Turkish lawmakers pass amendments to Capital Market Law

The Law No. 7222 Regarding Amendments to the Banking Law and other Laws (Amendment Law) was passed by the General Assembly of the Grand National Assembly of Turkey and announced in the Official Gazette on 25 February 2020.

The Amendment Law amends and adds provisions to articles 25 and 38 of the Capital Market Law (CML). The main changes arising from the Amendment Law are as follows:

Publicly held joint-stock companies

The scope of significant transactions

The following transactions will, as a result of the amendment to article 23.1 of the CML, no longer be treated as significant transactions: “(i) to take a resolution regarding the termination, (ii) to transfer the whole or an important part of a publicly held joint-stock company’s assets or leasing or establishing an in-rem right over such assets, (iii) to change a publicly held joint-stock company’s field of activity completely or to a significant extent, (iv) to delist a publicly held joint-stock company”. Going forward, the Capital Markets Board (Board) has been authorised to enact regulations pertaining to this article with respect to publicly held joint venture companies of various characteristics.

The list provided under this article is not limited. The delisted cases, however, will be treated as significant transactions only if the Board enacts secondary legislation to that effect. Additionally, a transaction not listed under this article may be treated as a significant transaction by way of the enactment of secondary legislation. Since the amendment provides the Board with the authority to enact regulations “based on the characteristics of the relevant publicly held joint-stock company”, it is possible – contrary to the previous regulation – to set rules that vary for different types of publicly held joint-stock companies.

Retirement right

Article 24 of the CML regulating the retirement right has been amended entirely. With this amendment:

• The following conditions have been set in order to exercise the retirement right: being a minority shareholder, declaring opposition in writing to the minutes of the general assembly meeting, and being a shareholder on the date that a significant transaction is announced to the public. The Board has the authority to further regulate this issue.
• In the exercise of the retirement right, the price determination method in the previous version of the article has been abandoned, and the “fair price” principle has been adopted. There is no objective criteria list available for this concept, and the Board will determine the principles for its due implementation .
• The requirement of the purchase of the relevant shares by the joint-stock company during the exercise of the retirement right has been abandoned, and the principle of offering such shares to other shareholders or third parties was adopted. The principles applicable to the implementation of this process will be determined by the Board.
• The prevention of shareholders from exercising their rights to vote has also been included among the circumstances, which do not require attendance to the relevant general assembly meeting and recording the opposition in the meeting minutes.
• The mandatory issues to be included in the agenda of the general assembly meeting to discuss the retirement right are excluded from the CML. This issue is expected to be regulated under secondary regulation.
• The Board has been further authorised to introduce exemptions to the obligation to exercise the retirement right., making it possible for the Board to use its regulatory powers according to the characteristics of the relevant joint-stock company. The CML does not regulate the criteria that will be taken as a basis.

Shares that are subject to take over bids

As a result of the amendment to CML Article 26, shares subject to take-over bids are limited to the shares owned by the shareholders at the date of the public announcement of the transaction causing the change of control.

Capital market instruments

Debt instrument owners board

The Debt Instrument Owners Board (Borçlanma Aracı Sahipleri Kurulu or BASK), which was previously regulated under the Turkish Commercial Code (and has subsequently been removed), has similar functions to the general assembly of the debenture holders (tahvil sahipleri genel kurulu), and is regulated by article 31/A, newly added to the CML. Please see below for the fundamantal issues introduced by article 31/A:

• BASK may include all debt instrument owners in circulation, or separate boards can be established for ordinances (tertipler).
• Calling BASK to a meeting and the relevant decision-making principles will be determined by way of a prospectus (izahname) and an issue document (ihraç belgesi).
• The quorum for the meeting (toplantı yeter sayısı) is regulated in the third paragraph.
• BASK decisions will also have effect over debt instrument owners who do not cast an affirmative vote.
• Followig an event of default in the repayments of debt instruments, if the terms and conditions of the debt instruments are changed, the proceedings initiated in the event of default will cease, and precautionary measures and precautionary lien decisions will not be enforced.
• The Board has been authorised to determine the application principles of the article.

Secured loan instruments

By virtue of the newly added article 31/B in the CML, it is possible to issue secured capital market instruments. In this regard, the capital market instruments that can be issued as secured instruments and the types of security will be determined by the Board. The security manager must be an investment institution that has general safekeeping authority. The ownership of the pledged asset may be transferred to, or limited in-rem rights may be established in favour of the security manager. The security manager will carry out the security-related transactions in its own name and at the investors’ cost. When the necessary conditions arise, the security manager has the authority to liquidate the security and distribute the cash collected from such liquidation to the investors. Pledged assets are protected against liens, pledges, precautionary attachments and injunction decisions. The security manager will be subject to criminal liability in case of any use of the pledged assets other than for their intended purposes.

Project finance fund and project-based securities

Newly added article 61/B in the CML regulates project finance funds and project-based securities. In this provision, a special type of asset investment fund is introduced, which will be able to invest in project-based securities and the proceeds and other rights derived from the project and transferred to the fund will serve as a means of assurance for the investors.

Crowdfunding

The amendment on Article 35/A of the CML inserted new provisions whereby funds for crowdfunding platforms can be raised through borrowing in addition to the partnership. Thus, such fundraising transactions will not be subject to the Banking Law and related legislation, since collecting money based on borrowing falls within the scope of deposit money.

The Board has been given the power to determine the principles of the implementation of provisions regarding publicly held joint-stock company general assemblies under Article 29 and 30 of the CML to the general assembly meetings of venture capital companies. Thus, the provisions of the CML will be applied to the general assembly meetings of the venture capital companies within limits determined by the Board.

Responsibility arising from misleading, false or incomplete information in the information form published within the framework of crowdfunding is assigned to those who sign the information form. However, no link has been established with Article 32 of the CML, where the responsibility arising from public disclosure documents is issued.

Institutions in capital markets and their activities

Ancillary services

With the amendment on Article 38.1.b of the CML regarding the ancillary services of the investment enterprises, the Board is given the authority to determine the activities in which credit, foreign exchange and lending services could be offered, and project financing – in particular – is emphasised. Such authorisation makes expansion of the performance area of these services with secondary regulations of the Board possible.

Mutual funds

With the amendment of Article 52.5 of the CML, the scope of cases where the unincorporated mutual funds will be considered a “legal entity” has been expanded. In this respect, the mutual funds will be considered a legal entity – therefore, it would be possible to make transactions on behalf of the mutual fund - in terms of all transactions made before the land registry (tapu sicili) and trade registry (ticaret sicili). Moreover, mutual funds are also given the right to become partners in joint-stock and limited companies.

Furthermore, the housing and asset finance funds now have the same opportunity explained above, since Article 58 of the CML has been amended in the same way.

Measurements to be implemented by the board and criminal liability

Measurements to be applied to the contradiction to information and statements under prospectus (Izahname)

According to the new subclause 3 of Article 91 of the CML, the Board is authorised to take measurements against actions violating commitments (taahhütler) and statements (açıklamalar) under the prospectus (izahname). This authority may be exercised only if the commitments and statements in the prospectus being measured affect the investment decision of the investors.

Cases requiring the implementation of measurements include:

• Behaving contrary to commitments and statements;
• Non-delivering of the commitments within a reasonable time; and
• Not amending the commitments and statements required in compliance with the regulations of the Board.

Measurements to be implemented include:

• To request the correction of unlawfulness;
• To demand interim injunction or warrant of attachment for transactions contrary to commitments and statements to prevent the use of cash and other assets obtained from issuing, and any other measures; and
• To file a lawsuit for cancellation of such a transactions and return the obtained cash and other assets to the issuer.

Legal entities may receive proportional administrative fines

With the provision added to Article 103 of the CML, the Board is entitled to impose administrative fines to legal entities for committed misdemeanours under Turkish law. The fines will be up to 1% of gross sales revenue or 20% of pre-tax profit (the higher fine amount will be issued), which may not be less than the fixed fine amounts mentioned in the first paragraph.

The objective criteria for the Board when exercising its discretion in the amount of administrative fines should be determined by the severity of the violation and the number of potential victims affected. Administrative fines can be imposed according to financial size criteria, even if such fines do not affect the assets of the legal person committing the misdemeanour.

Administrative fines may be implied to those obstructing the audit

Administrative fines are issued against those who did not provide information and documents requested by Board officials and prevent Board officials from performing their duties. These fines may be fixed or may be proportional to the financial size of the legal entity.

Administrative fines may be imposed for causing unnecessary audits

With the paragraph added to Article 103 of the CML, a fixed fine may be imposed on persons who cause unnecessary audits to be conducted. The misdemeanour for causing unnecessary audits may occur if the Board is provided with either false, misleading information or documents, or disclosure of such information.

Minimum term of imprisonment for information abuse and market fraud actions

With amendments made to Article 106 and 107 of the CML, the minimum term of sentence of imprisonment associated with acts of information abuse and market fraud has been increased to three years.

For more information on these amendments to the Capital Market Law, contact Hülya Kemahlı at [email protected] or your regular CMS advisor.