complaint..................................................... 247 ENERGY LAW. .........................................................................................253 Energy Performance Contracts as a Project Financing Method. ............ 255 Road to Energy Efficiency in Public Buildings: Communiqué on the Implementation of Energy Performance Contracts............................. 259 Recent Regulations Regarding Electricity Storage Activity. ...................264 EFET General Agreement Concerning the Delivery and Acceptance of Electricity. ................................................................................. 270 The Transfer of License in Electricity Market............................................. 276 TAX LAW...................................................................................................283 Revaluation of Immovables within the scope of Law No. 7326............... 285 A New Tax Controversy: Valuable House Tax............................................. 289 Recent Rulings of the Turkish Tax Administration Regarding the Stamp Tax............................................................................................................. 296 Withholding Tax Issue in Digital Advertising Services. ........................... 303 Limitation on Financing Expense Deduction through the Updated Draft Communiqué............................................................................................ 308
XV Tax Consequences of Failure to Fulfill Capital Commitment Payable. .314 Value Added Tax Aspect of Disguised Profit Distribution Through Transfer Pricing....................................................................................................319 Taxation of Social Media Content Producers Earnings in Light of Recent Changes................................................................................................... 326 LABOR LAW.............................................................................................333 What Does Remote Working Regulation Regulate?.................................. 335 Liability in Primary Employer and Sub-Employer Relationship. ........... 339 The Validity of the Acquittance/Release Agreement Concluded in the Course of the Employment Relationship...............................................344 The Council of State’s Decision on Notice Payments Under a Mutual Rescission Agreement......................................................................... 348 Employers’ Right to Monitor Employees’ E-Mails: Criteria Introduced by the Decision of the Constitutional Court Dated 12.01.2021. ........................................................................................................... 354 INTELLECTUAL PROPERTY LAW. ...................................................359 Assignment of the Author’s Economic Rights. ............................................ 361 Protection and Registration of Designs......................................................... 367 PERSONAL DATA PROTECTION.......................................................373 The Change in WhatsApp Privacy Policy and Evaluation of this Change within the Framework of the Personal Data Protection Law.... 375 A Groundbreaking Whatsapp Decision by the Irish Supervisory Authority............................................................................................................... 382 The Right to Be Forgotten................................................................................ 388
XVI INFORMATION TECHNOLOGY LAW...............................................395 A New Player in Liability Law: Artificial Intelligence............................... 397 Did Social Network Platforms Comply with the New Regulations in Turkey?. ............................................................................................................402 MISCELLANEOUS. ............................................................................... 407 Breach of Concordat by the Debtor................................................................409 Singapore Convention and Enforcement of Settlement Agreements in Turkey............................................................................................................... 413 Minimum Labour Conditions of FIFA for Female Players Regarding Pregnancy and Maternity..............................................................419 Administrative Supervision of Advertisements in Light of Advertisement Board Decisions...................................................................... 424 Parent-Subsidiary Liability Within the Scope of Foreign Corrupt Practices Act......................................................................................................... 431 LEGAL DEVELOPMENTS....................................................................435 Important International Agreements............................................................. 437 Important President Resolutions....................................................................444 Important Changes and Developments in Laws. ........................................ 453 Important Changes and Developments in Regulations. ........................... 455 Important Changes and Developments in Communiqués....................... 475 Important Changes and Developments in General Communiqués....... 488 Other Important Changes and Developments. ........................................... 493 Important Legislation and Decisions regarding Competition. ............... 495 Important Legislation and Decisions regarding Mergers and Acquisitions. ........................................................................................................ 499 Important Changes and Development regarding Energy Law. ............... 532
LIST OF ABBREVIATIONS* Art. : Article CC : Civil Chamber CMB : Capital Markets Board CML : Capital Markets Law E. : File EMRA : Energy Market Regulatory Authority etc. : Et cetera et seq. : Et sequentes fn. : Footnote K. : Decision No. : Number OG : Official Gazette p. : Page para. : Paragraph s. : sentence TCC : Turkish Commercial Code TCO : Turkish Code of Obligations V. : Volume * Abbreviations set forth in that part are general abbreviations. All other abbreviations are mentioned in articles.
COMMERCIAL LAW
The Legal Nature of Representations and Warranties in Share Purchase Agreements* Tuna Çolgar Introduction In a share purchase transaction of stock corporations, the assets, management or actives and passives of the company are not directly transferred, instead, the partnership rights over the company is transferred. The legal nature of the share purchase transaction is not transfer of an asset, it is a transfer of a right. The determination of the necessary legal transactions for share purchase depends on ascertaining the nature of the partnership, the type of shares, and whether share transfer is restricted or not. For instance, if a private company has bearer shares, Article 489 of the Turkish Commercial Code (“TCC”) states that “Transfer of bearer share certificates inure to company and third parties only with the notification to be made to the Central Securities Depository by the transferee via the devolution of possession.” Likewise, if a private company has registered shares, pursuant to Article 490 of the TCC, the transfer shall be completed with the endorsement of the share certificates and the devolution of possession to the transferee. Thence, the share purchase is completed by full endorsement of the share certificate and devolution of possession from the rightful transferor to the transferee with the purpose to transfer ownership. As endorsement is an independent declaration of will, transfer of registered shares does not require a valid promissory transaction.1 The act of disposal, which consists of endorsement and transfer of possession, * Article of October, 2021 1 Poroy, Reha/Tekinalp, Ünal/Çamoğlu, Ersin: Ortaklıklar Hukuku, Vol. II, Vedat Kitapçılık 2014, p. 126.
4 NEWSLETTER 2021 is necessary and sufficient for purchase of a share certificate. There is no provision in the TCC concerning the promissory transaction for share purchase. On the other hand, in practice, the consideration of share purchase is primarily about the transfer and purchase of an economic whole that the partnership provides, instead of dividends. Hence, besides the act of disposal that is explained above, execution of the promissory transaction will also be necessary. This promissory transaction is commonly encountered as a share purchase agreement. The promissory transaction is the first step towards the act of disposal, and the act of disposal is the transaction that fulfils the obligation formed by the promissory transaction.2 It is not possible for the transferee to acquire the ownership of the share certificate solely with the promissory transaction, as the transferor undertakes the obligation to transfer ownership of the shares to the transferee by the promissory transaction.3 For the share purchase transaction to be valid, an execution act of disposal is necessary. Representations and Warranties Representations and warranties that are the subject of this article are encountered during the promissory transaction, i.e. during the share purchase agreement phase. Even though share purchase agreements evolve around shares, the rationale of such agreements is mostly about acquisition of the activities, assets, portfolio and/or the economic value of the company that the share represents. Thus, the qualifications of company activities, assets and other economic values as well as the qualifications of the share is significant for the transferee.4 As the provisions of the Law of Obligations related to sales contracts are not sufficient for share purchase agreements that consist of the transfer of economic values, assets, and company activities togeth2 Sevi, Ali Murat: Anonim Ortaklıkta Payın Devri, Seçkin Yayıncılık 2012, p. 151. 3 Sevi, p. 152. 4 Sevinç Atılganer, Melisa: “Liability from Representations and Warranties under Share Purchase Agreements”, Erdem&Erdem Newsletter, December 2019, http:// www.erdem-erdem.av.tr/en/insights/liability-from-representations-and-warranties-under-share-purchase-agreements (Access date: 26.10.2021).
5 COMMERCIAL LAW er with the transfer of shares, in practice, agreements with a lengthy list of detailed representations and warranties are executed. The most common representations and warranties are created on the following subjects: corporate information, existence of the company, existence and validity of the shares, non-incumbent status of shares, administrative permissions, environmental law, material agreements, financial agreements and other financial documents, corporate books and records, financial records, balance sheet and profit loss calculations, information on properties (movable, immovable, intellectual property rights etc.), relations with clients and competitors/competition law, information on insurance, labor law and social security law, and disputes (cases, proceedings, administrative investigations and inspections, pretensions, notices, etc.). The provisions that are used under the representations and warranties title in practice are separately held by the scholars as “qualification commitments” and “guarantees”. Qualification commitments are employed to represent and warrant that the company whose shares are to be transferred carries certain qualifications and/or does not carry certain negative qualifications at the time the purchase agreement is concluded, i.e. when the promissory transaction is executed. In addition, these representations and warranties are reiterated with the act of disposal, when the endorsement and transfer of shares are completed.5 Moreover, guarantee declarations are employed to represent and warrant that certain positive events will occur or certain negative events will not occur.6 The difference between qualification commitments and guarantees is crucial. In the absence of special covenants in the agreement, qualification commitments are subject to liability arising from defects, whereas guarantees form a separate obligation. Therefore, in case of breach of guarantee commitments, general provisions regarding breach of contract will apply instead of liability arising from defects.7 5 Buz, Vedat: “Ortaklık Paylarının Devrinde Ayıba Karşı Tekeffül Hükümlerinin Uygulanabilirliği Sorunu”, Banka ve Ticaret Hukuku Dergisi, Vol. 35 N. 3, 2019, p. 71-72. 6 Buz, p. 72. 7 Buz, p. 72.
6 NEWSLETTER 2021 Qualification commitments can be about the current operational status, management, current assets and/or other economic values of the company whose shares are subject to transfer. Guarantee commitments will govern the issues apart from these. Qualification commitments can be related to an actual situation at a certain moment, whereas, representations and warranties related to the future shall be evaluated as guarantee commitments. Yet, qualification commitments concerning the future are not deemed invalid and are considered to be guarantee declarations.8 In some cases, the qualification commitments or guarantee commitments of the seller can be restricted with a seller’s best knowledge clause. If that is the case, the seller is only liable to the buyer for the occurrence of risks that are known or that can be known by the seller. In cases where such restriction is foreseen, there is a “subjective guarantee. ” The guarantees that are provided independent from whether or not the risk is known by the seller are called “objective guarantees. ”9 Another significant issue exists regarding for which type of share purchases representations and warranties should be included in the share purchase agreements. Here, the issue that needs to be examined is whether the share purchase resulted in a change of dominance and control. In a share purchase where there is no change of control, the transferor should be liable for the qualification commitments and guarantees that are expressly represented and warranted under the share purchase agreement, i.e. with the promissory transaction, and the transferor shall not be liable for other subjects related to the activities of the company apart from these.10 In addition, for share transfers that result in change of control, the sole subject of the transaction should not be considered as transfer of the ownership of the shares, rather, it should be considered as transfer of all of the elements that are part of whole activity and assets of the company.11 In other words, it is the company itself that is transferred. 8 Buz, p. 73-74. 9 Buz, p. 76-77. 10 Paslı, Ali: Anonim Ortaklığın Devralınması, Vedat Kitapçılık 2009, p. 271. 11 Paslı, p. 272.
7 COMMERCIAL LAW In cases where there is no change of control, as long as the transferor does not provide explicit representations and warranties through the promissory transaction, the transferor will only be liable for the existence of ownership rights over the shares that are subject to transfer.12 However, if the share transfer results in change of control of the company, the transferor will be liable for the current activities, assets, and economic values of the target company, even though representations and warranties are not provided as to these matters. For share transfers that result in transfer of dominance of the target company, the transferor will be responsible for material legal defects and shortfalls in the assets.13 The most important factor in figuring out the scope of the qualification commitments and guarantees explained in this article, and the remedies to be applied in case of breach, is the due diligence process. The purchase of shares of a company includes divergent risks at each step. During the share purchase transaction, foreseeing the risk, then calculating the risk, and finally managing the risk and minimizing its consequences is the paramount strategy.14 The instruments that outshine all others in this strategy are representations and warranties. Calculating the risks spotted during the due diligence process is necessary to determine the structure and scope of the representations and warranties while they are drafted. Representations and warranties should be determined and structured with that strategy, after evaluating the likelihood of the risks identified and the magnitude of their impact.15 Incompletely or poorly drafted representations and warranties will cause the buyer to not be able to cover damages in case of realization of the risk, while attempts to draft representations and warranties for a risk that is broader than necessary or that does not even exist will cause the negotiations to be prolonged and eventually result in waste of time and opportunity. 12 Paslı, p. 273. 13 Poroy, Reha/Tekinalp, Ünal/Çamoğlu, Ersin: Ortaklıklar Hukuku, Vol. I, Vedat Kitapçılık 2014, p. 556. 14 Esin, İsmail G.: Birleşme ve Devralmalar, On İki Levha Yayıncılık 2021, p. 117. 15 Esin, p. 118.
8 NEWSLETTER 2021 Conclusion As explained above, for the accurate and efficient drafting of the representations and warranties, in the first step, careful structuring of the purchase transaction and identification and calculation of the risks via the due diligence process is crucial. Moreover, whether or not the share purchase results in a change of control is an aspect that directly affects the legal nature of the representations and warranties. In that sense, for transactions in which the activities of the company and the economic whole to be acquired together with the rights associated with the shares that are subject to transfer, a “Transaction” definition should be made and it should be stated that the qualification commitments and guarantees are not only provided for the shares, but provided for the whole transaction to prevent the discussions around the legal nature in the share purchase agreement. Moreover, being aware of whether or not the drafted provision is a qualification commitment or a guarantee while drafting representations and warranties is of crucial importance for the legal consequences of the provision. It should be emphasized that representations and warranties should be drafted in such a way that they correspond to the risks that are determined during due diligence. Demanding representations and warranties that do not pose any risk at all and including these in the agreement is not an achievement, rather, it is an element that negatively affects the quality and duration of the agreement and negotiations. Representations and warranties that are drafted in line with the risks that are spotted and calculated as the outcome of an accurate and effective due diligence process facilitates delivery of the economic benefits that are expected from the transaction in a rapid and efficient way.
9 COMMERCIAL LAW General Assembly Summons Lawsuits* Ceren Eke Introduction Pursuant to Turkish commercial law legislation, the ordinary general assembly in joint stock companies shall be held within three months following the end of each fiscal year.1 According to Turkish Commercial Code numbered 6102 (“TCC”), the authority (Article 410 of the TCC) and duty (Article 375 of the TCC) to convene the general assembly essentially belong to the board of directors. Such that, even if the term of the board of directors has expired, the general assembly can be summoned to a meeting.2 On the other hand, in some instances, the general assembly may be convened by other bodies and persons authorized by law. In this framework, i) an individual shareholder or, in some cases, ii) a group of minority shareholders, have the opportunity to apply to the court in order to convene the general assembly. In this article, the right of an individual shareholder to convene the general assembly with the permission of the court as per Article 410/2 of TCC, and the right of minority shareholder(s) to apply to the court to convene the general assembly as per Article 412 of TCC, are both explained. An Individual Shareholder’s Right to Convene the General Assembly Pursuant to Article 410/2 of the TCC Pursuant to Article 410/2 of the TCC, in cases where the board of directors cannot convene consistently, the meeting quorum does not exist, or cannot possibly exist, an individual shareholder may summon the general assembly for a meeting with the permission of the court. * Article of August, 2021 1 Article 409/1 of TCC; Article 7/1(a) of the General Assembly Resolution. 2 This issue, which was controversial during the period of the former Turkish Commercial Code, has been clarified in the TCC. See the preamble of Article 410.
10 NEWSLETTER 2021 A similar regulation is stipulated in Article 9/2 of the Regulation on the Procedures and Principles of General Assembly Meetings of Joint Stock Companies and Representatives of the Ministry of Customs and Trade to be Present at These Meetings, published in the Official Gazette dated 28.11.2012 and numbered 28481 (“General Assembly Regulation”). Accordingly, “In case the board of directors is not present or cannot convene consistently or there is not possibility of a quorum, a shareholder, who has obtained permission from the court, may summon the general assembly for a meeting, in accordance with the second paragraph of Article 410 of the Law.”3 The purpose of the aforementioned provisions is to ensure the continuation of the operation of the company and to prevent the absence of bodies in the company within the meaning of Article 530 of TCC.4 This provision was added to the draft of TCC in the Justice Commission in order to enable the general assembly to be convened in certain extraordinary circumstances.5 The provision is especially important to find a way out for a company that has become deadlocked, in cases where the board of directors cannot convene, and that the quorums are not met due to disagreements and conflicts between different groups. During the period that the repealed section of the Turkish Commercial Code numbered 6762 was in force, it was the practice of the Ministry that all shareholders were able to summon the general assembly to meet through a declaration at a notary public. However, this method did not work properly, especially in the presence of conflicts of interest within the company.6 Pursuant to the TCC, it is sufficient to have an individual shareholder in order to exercise the right of action within the meaning of Article 410/2. As clearly stated in the wording of the law and the regulation, in order for a court to grant permission to a shareholder to call the general assembly meeting, it is essential that the board of direc3 Translated by the author. 4 Karahan, Sami: Şirketler Hukuku, 2012, December, p. 503. 5 Pulaşlı, Hasan: 6102 Sayılı Türk Ticaret Kanununa Göre Şirketler Hukuku Şerhi, V. 1, 2011, Ankara, p. 714. 6 Karahan, p. 503.
11 COMMERCIAL LAW tors i) cannot convene consistently, ii) it is not possible to constitute a quorum, or, iii) a quorum cannot be constituted.7 However, in order for the shareholder to exercise this right, an additional court decision is required. In this context, it is understood that the legislature deems it appropriate for shareholders to make this invitation by means of a court decision in order to prevent abuses. Pursuant toArticle 410/2 of the TCC, the court decision regarding the summons of a shareholder to the general assembly meeting is final. There is no possibility of an appeal. As mentioned below, opposing to the explicit regulation of the legislature in terms of Article 412 of the TCC; there is no regulation as to whether the court shall decide over file or with a hearing in terms of the right regulated under Article 410/2 of the TCC. Summons of the General Assembly to Meeting Upon the Application of the Minority Shareholder to the Court Pursuant to Article 412 of the TCC Shareholders constituting at least one tenth of the share capital in non-public companies -- in other words minority shareholders -- may request the board of directors to convene the general assembly by stating their necessary reasons and the proposed agenda in writing (Article 411 of TCC). Moreover, as explained below, Article 4128 of the TCC stipulates the right of the minority to apply to the court in cases where an affirmative response is not given within seven work days. The General Assembly Regulation also incorporates explanations on the subject. Accordingly, 7 Üçışık, Güzin / Çelik, Aydın: Anonim Ortaklıklar Hukuku, V. 1, 2013, Ankara, p. 245. The author states that in practice, failure to convene the board of directors due to disagreements and conflicts between groups, to achieve a meeting quorum due to lack of members or abuse of minority rights, and the absence of the board of directors due to reasons such as wholesale resignation or accident, is frequently encountered. 8 Although this is not the subject of this article, pursuant to these provisions, if the general assembly is to convene, these shareholders may request the issues they want settled to be put on the agenda.
12 NEWSLETTER 2021 “(3) Minority shareholders constituting at least onetenth of the capital of a non-public company, one-twentieth of a publicly traded companies or, if stipulated in the articles of association, a smaller share, may request the board of directors to summon the general assembly to a meeting, or, if the general assembly is already to be convened, to put the issues they want to be settled on the agenda, by stating the necessary reasons and the agenda, in writing, through a notary. The request to put an item on the agenda must reach the board of directors before the payment of the announcement fee of the publication of the summons in the Turkish Trade Registry Gazette. (4) If, despite acceptance of the application made by the minority shareholders to the board of directors to convene the general assembly meeting, the meeting invitation is not made by the board of directors within forty-five days, the minority shareholders themselves shall invite the general assembly for a meeting. (5) If the request of the minority shareholders to convene the general assembly meeting is rejected by the board of directors, or if an affirmative response is not given within seven workdays, the general assembly shall be invited to the meeting by the trustee appointed by the court in accordance with Article 412 of the Law.”9 The shares required to exercise this right of action may belong to an individual shareholder, or the required minority share can be achieved through gathering shares of a number of shareholders. In addition, a convocation right may be granted to the shareholders having a smaller share if stated in the articles of association of the company. Such that, by putting a provision to the articles of association of a nonpublic joint stock company, the shareholders constituting at least 6% of the capital may call the general assembly to convene. On the other hand, the quorums stipulated by the law cannot be increased by adding a provision in the articles of association.10 9 Translated by the author. 10 Altaş, Soner: Türk Ticaret Kanununa Göre Anonim Şirketler, 2021, Ankara, p. 133.
13 COMMERCIAL LAW The invitation request is made through notary public. The fact that such a form requirement is stipulated by the law is important in terms of determining the beginning of the periods in the summons process.11 The preamble for the article includes the following: “In practice, the issues of whether or not the board of directors is applied to for summons, and the date of application, can both create problems that pose trouble with regard to the court’s permission. This is because the remedies provided by the board of directors must be exhausted for the court to give permission. In addition, any delay of the board of directors in responding is also important in terms of the court’s permission. For this reason, it has been introduced in the Draft that the summons and the request to put an item on the agenda must be made through a notary public.” Acceptance of the Request by the Board of Directors If the board of directors accepts the request made by the minority, the general assembly is invited for a meeting to be held within forty-five days at the latest. It is stated in the preamble of the article that during the period when the old law was in force, the expected benefit from the meeting had become unobtainable since the board of directors often accepted the request, but the meeting was not held for months. For this reason, the TCC now requires meetings to be held within forty-five days from the date of acceptance. The beginning of the forty-five-day period is the date of the decision of the board of directors to accept the minority’s request. This is clarified in the preamble, which states: “Determination of the beginning of the period should not be a problem. The decision date of the board of directors is the start date of the period.” Despite the acceptance of the minority’s request, if the board of directors does not make the invitation itself within forty-five days, 11 Poroy, Reha / Tekinalp, Ünal / Çamoğlu, Ersin: Ortaklıklar Hukuku, V. 1, 2014, İstanbul, p. 483. The author states that the provision of making the request through a notary public, introduced by the new law, is mandatory in terms of determining the beginning of the deadlines in the invitation process.
14 NEWSLETTER 2021 the right to invitation passes to the minority shareholder who made the request. In other words, in this case, the invitation shall be made directly by the claimants (minority). In this case, there is no need to get permission from the court (Article 411/4 of TCC).12 Since the law does not contain provisions on the minority’s authority to directly convene the general assembly, shall be conducted, there are various opinions on how to overcome the problems that may arise.13 Rejection of a Request by the Board of Directors or Failure to Give an Affirmative Response Within the Seven-Day Period If, on the other hand, the shareholders’ invitation request is rejected by the board of directors, or if the request is not answered affirmatively within seven work days, the commercial court of first instance may decide to convene the general assembly upon the application by the same shareholders. In the article, “application by the same shareholders” is obligatory, and therefore it should be emphasized that the persons applying to the board of directors and those applying to the court must be the same.14 The lawsuit regarding the convocation of the general assembly meeting is directed to the company. In other words, the plaintiffs of the lawsuit are the minority shareholders and the defendant are the legal entity of the company. The court authorized to hear the case is the commercial court of first instance where the company’s registered office is located. Moreover, the requested agenda must be stated in the lawsuit petition.15 As a rule, the court examines the request is examined over file. However, as stated in the preamble of the article, the court may hold a hearing in case of necessity. If the court decides to hold a hearing, it should explain why it is necessary to hold a hearing.16 12 Karahan, p. 505. 13 Poroy / Tekinalp / Çamoğlu, p. 485. The author states that, if needed, the minority may request help from court in parallel with Article 412 of the TCC and ask the judge to appoint a trustee. 14 Altaş, p. 134. 15 Karahan, p. 505. 16 Poroy / Tekinalp / Çamoğlu, p. 486.
15 COMMERCIAL LAW If the court deems that the general assembly meeting is necessary, it shall appoint a trustee to set the agenda and make the invitation in accordance with the provisions of the law. In its decision, the court indicates the duties of the trustee and the authority to prepare the necessary documents for the meeting. Unlike the case of meetings convened under Article 410/2 of the TCC, the invitation to the general assembly is not made by a right holder (a minority shareholder) but by the court (through its trustee). Pursuant to Article 412 of the TCC, the court’s decision is final. Conclusion Article 410/2 of the TCC and Article 412 of the TCC are lawsuits for shareholders (for individual shareholders in Article 410/2 and for groups of minority shareholders under Article 412) that provide the opportunity to convene the general assembly. However, in terms of both kinds of lawsuits, it is important that both the formal and material conditions expressed in the law are fulfilled. In both cases, the right holder does not have the authority to summon the general assembly directly, and it is possible to convene the general assembly only after certain conditions are met and certain stages are exhausted.
16 NEWSLETTER 2021 Share Subscription Agreements* Hazel Coşkun Baylan Share subscription agreements, which are commonly encountered in start-up investments, set out the terms and conditions of an investor’s participation in a company as a shareholder by subscribing the new shares issued in a capital increase. This article examines the purpose and key provisions of share subscription agreements. Purpose In case of share subscription via capital increase, an investor pays the subscription price -- in other words the investment amount -- to the company. The investment amount is calculated in accordance with the company valuation, which is injected into the capital by way of a capital increase with share premium. In a capital increase with a share premium, the amount corresponding to the nominal value of newly subscribed shares are transferred to the company’s capital account, and the remaining amount is transferred to a capital reserve account. Thus, the company uses the share premium amount transferred to a capital reserve account for conducting and developing its business. How the investment amount will be used by the company (for instance, product development, expansion abroad, marketing activities, etc.) is designated in the share subscription agreement. The difference between a share subscription agreement and a share purchase agreement arises here. In the transfer of shares, the transfer price of the shares is paid by the transferee to the transferor shareholder and the transferor shareholder uses the transfer price as they wish. Whereas, in share subscription, the investment amount is paid to the company and used by the company for a specific purpose. * Article of December, 2021
17 COMMERCIAL LAW Key Provisions The key provisions of share subscription agreements are the information on the number, group and price of the shares that the investor will have in return for the investment, details of the closing general assembly meeting regarding the capital increase, closing conditions, representations and warranties, and indemnification provisions. General Assembly Meetings Regarding a Capital Increase The most important obligation of a company and its existing shareholders in the share subscription agreement is to ensure that the general assembly1 meeting is held for the capital increase in a way that will enable the investor to subscribe for the newly issued shares. The general assembly meeting regarding the capital increase is defined as the closing. The most important obligation of the investor is to undertake and pay the investment amount to be invested in the company as capital. In this respect, information regarding the shareholding structure before the investment round and the shareholding structure to be formed after the investment round, the total investment amount, the share premium amount, and information regarding the closing general assembly are set forth in detail in the share subscription agreement. In this capital increase realized through share subscription, each shareholder has a statutory pre-emptive right, which is defined as the right to purchase new issued shares pro rata to their shareholding in the capital, under art. 461 of the Turkish Commercial Code numbered 6102 (“TCC”). That said, the pre-emptive rights of the shareholders may be limited or removed by the company in the presence of valid reasons and with the affirmative vote of at least sixty percent of the capital. Shareholders may also waive their pre-emptive rights. In the event that a new investor invests in the company, the existing shareholders must either waive their pre-emptive rights or the usage of the pre-emptive right must be limited or removed by the company in order for the new investor to subscribe to a capital increase. In addition to 1 While the general assembly decides on the capital increase in joint stock companies registered in the principal capital system, the board of directors decides on the capital increase in joint stock companies registered in the registered capital system.
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