With the entry into force of the Turkish Commercial Code numbered 6102 of 2011 (Code) on 1 July 2012, a major step was taken for the modernization of the Turkish corporate law. The Code laid down the foundations for a number of new features aiming in essence, (i) to promote and increase transparency and accountability of the management, (ii) shareholder participation and reinforcement of shareholders rights. In an effort to increase the shareholder value, new principles and mechanisms have been provided under the Code, such as, increased rights to information, cumulative voting, institutionalized representation, and attendance to general assembly meetings via electronic means.
A series of such changes adopted under the Code relates to the operating procedures of general assembly of shareholders.
The Code provides a material departure from the repealed Turkish Commercial Code numbered 6762 of 1956 (Repealed Code) in the form of the requirement for the joint stock companies to adopt an internal regulation, detailing the procedural rules for general assembly meetings. By doing so, the Code aims at mitigating the problems arising from the lack of guiding principles in this respect, under the Repealed Code.
Another major change brought about by the Code would be the diminution of the role granted to the representative of the Ministry of Customs and Trade, the presence of whom was, under the Repealed Code, a requirement for the validity of any and all general assembly meetings.
These, and other provisions of the Code governing the general assembly have now become fully functional, with the enactment of the Regulation on the Procedures and Principles of General Assembly Meetings of Joint Stock Companies and the Representatives of the Ministry of Customs and Trade Attending Such Meetings (Regulation), published in the Official Gazette numbered 28481 and dated 28 November 2012.
The Regulation is enacted as a replacement of the Regulation on General Assembly Meetings of Companies With Limited Liability and the Government Commissioner of the Ministry of Industry and Trade Attending Such Meetings of 1996 (Repealed Regulation) and save for certain provisions, entered into force as of the date of its publication.
This Client Alert aims at presenting a summary discussion of the main provisions of the Code, in the light of the newly adopted Regulation.
Persons Authorized to Convene the General Assembly
Both under the Code and the Regulation, the board of directors is the main corporate body authorised to make the necessary convocation for the general assembly meetings.
The Code and the Regulation further provide –explicitly- that the board of directors, of which the term of office has expired is also authorised to convene a general assembly meeting. The new provisions on this issue, where both the Repealed Code and the Repealed Regulation were silent, puts an end to a topic of debate.
Pursuant to the Repealed Regulation, at least one director and one of the statutory auditors were required to be present during the general assembly meetings.
Under the new Regulation, the presence requirements are revised and the attendance of at least one of the (i) executive directors (if any) or (ii) directors will be sufficient.
The presence of the independent auditor would only be required, if the company is subject to independent audit under the Code.
Right to Attend to General Assembly Meetings
Under the Repealed Code and the Repealed Regulation, shareholders were entitled to exercise their voting rights either in person or through delegation, to third parties, which may or may not be appointed from amongst other shareholders, acting as their representatives. Delegation to non-shareholder representatives was subject to the condition that there is no provision under the articles of association, prohibiting the establishment of such representation relationship.
The limitation with regard to the enjoyment of voting rights through a non- shareholder representative has been repealed under the Code and the Regulation, and any provision of the articles of association requiring a representative to be a shareholder will be null and void.
Voting Rights and Limitations
Each shareholder has at least one voting right in the general assembly and shareholders shall use their voting rights on a pro rata basis on the total nominal value of their share.
In any event, shareholders are required to pay 25% of their respective share capital contribution commitments (or the –higher- amount provided under the articles of association), in order to be entitled to exercise their voting rights.
In the event any of the share groups is granted with voting privileges, such privileged voting rights may not be exercised when (i) the amendments to articles of association or (ii) the release of the directors and/or initiating of an action for the liability of directors are being put to vote.
Presence of the Representative of the Ministry of Customs and Trade
The procedure under the Repealed Code and the Repealed Regulation required that any and all general assembly meetings be held in the presence of a government commissioner, appointed by the Ministry.
This requirement has been amended under the Regulation, which makes a distinction between certain types of general assembly meetings. The Ministry’s representative will be required in any and all general assembly meetings of the companies the incorporation and amendment of articles of association of which is subject to the Ministry’s approval. The following types of general assembly meetings (including any follow-up meetings to be held, in case of postponement of the initial meeting, irrespective of the cause) of other companies would also require the presence of a Ministry representative:
• meetings to be held for increase or decrease of share capital;
• meetings to be held for the adoption of registered share capital system and exiting from such system;
• meetings to be held by the companies having adopted the registered capital system, for increasing the maximum amount of the registered share capital ceiling;
• meetings to be held for passing amendments to articles of association with regard to the field of activities;
• meetings to be held for a merger, spin-off or transformation of the company;
• meetings to be held by the companies holding their general assembly meetings through electronic communication means;
• meetings to be held outside Turkey (including meetings to be held for the special assembly of privileged shareholders).
In addition to the above, the Regulation provides that even where there is no legal requirement in this regard, the presence of a Ministry representative may be possible where (i) the persons who convened the meeting make a request to that effect to the Ministry and (ii) the Ministry approves such request.
If the attendance of a representative by the Ministry in relation to a general assembly meeting is required, any decision adopted in such meeting in the absence of the representative of the Ministry, will be deemed as null and void.
Requirement of Adopting an Internal Regulation
As a matter of novelty, the Code requires the board of directors of joint stock companies (including single-shareholder companies) to draft an internal regulation, substantially in the form and content of the template to be published by the Ministry of Customs and Trade. The internal regulation needs to be approved by the general assembly, be registered with the competent trade registry and published in the Trade Registry Gazette., within 15 days following its approval by the general assembly. Any amendments to the internal regulation will be subject to the same procedure.
The purpose of internal directives is to establish a framework regarding the operation principles and procedures of the general assembly meetings, under a single document.
Internal regulations will apply both to ordinary and extraordinary general assembly meetings.
Internal regulations must be in line with the template form provided under Annex 5 of the Regulation and the minimum contents are listed under the Regulation, as follows:
• access to the meeting place and opening of the meeting;
• formation of the chair committee for the meeting;
• duties and authorities of the chair committee of the meeting;
• actions to be carried out before holding discussions on the agenda of the meeting and during the course of discussions;
• procedures for taking floor and exercising of the votes during the meeting;
• drafting of the meeting minutes, and
• actions after the closing of the meeting.
Under the Regulation, all companies are required to adopt an internal regulation during the ordinary general assembly meeting to be held in 2013, at the latest.