Onur Ergun has joined the Aksan Law firm as a Partner.
Ergun specializes in Corporate/M&A, Privatization matters, Banking & Finance, and Capital Markets. Before joining Aksan he spent almost five years as a partner at Yazici Legal and nine years as an associate and then partner at the Taboglu & Demirhan firm. He is a 2003 graduate of the Istanbul University School of Law and received an LL.M. from the Free University in Berlin in 2005.
Ceren Yildiz, former Senior Lawyer at ELIG Gurkaynak, has been promoted to Partner, effective January 1, 2020.
According to ELIG Gurkaynak, “Yildiz has extensive experience in regulatory, with a particular focus on TMT, e-commerce, e-money and payment services regulatory, pharmaceutical and medical device regulatory, corporate compliance matters, white-collar irregularities, data privacy, and contracts law. She provides legal consultancy to various multinational and domestic clients in a wide range of fields concerning their day-to-day operations, sector-related regulatory issues and contracts.”
“I am very much looking forward to continuing to work for client-oriented solutions in the Regulatory and Compliance team at ELIG Gurkaynak,” Yildiz commented, “and facing new challenges in this constantly growing practice together with the talented lawyers in our team.”
Yildiz joined ELIG Gurkaynak immediately after graduating from the Marmara University Faculty of Law in 2009.
“We look forward to an even stronger ELIG Gurkaynak Attorneys-at-Law as our very talented senior team continues to grow alongside the rest of the law firm,” said Founding Partner Gonenc Gurkaynak. “With this great team, we continue to strive for serving all of our clients with the highest quality of legal service subject to the most efficient response timings.”
In addition, ELIG Gurkaynak lawyers Ceren Ozkanli Samli and Onur Ozgumus were promoted to Counsel.
Dismissal of the board members of a joint stock company is regulated under the Turkish Commercial Code numbered 6102 (“TCC”). According to Article 408/2 of the TCC, general assembly of shareholders is granted with the sole power to appoint and dismiss board members. The scope and implementation of such power is defined under Article 364 of the TCC. Pursuant to such article, board members can be dismissed through including an item in the agenda of the general assembly meeting of shareholders for dismissal or with just cause even if the dismissal is not in the agenda of the general assembly meeting of shareholders.
While the former Turkish Commercial Code numbered 6762 contained provisions regarding dismissal, it did not grant board members the right to claim damages and caused ambiguity in implementation of the dismissal rules. Article 364 of the TCC tried to clear such ambiguity by providing different options for dismissal and granted indemnification rights to the dismissed board members.
Dismissal of Board Members Through General Assembly of Shareholders Resolution
Article 364 of the TCC provides two options for the dismissal of board members: (i) including an item in the meeting agenda regarding dismissal, and (ii) dismissing with “just cause” even if no such item is provided in the agenda for discussion.
Before explaining Article 364 of the TCC, it is important to describe the general rules which will be applicable to the general assembly of shareholders meetings. Firstly, in order to discuss dismissal of a board member and to have a valid general assembly resolution, meeting and decision quorums of a general assembly meeting should be met. In this respect, unless a heavier quorum has been provided in the articles of association of a joint stock company, general assembly will convene with the shareholders representing at least 25% of the share capital and the resolution will be taken by a simple majority as per Article 418 of the TCC.
Secondly, the agenda will have a binding effect for the general assembly resolution. Article 413/2 of the TCC states that only the items specified in the agenda can be discussed during the general assembly meeting. In other words, the general assembly will not be able to resolve on a matter unless such an item is included in the agenda. However, the TCC provides several exceptions to such rule. For instance, Article 364/1 of the TCC requires an item relating to dismissal of a board member to be included in the agenda; but also allows dismissal if there is a just cause without including any item in the agenda.
Another example can be inferred from interpreting Article 416 and Article 364 of the TCC together. In principle, an item can be included in the agenda if all shareholders are present and agree to do so when the general assembly has convened without invitation as per Article 416 of the TCC. Likewise, if there is just cause as per Article 364 of the TCC it would not be necessary to include an item in the agenda for dismissal since the general assembly can dismiss the board members without including any item in the agenda in such case.1
Lastly, Article 360 of the TCC grants certain share groups and minorities the right to be represented in the board of directors, provided that it is stated in the articles of association. If such right is granted, general assembly’s right to dismiss the board members is restricted; meaning that “the general assembly will be able to dismiss the board members representing such shareholders only if there is just cause”.2
a. Procedure if the Dismissal is included in the Agenda
Article 364/1 of the TCC stipulates that board members can be dismissed if there is an item related to dismissal in the agenda; a specific wording is not required. Article 413/3 of the TCC gives an example to an agenda item which can be related to dismissal. According to such article, discussion of year-end financial tables is related to dismissal of board members. In another words, the general assembly will be able to dismiss a board member if there is an item in the agenda regarding discussions of the year-end financial tables.
11th Civil Chamber of Court of Appeals (the “Court”) with its decision dated December 12, 2016 with merit no. 2016/2098 and decision no. 2016/9484, further emphasized the relationship between the discussion of year-end financial tables and dismissal of board members. In the case, the agenda contained discussion of the year-end financial tables but the shareholders decided to postpone the discussions. Nevertheless, the majority shareholders voted for dismissal of some board members. The minority shareholders filed a lawsuit arguing that it is not possible to dismiss board members when the discussions of financial documents have been postponed. The Court concurred with the minority shareholders and stated that discussions of financial tables are related to dismissal of board members and thus, the general assembly cannot resolve on dismissal when discussions about financial documents have been postponed.
There is no consensus between the scholars and the Turkish courts with respect to the requirement of just cause when there is an item in the agenda regarding dismissal. For example, some scholars argue that if discussion of year-end financial tables is included in the agenda and the shareholders are not pleased with the results of the financial tables, such reason itself will be sufficient to dismiss a board member.3 On the other hand, others argue that it is not necessary to have a just cause since the wording of Article 413/3 of the TCC is clear, and once discussion of year-end financial tables is in the agenda it is possible to dismiss a board member.4
b. Procedure if there is a Just Cause
The second option is to dismiss the board members based on just cause. While Article 364 of the TCC does not provide a definition of just cause, its preamble sets some examples. According to the preamble of Article 364 of the TCC, corruption, inadequacy, violation of duty of loyalty, inability to perform duties due to being a board member in multiple companies, discord, and abuse of power could be deemed as just cause. In addition, the preamble notes that dismissing a board member who is beneficial to the company solely for political reasons may not be deemed as just cause.
Furthermore, the Court gives an example to just cause in its decision dated 30.10.2017 with merit no. 2015/14781 and decision no. 2017/5821, stating that ongoing disputes between a joint stock company and a real person representative of a legal entity board member constitutes just cause since the board member and the company is unable to work harmoniously due to such disputes.
c. Effect of Dismissal of the Board Members
While there are many different legal opinions with respect to the legal nature of the relationship between a joint stock company and a board member, the Court tends to rule that the relationship is governed by a mandate contract.5 According to Article 512 of the Turkish Code of Obligations numbered 6098 (“TCO”), which regulates the mandate contracts, a mandate contract can be terminated with the unilateral declaration of either party. In this respect, general assembly resolution regarding dismissal of a board member can be considered as the unilateral declaration of a party.
In terms of the internal affairs of a joint stock company, dismissal will become effective “once the general assembly’s dismissal declaration is received by the relevant board member.”6 In case the board member is present in the general assembly meeting, the board member will “immediately receive the dismissal declaration and become informed on the matter.”7 If the board member is not present at the general assembly meeting, “with the interpretation of Article 514 of the TCO, it is possible to say that dismissal will become effective once the board member is informed.”8
The TCC does not contain any provision about the steps to be taken following the general assembly resolution or its effect to the third parties. On the other hand, Article 373 of the TCC stipulates that board of directors is obliged to submit the board of directors resolution indicating the authorized signatories of the joint stock company to the trade registry for its registration and announcement. In addition, any change in matters that have been registered with the trade registry has to be registered as per Article 31 of the TCC. Based on the foregoing provisions, it can be inferred that “the board of directors has to register the dismissal of a board member for such resolution to bind third parties.”9
Once the dismissal decision enters into force in accordance with the foregoing, the board member will no longer have any rights (e.g. salary and attendance fee) and obligations. As a result, the board member “will have to terminate his/her activities in the company immediately.”10
d. Rights of the Dismissed Board Members
Board members’ rights can arise when (i) there is an item in the agenda regarding dismissal but there is no just cause, (ii) there is just cause but no item in the agenda regarding dismissal, and (iii) there is neither an item in the agenda nor just cause. In principle, the dismissed board member request cancellation of the general assembly resolution and/or ask indemnification of the damages.
i. When there is an item in the agenda regarding dismissal but there is no just cause: Under this option, it is likely that the board member’s claim for cancellation of the general assembly resolution will be rejected by the courts if it is based on lack of just cause. The reasoning behind this derives from Article 364 of the TCC, which grants the general assembly the absolute power to decide on dismissal of board members and allows dismissal even without a just cause. Nevertheless, the board member can request cancellation of the general assembly resolution based on the grounds that the meeting and decision quorums are not satisfied. Also, the board member can claim indemnification of his/her damages.
ii. When there is just cause but no item in the agenda regarding dismissal: Under this option, it is unlikely that cancellation of the general assembly resolution will have a positive outcome if it is based on the fact that the agenda does not contain any item since Article 364 allows dismissal with just cause. Still, the board member can claim that the dismissal was unjust and ask for damages. In such case, the courts will look at the facts of each case to determine if there was an unjust dismissal decision.
iii. When there is neither an item in the agenda nor just cause: Under this option, the board member can request cancellation of the general assembly resolution and claim damages, since the general assembly decision is not based on any options provided by Article 364 of the TCC.
The Court in its decisions dated January 09, 2017 with merit no. 2015/12189 and decision no. 2017/120, and dated November 30, 2017 with merit no. 2016/3773 and decision no. 2017/6778, stated that the damages incurred by a board member should be calculated in accordance with the provisions related to mandate contracts. The Court then referred to Article 512 of the TCO, stating that the party who has terminated the contract in an improper time (i.e. unjust termination) will be responsible for the damages and the board member can claim wages until the end of his/her term as a board member.
Conclusion
In conclusion, the general assembly has broad powers to dismiss the board members and the scope of such power is defined under Article 364 of the TCC. With Article 364 of the TCC, the shareholders, through a general assembly resolution, can use their right to dismiss board members by including an item in the agenda or with just cause. In return, the same article granted board members the right to claim damages under certain circumstances to provide assurance to the board members, especially for the instances where the dismissal is not based on just cause.
1 Pulaşlı, Hasan, Şirketler Hukuku Şerhi, 3rd ed., Book I, January 2018, pg.944
2 Pulaşlı, Hasan, Şirketler Hukuku Şerhi, 3rd ed., Book II, January 2018, pg.1249-1250
3 Pulaşlı, Hasan, Şirketler Hukuku Şerhi, 3rd ed., Book I, January 2018, pg.942
4 Kırca, İsmail/Şehirali Çelik, Feyzan Hayal/Manavgat, Çağlar: Anonim Şirketler Hukuku Book I, Ankara, 2013, pg.460
5 Yargıtay 11.H.D. , 9.1.2017, E.2015/12189, K.2017/120
6 Erdem, Nuri, Anonim Ortaklık Genel Kurul Toplantılarında Gündeme Bağlılık İlkesi Çerçevesinde Yönetim Kurulu Üyesinin Azli, İstanbul Hukuk Mecmuası, 76/2, 2018, 503-528, 524
7 Id.
8 Id.
9 Karaege, Özge, Anonim Şirketlerde Genel Kurulun Yönetim Kurulu Üyelerini Görevden Alma (Azil) Yetkisi (TTK m. 364), Ankara Barosu Dergisi, 2014/1, pg.104
10 Erdem, Nuri, Anonim Ortaklık Genel Kurul Toplantılarında Gündeme Bağlılık İlkesi Çerçevesinde Yönetim Kurulu Üyesinin Azli, İstanbul Hukuk Mecmuası, 76/2, 2018, 503-528, 524
By Gonenc Gurkaynak, Partner, Nazli Nil Yukaruc, Partner, and Defne Kahveci, Associate, ELIG Gürkaynak Attorneys-at-Law
Paksoy and Shearman & Sterling have advised DBAG Fund VII and Deutsche Beteiligungs AG on the acquisition of a majority stake in Cartonplast Group from London-based financial investor Stirling Square Capital Partners. The Ozbek Attorney Partnership advised Stirling Square Capital on the transaction, as well as, reportedly, Latham & Watkins, J&A Garrigues, Pinheiro Neto Advogados, and Noerr Biedecki.
According to Paksoy, “Cartonplast Group is a European operator of a pool system for reusable plastic layers used mainly for the transportation of glass containers in the food and beverage industry.” It operates in 16 markets, including Turkey.
The Paksoy team included Partner Stephanie Beghe Sonmez and Associate Miray Cura.
The Ozbek Attorney Partnership team included Partners Atahan Sevimli and Selen Gures and Senior Associate Ece Ersoy.
The concept of financial restructuring was introduced in Turkey following the currency crisis of August 2018. Financial restructuring became the major item on the agenda of Turkish financial institutions, and regulators intervened immediately, working to create a useful legal framework for the process. The joint efforts of the Banking Regulatory and Supervisory Authority (the BRSA) and the Banks Association of Turkey (the BAT) resulted in the Framework Agreement. Nevertheless, restructurings commenced pursuant to the Framework Agreement are progressing very slowly, and in most cases have reached an impasse.
Comparing the concepts behind the Framework Agreement to those in international restructuring regimes such as Chapter 11 in the United States and Administration and Scheme of Arrangement in the United Kingdom reveals some of the obstacles to effective financial restructuring in Turkey.
Lawmaking
Following the entry into force of the Financial Restructuring Regulation (the “Regulation”), Turkey enacted the Framework Agreement, but both required amending shortly after their creation following criticism from international and Turkish financial institutions. These criticisms first led to the preparation of a draft law proposing amendments to the Banking Law (the “Draft Law”), then to the preparation of a separate law focused on financial restructuring. The Draft Law was enacted in July 2019. Shortly thereafter, the BAT circulated two new versions of the Framework Agreement – one for large corporates and one for SMEs.
As the currency crisis is under control and financial restructurings will take place over the longer term, there might be an opportunity to holistically contemplate the proposed legislation, taking all stakeholders’ opinions into account.
NPL Issue
Banks must maintain their capital adequacy while restructuring their receivables, and one solution is for banks to sell NPLs in their balance sheets. There are various licensed asset management companies operating in Turkey, but it would be unfair to expect the companies whose job is to buy and collect NPLs to undertake the major NPL burden alone. At this point, an option may be to attract investment in NPLs from international funds focused on NPL work-out. Various tax exemptions granted to asset management companies are not available to international funds’ purchases, which increases the costs of funds and renders the option of shifting the NPL burden to these international funds unfeasible. Turkish tax and NPL laws must be amended in order to convert the international interest in Turkish NPLs into actual investments.
Tax Costs
One of the critical objectives of restructuring regimes is to facilitate the provision of additional funds to the debtor in default, which is likely experiencing a shortage of working capital. Naturally, it would be unfair to expect Turkish banks that cannot collect their receivables to undertake the additional financing burden alone. The funding gap could be closed with the help of international funds that provide specialized funding (mezzanine, distressed, DIP finance, etc.). Since international funds are not considered financial institutions under Turkish tax laws, the loans they provide are subject to additional taxes. To overcome these obstacles, tax exemptions must be granted to the loans provided by these funds.
Cramdown
Benchmark restructuring regimes allow for write-down or other restructuring of debt, and debt for equity swaps, without minority creditor or shareholder consent. The Framework Agreement does not go so far because a write-down specifically requires the unanimous consent of creditors. Additionally, it does not contemplate debt-for-equity swaps without shareholder consent. Where a debtor balance sheet requires right-sizing, the absence of those tools could lead to a material issue because they curtail possible solutions. The Framework Agreement must be updated to provide these tools.
Contractual Rather Than Universal Effect
The Framework Agreement is just an agreement; it is not a proper collective insolvency procedure. Proper collective procedures operate vis-à-vis the world at large, including all creditors. The only parties who are bound by the Framework Agreement are those who signed it. As such, many parties who commonly operate in the credit markets in Turkey will work outside the Framework Agreement, and compromises struck by the parties to the Framework Agreement will not bind non-signatories.
Enforcement Procedures
The ability of creditors to enforce rights, including security rights, are imperative for tidying up financial markets. Where it is desirable that outside parties relieve incumbent holders of distressed debt, potential purchasers will wish to know that the path to enforcement is as smooth and efficient as possible, and that proper recourse can be had against debtors and their assets. The more straight-forward the enforcement processes, the more attractive local loans are to international investors, and the quicker they enter the market to acquire them and thereby resolve local banks’ balance sheet issues.
Muhsin Keskin, Partner, Esin Attorney Partnership
This Article was originally published in Issue 6.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
BTS & Partners has advised Biznet Bilisim Sistemleri ve Danismanlik Sanayi Ticaret and its former shareholder, FVD AS, on FTA Bilisim Hizmetleri’s investments in the company and SR Bilisim Yonetim Hizmetleri Ticaret Securrent.
Biznet is a cybersecurity company in Turkey that provides consulting, penetration testing, and auditing services as well as integration and support services of cybersecurity products to around 400 clients in various industries.
Securrent is an Istanbul-based cybersecurity company.
The BTS team was led by Partner Selin Beceni and included Senior Managing Counsel Zeynep Unlu.
Dentons and Balcioglu Selcuk Akman Keki Avukatlik Ortakligi have advised Czech-based hydroelectricity group Energo-Pro on securing EUR 175 million in financing for the development, construction, and operation of the Alpaslan 2 dam and hydropower plant in Turkey. The financing was arranged by MUFG Securities EMEA plc and Ceska Exportni Banka, and is partially backed by the Export Guarantee and Insurance Corporation, with HSBC acting as the security agent. Allen & Overy reportedly advised MUFG and HSBC on the deal.
According to Dentons, “Energo-Pro operates hydropower plants in Central and Eastern Europe, the Black Sea, and Caucasus. Its Alpaslan 2 project is located on the Murat river in Mus province, Turkey, and will have a licensed generation capacity of 280 MW.”
BASEAK’s Istanbul-based team was led by Partner Tamsyn Mileham and included Partner Ian McGrath, Counsels Ceren Su and Yasemin Saris, and Associates Fulya Gorer, Canberk Varis, and Sena Mutlu. Dentons’ Prague-based team included Partners Jiri Tomola, Tomas Osicka, and Petr Zakoucky, and Associates Martin Mandulak and Martin Fiala.
Editor’s Note: After this article was published Allen & Overy confirmed that it advised MUFG Securities EMEA plc on the EUR 175 million financing. According to A&O, “the transaction was further financed by Ceska Exportni Banka and backed by the Czech export credit agency EGAP.”
Istanbul-based Allen & Overy Partner Joe Clinton led on English law aspects of the financing, with support from Istanbul-based Associates Sarah Yeowart and Edward Charlton-Jones, while Turkish Counsel Umut Gurgey led on Turkish law aspects of the transaction, with support from Associates Dilsah Gurses and Burak Ozsoy, Prague-based Senior Associate Jana Marsalkova led the Czech law aspects of the transaction with support from Tereza Veverkova. A separate Allen & Overy team led by London-based Partner Simon Hill and Dubai-based Counsel Chris Angus with support from Dubai-based Associate Ian Convey advised HSBC in its capacities as Security Agent and Account Bank.
Bezen & Partners has advised Transmark Turkey, a Turkish geothermal development company, on an EPC contract with Chinese supplier Zheijang Kaishan Compressor and its subsidiary Open Mountain Energy for the construction of a binary geothermal power plant in Canakkale, Turkey.
The contract focuses on the delivery of ORC module power generation equipment and related engineering and construction services.
The Bezen & Partners team included Partner Yesim Bezen and Senior Associate Zekican Samli.
Bezen & Partners did not reply to our inquiry on the matter.
On 11 November 2019, the European Union adopted a legal framework for restrictive measures against Turkey. The EU is thus responding to Turkish exploratory drilling for natural gas deposits off the Cypriot coast, which Cyprus and the European Union consider illegal. The legal framework will make it possible to sanction individuals or companies responsible for or involved in drilling activities in the Eastern Mediterranean. However, no specific measures have been imposed yet.
Possible sanctions: Travel ban, asset freeze, ban on making funds available
The possible sanctions include a travel ban to the EU (Article 1 of the decision) and traditional financial sanctions such as an asset freeze and a ban on making funds available (Article 2 of the decision). Those concerned by the sanctions are the people and companies listed in an Annex.
The framework makes it possible to list (i) persons or entities responsible for drilling activities related to hydrocarbon exploration and production not authorised by Cyprus within its territorial sea, exclusive economic zone or continental shelf or (ii) persons or entities providing financial, technical or material support for the above mentioned drilling activities as well as persons or entities associated with them.
Whether the EU will make use of this option to list persons and entities remains to be seen over the next few weeks and months.
Background
Large natural gas deposits are thought to be present in the waters of the Eastern Mediterranean around Cyprus. Turkey has sent several drilling vessels to the exclusive economic zone of Cyprus to conduct exploration for natural gas deposits. Turkey considers the areas part of its continental shelf. The disputes are taking place against the backdrop of the ongoing occupation by Turkey of the northern part of Cyprus since 1974 in violation of international law.
The EU Member State Cyprus and the European Union are monitoring the Turkish drilling activities with great concern. Turkey has continued its drilling activities in Cypriot sovereign waters despite the Union’s repeated calls on Turkey to cease such activities in the Eastern Mediterranean in contravention of international law. This has a serious negative impact on EU-Turkey political relations. As a consequence, the EU has already suspended negotiations on the Comprehensive Air Transport Agreement with Turkey and decided not to hold the Association Council and further meetings of the EU-Turkey high-level dialogues for the time being as well as to reduce the pre-accession assistance to Turkey for 2020. The creation of the legal framework for sanctions now represents the next stage of escalation to encourage Turkey to concede.
No arms embargo
In mid-October of this year, the EU decided not to impose a formal arms embargo in response to the Turkish military offensive in Northern Syria. Instead, the EU foreign ministers referred to national declarations to immediately stop authorising any more exports of arms which could be deployed in the conflict. A formal arms embargo would have had the consequence in Germany, for example, of greatly increasing the range of sentences for contravention, and at EU level would have meant that even the supply of non-listed defence goods to military projects would have required notification. The EU has refrained from such a measure to date, however.
Further references
Regarding general issues of sanctions and embargo law, please refer to our recent feature on sanctions and embargo law in Germany, published in the International Comparative Legal Guide, Sanctions 2020.
By Dr. Bärbel Sachs, Partner, and Dr. Carl-Wendelin Neubert, Senior Associate, Noerr
Paksoy has advised Turkey’s Migros Ticaret supermarket chain on the acquisition of 25% of the share capital in Paket Lojistik ve Teknoloji.
Migros Ticaret is an Istanbul-based supermarket chain that was founded in 1954.
According to Paksoy, “Paket Lojistik was founded by Rasit Emir Seer and Serkan Can, and provides delivery services under the Paket Taxi brands.”
The Paksoy team was led by Partner Sera Somay and Counsel Serdar Ildirar.