CEE Legal Matters

Category: Turkiye

  • Working Arrangements for Non-Resident Foreign Companies’ Turkey Operations Conducted Through Local Individuals

    In our globalized world where trade has no borders, it is a usual practice for companies to conduct operations in different countries, including Turkey.

    Some foreign companies prefer having an establishment in Turkey, such as a local subsidiary company, while conducting their operations in Turkey, whereas some foreign companies prefer to stay as non-resident in Turkey and conduct their operations in Turkey through local individuals. The main reason for companies choosing the latter may be that the works that needs to be performed in Turkey may require only a few individuals, thus having an establishment for such a small business may be considered as a burden for the company. 

    In this article, some of the commonly preferred working arrangements used by non-resident foreign companies for their operations in Turkey conducted through local individuals are explained. 

    Commonly Preferred Working Arrangements

    (1) Direct Employment by Foreign Company

    The most straightforward working arrangement used by non-resident foreign companies for their operations in Turkey conducted through local individuals is execution of an employment agreement between the local individual and the foreign company, i.e. direct employment by foreign company. There is no legal provision under Turkish labor law that prevents a foreign company from executing an employment agreement with an employee for performance of certain works in Turkey. 

    Having the employee under the payroll of the foreign company while having her/him stayed in Turkey is possible to the extent that regulations of the country where the company is established allows to do so. However, when in such a case, the employee cannot benefit any advantage or securities provided by Turkish Social Security Institution (“SSI”) as she/he will not be registered as an employee (insured) with SSI. For this employee to be able to benefit from medical care services in Turkey, there is a specific procedure to complete. The employee should first obtain a document, evidencing her/his revenue from the respective country’s authorized body and convey it to public bodies authorized by SSI in Turkey. Then, SSI determines the amount of premium to be paid for providing general health insurance and herewith the employee may benefit the health insurance.

    The possibility of direct employment by foreign company must be examined in light of the scenario where a dispute arises between the parties. In case a dispute arises between the parties in the future and the employee initiates a lawsuit against the employer (foreign company) before Turkish courts, two issues are of significance: (i) the question of whether Turkish courts have jurisdiction to hear such a case and (ii) the question of which law will be applicable to the employment agreement.

    Article 6(1) of Labor Courts Law No. 7036 (“Law No. 7036”) provides that in addition to the courts of the employer’s residence, the courts where the work is being performed have jurisdiction to hear the disputes connected to labor relationships. In case of direct employment by foreign company, the employee will perform the work in Turkey. Therefore, if the employee initiates a lawsuit against the employer (foreign company) before the courts where the employee performs the work, i.e. a Turkish court, based on Article 6(1) of Law No. 7036, the court will conclude that it has jurisdiction to resolve the dispute. In other words, Turkish courts will have jurisdiction in a possible lawsuit that may be initiated by the employee against the employer in case of direct employment by foreign company.

    After establishing its jurisdiction, Turkish court will determine the applicable law to the employment agreement for resolution of the dispute. The applicable law to agreements containing a foreign element, such as the employment agreement to be executed between the employee and the foreign company, is determined pursuant to the provisions of Law on Private International and Procedural Law No. 5718 (“Law No. 5718”). 

    Article 27(1) of Law No. 5718 allows parties to choose the applicable law to their employment agreement. Therefore the employee and the foreign company can choose the applicable law to the employment agreement with a choice of law clause. That being said, such a choice is respected “as long as the minimal protection that is provided by the mandatory provisions of the law of the employee’s habitual work place are reserved”. Thus mandatory provisions of the law of the employee’s habitual work place are seen as the “minimum protection”. Based on these it can be concluded that even if the parties chooses the applicable law to the employment agreement in case of direct employment by foreign company, the minimum protection provided by the mandatory provisions of Turkish labor law must be regarded as a benchmark since these will be seen as the “minimum standards” that cannot be circumvented with the choice of law. Considering that almost all provisions of Turkish labor law are deemed mandatory in nature, practically Turkish labor law will be applied to the employment agreement. Article 27(2) of Law No. 5718 provides that “In cases where the parties have not designated a law, the law of the habitual work place of the employee shall govern the employment agreement.” Pursuant to this provision, in case the parties do not choose the applicable law to their employment agreement in case of direct employment by foreign company, Turkish labor law as the law of the habitual work place of the employee will be applied by Turkish courts. 

    As a result, it can be concluded that in practice, Turkish courts will apply Turkish labor law to the employment agreement in a possible lawsuit that may be initiated by the employee against the foreign company in case of direct employment by foreign company. 

    (2) Liaison Office

    Another working arrangement used by non-resident foreign companies for their operations in Turkey conducted through local individuals is establishment of a liaison office in Turkey and employ the relevant individual through the liaison office. A company established under the laws of a foreign country may open a liaison office in Turkey upon the conditions that; (i) all expenses of the liaison office will be covered by the foreign currency brought from abroad, (ii) no commercial activity will be undertaken by the liaison office, and (iii) the liaison office will not generate any profits. In case a foreign company establishes a liaison office in Turkey, the relevant liaison office should be registered both with the tax office and SSI. Below elaborates on liaison offices under Turkish law.

    Companies established in accordance with the laws of foreign countries are authorized to open liaison offices in Turkey upon the permit granted by the Ministry of Economy, General Directorate of Incentive Implementation and Foreign Investments (“FIGD”) located in Ankara. Liaison offices established in Turkey cannot engage in commercial activities. Liaison offices may engage in the certain activities such as (i) market research, (ii) providing technical support (providing trainings and technical support to distributors and supporting services to manufacturing suppliers in order to increase their quality standards), (iii) advertisement of products and services of the foreign company, (iv) operation as a regional management office for the foreign company (providing coordination and management services regarding activities such as preparation of investment and management strategies, planning, advertisement, sale, services following sale, brand management, financial management, technical support, research and development, external supply, testing of newly developed products, laboratory services, research and analysis, training of the employees), and (v) representation and accommodation (representation of the foreign company before relevant institutions and at relevant organizations, coordination and organization of the business contacts of the foreign company’s authorized persons in Turkey, answering the office use needs of such persons). 

    Liaison offices, in their first applications, are granted operation permits for 3 years at most. For term extensions, liaison offices are required to make an application before the expiration of their permissions. However, the permits obtained for market research or promotion of products or services of the foreign company cannot be extended.

    Liaison offices are not allowed to have a share capital. Liaison offices are represented by individual(s) to be appointed via a certification of authorization issued in accordance with the respective jurisdiction of the foreign parent company. 

    (3) Contractor / Service Provider

    Execution of a service agreement with an individual or a company is another working arrangement used by non-resident foreign companies for their operations in Turkey conducted through local individuals. Below elaborates on these two options.

    (a) Service Agreement with an Individual

    It is possible to execute a service agreement with an individual for the performance of the works to be conducted in Turkey for the foreign company’s Turkey operations. The most important point regarding this working arrangement is that the individual, who is party to the service agreement, is not an employee of the foreign company; she/he is an independent contractor who performs the services requested by the foreign company in return for a service fee. In other words, there is not employment relationship between this individual and the foreign company and the fee received by this individual is only service fee, not wage. Therefore, rules of Turkish labor law will not be applicable in case of execution of a service agreement with an individual. 

    (b) Service Agreement with a Company

    It is also possible to execute a service agreement with a company for the performance of the works to be conducted in Turkey for the foreign company’s Turkey operations. In this case, the service provider company will provide the services specified in the agreement in return for a service fee. Surely the service provider company will employ some employees for realization of the services. However, there will be no employment relationship between these employees and the foreign company. In other words, these employees will remain as employees of the service provider company. 

    Conclusion

    As explained above, there exist different working arrangements used by non-resident foreign companies for their operations in Turkey conducted through local individuals. While the working arrangement of having a liaison office requires having an establishment in Turkey, other working arrangements, i.e. direct employment by foreign company and execution of service agreement with an individual or company, do not require any establishment. The foreign companies are considered as employer in cases of direct employment by foreign company and establishment of liaison office, whereas in case of execution of service agreement the foreign company is only party to the agreement and not have the status of employer. All of these working arrangements have advantages and disadvantages compared to each other and choosing one depends on the specific needs and commercial discretion of the relevant foreign company.  

    By Gonenc Gurkaynak, Managing Partner, Tolga Uluay, Counsel, and Bahadir Erkan, Associate, ELIG, Gurkaynak Attorneys-at-Law

    (First published by Mondaq on May 2, 2018)

  • The Buzz in Turkey: Interview with Begum Incecam of Kolcuoglu Demirkan Kocakli

    The Buzz in Turkey: Interview with Begum Incecam of Kolcuoglu Demirkan Kocakli

    With early elections scheduled for June 24, 2018, Begum Incecam, Partner at Kolcuoglu Demirkan Kocakli in Istanbul, says the attention which will inevitably be drawn to the political arena in Turkey will slow down the market.

    After the coup d’état attempt in 2016, Incecam says, the recovery that began in 2017 was expected to continue in 2018 at the same pace. But with the announcement of snap elections, against the context of a state of emergency in the country that was just extended for the seventh time, she predicts “an imminent slowdown in the market, as both domestic and foreign investors will watch closely what happens in the political scene in Turkey.”

    “Although these political and economic uncertainties have a short term effect, they are currently a challenge for the Turkish market,” Incecam says. In addition, there have been several significant changes in the country’s legislation recently as well, including, she reports, to the country’s tax laws, the Turkish Commercial Code, and foreign exchange rules. “The latest amendments made in several laws aim to improve the investment environment and boost the economy,” she says. Unfortunately, the number and frequency of changes is causing trouble for practitioners trying to stay up to speed.  

    Incecam also reports changes in Turkey’s bankruptcy process. According to her, a change in the Enforcement and Bankruptcy Law introduced in February 2018, “aims to implement a tool balancing the interests of the debtors in poor financial standing and their creditors by replacing the postponement regime with concordat.”

    “While concordat was available in the laws [before], we are not very used to the new tool we have now,” Incecam says. “Earlier, by postponement of bankruptcy, debtors would be immune from its creditors,” she says. “Reaching an agreement on a concordat, debtors will have the permission of the creditors,” allowing debtors to clear debts by paying them according to the concordat agreement.  “In the postponement of bankruptcy, the creditors were not much involved in the process, and it would take a considerably longer time for them to reach their receivables.”

    Finally, Incecam says, what’s generating the most attention at the moment is the recently implemented rules on the Protection of Personal Data, that affect both companies and the law firms advising them on compliance. “Now is the time for companies to work on the implementation of the new rules,” she says, describing the process as “going smoothly.” 

     

  • Dentons Advises Isdemir on Joint Venture with Linde Group

    Dentons Advises Isdemir on Joint Venture with Linde Group

    Balcioglu Selcuk Akman Keki Attorney Partnership and Dentons have advised Isdemir, a member of the Oyak Mining Metallurgy Group, on the incorporation of a joint venture with Linde Group, to build a new air separation unit at the Iskenderun premises of Isdemir.

    The air separation unit is designed to daily generate 1,700 tons of oxygen and nitrogen to Isdemir per day, increasing the company’s nitrogen production capacity by 70% and oxygen production capacity by 60%, through a Build, Own, Operate business model, and it is the largest air-separation operation ever undertaken by an industrial gas company in Turkey. This partnership is the first international joint venture formed by Oyk Mining Metallurgy Group in its over 50-year history.

    Established on October 3, 1970, Isdemir is Turkey’s third oldest integrated iron and steel plant and the largest in manufacturing capacity. It is Turkey’s only integrated plant that produces long and flat products with a hot rolling capacity of 3.5 million tons/year.

    According to BASEAK, “the Linde Group is a world-leading supplier of industrial, process and speciality gases and is one of the most profitable engineering companies.” 

    The BASEAK team included Partner Galip Selcuk, Counsel Tulu Harsa, and Associate Cemre Demirkaya. The Dentons team was led by Istanbul-based Partner Ian McGrath.

     BASEAK did not reply to our inquiries regarding counsel for the Linde Group. 

     

  • BASEAK Advises Tiryaki Agro on a Long-Term Loan Facility

    BASEAK Advises Tiryaki Agro on a Long-Term Loan Facility

    Baseak has advised Tiryaki Agro Gida Sanayi ve Ticaret A.S., a Turkish agricultural products exporter, on a long-term loan facility of USD 65 million, extended by a syndicate led by Dutch development bank, FMO, the EBRD, and Proparco. The lenders were advised by lawyers from Hogan Lovells’s offices in London, the Netherlands, and UAE.

    Tiryaki Agro utilized a USD 50 million long-term loan facility provided by syndicated lenders led by FMO in 2012 to finance the acquisition of lands and construction of certain processing and storage facilities located in four regions in Turkey. The loan was re-financed with a USD 65 million long-term loan facility executed on March 23, 2018, to finance the general working capital needs of Tiryaki Agro.

    Tiryaki Agro is a company established in Gaziantep in 1965, which according to Baseak, “became one of the most important sector player in Turkey in processing agricultural products.” Tiryaki expanded its operations in Turkey and around the world with production and warehousing activities in 18 facilities, importing from 25 countries and exporting to 80 countries.  

    Tiryaki Agro was advised by BASEAK Counsel Yasemin Saris, Senior Associate Arzu Inoglu, and Associate Sena Mutlu.

    Editor’s Note: After this article was published, the Akol Ozok Namli Attorney Partnership informed CEE Legal Matters that it worked alongside Hogan Lovells in advising the lenders.

     

  • Dentons and Clifford Chance Advise on Hydropower Plants Privatization in Turkey

    Dentons and Clifford Chance Advise on Hydropower Plants Privatization in Turkey

    BASEAK and Dentons have advised Entek Elektrik Uretimi A.S., a subsidiary of Koc Holding, on its acquisition of the Menzelet and Kilavuzlu hydropower plants from Turkey’s Privatization Administration. The lenders of the project, a syndicate of Turkish and international commercial banks and EBRD, were represented by Clifford Chance and Yegin Ciftci Attorney Partnership. 

    The financing package of about TL 1.5 billion (equivalent to USD 375 million) will be provided partly in lira and partly in dollars by the EBRD and other commercial banks, including Garanti Bank, Isbank, Akbank, Yapi Kredi, Unicredit, and ICBC Turkey.

    Entek Elektrik launched its investment in 1995 and started generating electricity at the end of 1998. Their first plant, which had a capacity of 104 MW, was built at the Bursa Demirtas Organized Industry Site.

    With this deal, Entek Elektrik, the winning bidder of a competitive privatization tender worth TL 1.276 billion, takes over the operating rights of the two hydropower plants in Kahramanmaras province in the southeastern part of Turkey: Menzelet, with a capacity of 124 MW, and Kilavuzlu, with a capacity of 54 MW. Entek Elektrik’s installed capacity increases as a result from 244 MW to 422 MW.  

    According to Baseak, Koc Holding, which was founded in 1926, is “one of the largest industrial and services group in terms of revenues, exports, taxes paid, share in Borsa Istanbul’s market capitalization, and employment generation.” It operates in energy, automotive, consumer durables, and finance. The energy segment operates in refinery, fuel distribution, LPG distribution, power generation, and natural gas, among other industries.

    According to Clifford Chance, “the privatization of Menzelet and Kilavuzlu hydroelectric power plants is the largest acquisition to date of hydroelectric power plants by a domestic investor in Turkey — thus the privatization is an important step towards the future goal of all electricity being generated by private suppliers.”

    Dentons Partner Tamsyn Mileham advised Entek Elektrik on English law matters, while BASEAK Senior Partner Mufit Arapoglu and Counsel Ceren Su and Senior Associate Arzu Inoglu advised on Turkish law matters.

    Clifford Chance’s team was led by London-based Partner Simon Williams, assisted by Senior Associate Rebecca Shepherd, while the Yegin Ciftci team was led by Partner Mete Yegin, assisted by Senior Associate Sait Eryilmaz and Associate Seda Isinman.

     

  • BASEAK and Dentons Advise Akbank Subsidiary on Securitization Program

    BASEAK and Dentons Advise Akbank Subsidiary on Securitization Program

    Balcioglu Selcuk Akman Keki Attorney Partnership and Dentons have advised Akbank subsidiary Arts Limited on its securitization program.

    Arts Limited was established under the laws of Jersey in relation to the issuance of five tranches with five different leading international banks worth USD 795 million.

    Dentons Partner Tamsyn Mileham advised Akbank and Arts Limited on English law matters, while BASEAK Partner Mufit Arapoglu and Senior Associate Gozde Kayacik advised on Turkish law matters.

     

  • Turkey Moves to Improve the Investment Environment

    The Law on the Amendment of Certain Laws for the Improvement of the Investment Environment No. 7099 (“Law”) was published in the Official Gazette last month (March 10, 2018) and introduced significant amendments to various laws, including the Turkish Commercial Code No. 6102 (“TCC”), the Tax Procedural Law, the Law on Legal Fees and the Law on Movable Property Pledges in Commercial Actions.

    This article addresses significant amendments and new rules stipulated by the Law for the Turkish Commercial Code. 

    The Law aims to enhance Turkey’s investment environment by reducing the number of transactions required to set up a company, by supporting investors, and by lowering the expenses associated with the incorporation of joint stock and limited liability companies. 

    Save for certain exceptions as explicitly stated in the Law, the Law entered into effect on March 10, 2018. 

    Explanations on amendments regarding the Turkish Commercial Code 

    By amending Article 40/2 of the TCC, the Law requires every merchant to submit its trade name and signature to be used under such trade name to the relevant Trade Registry. If the merchant is a legal entity, the trade name and signature specimens of persons authorized to sign documents on behalf of the legal entity must also be submitted to the Trade Registry. Signature specimens may be given in the presence of an authorized officer of any Trade Registry by submitting a written statement. This amendment repealed the notarization requirement for trade names and signature specimens before an authorized Notary Public prior to submission to the relevant Trade Registry. On the other hand, prior to this amendment, individuals residing outside of Turkey were permitted to have their signature specimens signed, notarized and apostilled abroad. However, following this amendment, individuals residing outside of Turkey will be required to sign their signature specimens in the presence of an authorized officer of a Trade Registry in Turkey. 

    Pursuant to the changes made to Article 64 of the TCC, opening approvals of company books of joint stock companies and limited liability companies shall only be processed by the Trade Registries. With this amendment, Notary Public officials are no longer authorized to carry out opening approvals of company books. Therefore, investors are released from the requirement to pay additional notary fees for opening approvals of company books during the establishment of joint stock and limited liability companies. 

    Prior to the changes put into effect by the Law, if a company recommended a person affiliated with the company to its shareholders to represent them during shareholders’ meetings, Article 428 of the TCC obliged such a company to recommend another person for the same position, who should be completely independent and neutral, and to announce both of these persons to their shareholders. In practice, this obligation caused substantial problems and put significant additional burdens on small-scale joint stock companies. In light of this, Articles 428, 430 and 431 of the TCC have been repealed in order to reduce the obligations imposed on small-scale joint stock companies. The justification of the abolishment decision also stipulates that representative appointments set forth under Article 428 were introduced for joint stock companies listed on the stock exchange and for public companies whose shares are distributed to numerous shareholders; however, due to the text of Article 428, this rule also created additional burdens for small-scale joint stock companies. It is also put forth in the justification that, since Article 428 will not be applicable within the scope of the Capital Markets Law No. 6362, as per Article 30 thereof, small-scale joint stock companies should not face additional costs due to the representative appointment rules as foreseen under Article 428.

    In light of the amendments to Articles 575, 585 and 587, Notaries Public are no longer authorized to approve the signatures of founders and the articles of association of limited liability companies. The articles of association must be signed by the founders in the presence of authorized officers from the directorates of the Trade Registry. This amendment has entered into effect as of March 15, 2018. Thanks to these amendments, investors are no longer required to pay additional notary fees for the approval of the signatures of the founders and the articles of association of limited liability companies during the establishment of such limited liability companies.

    Article 585 of the TCC has been amended and the requirement concerning the payment of at least one-fourth of the subscribed capital prior to the establishment of a company has been abolished for limited liability companies. This amendment has also entered into effect as of March 15, 2018.

    As per Article 68 of the Law on the Amendment of Certain Laws for the Improvement of the Investment Environment No. 6728, published in the Official Gazette on August 9, 2016, Article 543/2 titled “Distribution after Liquidation” has been amended and the prescribed period for the distribution of a company’s remaining assets to its shareholders following the latest announcement to the company’s creditors has been decreased from one year to six months.

    Conclusion

    These amendments to the Turkish Commercial Code aim to improve the investment environment in Turkey, boost the national economy, and reduce the costs of company incorporation and doing business in Turkey. The Law also introduces significant amendments regarding the liquidation and incorporation of companies and secondary legislation may be required in order to bring uniformity to the practice of Notaries Public and Trade Registries in Turkey. 

    (First published by Mondaq on April 11, 2018)

    By Gonenc Gurkaynak, Partner, Nazlı Nil Yukaruc, Partner, and Busra Ustuntaş, Associate, ELIG, Attorneys-at-Law

  • New Era for FX Loans and FX Denominated Loans

    I. Legal Framework

    This article will address major amendments and novelties stipulated for foreign exchange and foreign exchange denominated loans.

    In the first quarter of 2018, taking into consideration the current foreign exchange risks, the Council of Ministers announced a decree and a communiqué amending Decree No. 32 on Protection of the Value of Turkish Currency (published in the Official Gazette dated August 11, 1989, No. 20249) (the “Decree No. 32”) and the Communiqué on Decree No. 32 on Protection of the Value of Turkish Currency (published in the Official Gazette dated February 28, 2008 and numbered 26801) (the “Communiqué No. 2008-32/34”), in the Official Gazette dated January 25, 2018, which will be put into force on May 2, 2018.

    Following these amendments, the Central Bank of the Republic of Turkey (the “Central Bank”) introduced the Regulation on the Principles and Procedures regarding Monitoring of the Transactions Affecting Foreign Exchange Position (published in the Official Gazette dated February 17, 2018, No. 30335) (the “Monitoring Regulation”) in order to regulate the principles for gathering information from the companies having foreign exchange and foreign exchange denominated loans in the amount of at least USD 15 million as of the last business day of the relevant accounting period.

    II. Amendments to Decree 32 and Communiqué No. 2008-32/34

    Pursuant to the recent amendment, individuals residing in Turkey will no longer be able to obtain FX loans from banks and financial institutions in Turkey, in addition to the previous restriction on obtaining FX loans from abroad.

    Once the amendment to Decree 32 enters into force, it will not be possible to extend FX loans to a legal entity having residency in Turkey unless such entity has foreign currency income or meets certain exceptions provided by the decree.

    According to the amendment to Decree 32, it is possible to obtain FX loans without generating foreign currency revenue if: 

    1. the borrower is public authority and institution, bank and financial leasing company, factoring company or financing company;
    2. the outstanding loan balance of the legal entities having residency in Turkey is at least USD 15 million at the time of the utilization;
    3. the FX loans are extended to finance an internationally announced domestic tender or a public private partnership project, to carry out a defense industry project approved by the Undersecretariat for Defence Industries, to acquire certain machines and devices or for a transaction within the scope of an investment incentive certificate; or
    4. the FX loan does not exceed the expected foreign exchange revenue of legal entities having residency in Turkey, as certified by such entity; or
    5. the borrowing Turkish legal entities fulfill other criteria to be subsequently determined by the Ministry in charge of the Undersecreteriat of Treasury.

    Other conditions provided for foreign exchange loans (regardless of the source these were obtained from, Turkey or abroad) of the borrowing legal entities having residency in Turkey are as follows: 

    If the loan balance of a borrower is less than USD 15 million on the utilization date of the loan, the sum of the loan amount requested and the current loan balance of the borrower shall not exceed the sum of its foreign exchange revenues pertaining to the last 3 fiscal years.

    If the loan balance of a borrower is less than USD 15 million, the borrower shall prove its foreign exchange revenues pertaining to the last 3 fiscal years with applicable documents as certified by the public accountants. 

    If it is determined at a later stage after utilization date of the loan that the loan balance of the borrower exceeds the sum of its foreign exchange revenues pertaining to the last 3 fiscal years, the exceeding part of the loan used through the banks, financial leasing companies, factoring companies or financing companies located in Turkey or their foreign branches shall be recalled and converted into a Turkish Lira-denominated loan.

    As another novelty; banks, financial leasing companies, factoring companies and financing companies having residency in Turkey have been authorized to provide foreign exchange loans to each other or by way of attending to an international syndication without any maturity limit. Previously, only banks were entitled to engage in such transactions between each other. 

    In addition, previously, banks were entitled to provide foreign exchange loans to the individuals or legal entities having residency in Turkey for their business needs, up to one third of their foreign exchange loans already provided for financing of the export pertaining to investment goods. However, with the recent changes, this practice has been revoked. 

    Before the amendment, financing companies were allowed to provide foreign exchange denominated loans to legal entities and individuals for commercial and occupational purposes. However, the amendment entirely prohibits legal entities and individuals residing in Turkey from obtaining foreign exchange denominated loans from abroad or within Turkey.

    III. The Monitoring Regulation 

    1. Purpose of the Monitoring Regulation

    The main purpose of the Monitoring Regulation is to follow up the relevant companies’ transactions affecting foreign exchange positions by the Central Bank by way of gathering relevant documentation and laying a burden of certain notification liability on those companies. With the Monitoring Regulation, the Central Bank aims to raise effectiveness in the foreign exchange risk management. 

    2. Companies subject to the Notification Liability 

    The Monitoring Regulation stipulates that if a company’s sum of the foreign exchange loans and the foreign exchange denominated loans obtained from Turkey or abroad exceeds USD 15 million as of the last business day of the relevant accounting period, such company shall be subject to notification liability before the Turkish Central Bank starting from the following accounting period. In order for calculation of the aggregate loan amount, the latest and applicable annual financial statements of the company shall be taken into consideration. In this respect, loan calculations will be based on the foreign exchange buying rates published in the Official Gazette, on the last business day of the relevant accounting period. If the aggregate loan amount of the company goes down the foregoing threshold (i.e. USD 15 million), the company’s notification liability shall end as of the following fiscal year.      

    3. Notification Procedure and Timing 

    A company subject to the notification liability should convey the relevant data to the Central Bank’s Systemic Risk Data Monitoring System (the “System”) in line with the financial reporting framework within the scope of data form. Exact content of the data form is specified and explained in detail within the disclosure form and user guidelines of the Central Bank.

    Notifications to the Central Bank should be made as follows; (i) by the end of the first month following each quarterly interim account period, and (ii) by the end of third month following the annual accounting period. 

    4. Accuracy Check and Timing

    The Monitoring Regulation also stipulates an accuracy check mechanism for the data conveyed by the companies to the System. In this respect, the accuracy check is conducted by (i) duly authorized independent auditors and (ii) the Central Bank separately. 

    For the accuracy check to be conducted by duly authorized independent auditors, a company under the notification liability should enter into an audit agreement with an independent auditor. This agreement should be signed within 60 days as of commencement date of the company’s notification liability (i.e April 18, 2018). Within the scope of accuracy check, the independent auditor assesses accuracy of the data conveyed by the company to the System based on the company’s notification liability. The audit should be completed until May 31 of the following year. During the audit, in case the independent auditor detects any mistake other than any insignificant discrepancies regarding the data, it may request from the company to make the necessary revisions. This being the case, the company should complete the necessary revisions within 5 business days upon the independent auditor’s request. If so, the independent auditor will prepare the audit report with a positive opinion. However, if the company does not complete the necessary revisions within 5 business days, then the independent auditor will prepare the audit report with a negative opinion. If the independent auditor cannot audit the mandatory data for any reason, it should not proceed with the audit duty and explain the reason(s) of such leave in written. All of the correspondence pertaining to the foregoing process should be conducted over the System. 

    In addition to the audit to be conducted by independent auditors, the Central Bank also conducts cross check of the data conveyed by the companies to the System.

    5. Applicable Sanctions in case of Non-compliance

    If companies do not duly comply with the requirements of the Monitoring Regulation, the relevant individuals and/or executives of the companies may be imposed judicial monetary fine from TRY 20,000 to TRY 200,000. 

    The Central Bank will notify the independent auditors who prepare the audit report with a positive opinion despite the fact that there is inaccurate and missing data or fail to comply with the required timings stipulated in the Monitoring Regulation, to the Public Oversight Accounting and Auditing Standards Authority.

    6. Effective Date of the Monitoring Regulation

    The Monitoring Regulation shall be in force as of its publication date, February 17, 2018.

    IV. Conclusion

    In the light of the foregoing, considering current needs of the free market economy, relevant public authorities of the Republic of Turkey aim to protect the Turkish borrowers’ foreign currency positions and projections, particularly small and medium sized enterprises, and to monitor various foreign exchange risks of Turkish borrowers by constituting a local database. 

    By Gonenç Gurkaynak, Managing Partner, Damla Dogancalı, Counsel, and Selen Sakar, Associate, Elig, Attorneys-at-Law

    (First published by Mondaq on April 5, 2018)

  • Turunc and Cleary Gottlieb Steen & Hamilton Advise Valeo on Sale of Hydraulic Actuation Division to Raicam

    Turunc and Cleary Gottlieb Steen & Hamilton Advise Valeo on Sale of Hydraulic Actuation Division to Raicam

    Turunc and Cleary Gottlieb Steen & Hamilton have advised worldwide automotive supplier Valeo on the sale of its passive hydraulic actuation division to Raicam, executed to obtain regulatory clearance for Valeo’s planned takeover of German clutch manufacturer FTE. Italy’s Studio Legale Gullo & Associati advised the buyers.

    Financing for the deal was provided by Mediocredito Italiano (a member of the Intesa Sanpaolo group).

    In 2016, Valeo announced its takeover of FTE Automotive for EUR 819 million, but the European Commission expressed doubts on the deal, leading to the company’s decision to make the deal with Raicam. In 2017 the company’s passive hydraulic actuation division reportedly achieved revenues of EUR 70 million, with a EUR 7.7 million EBITDA. It has about 400 employees, including patents and production sites in Mondovi (Italy), Gemlik (Turkey), and Nanjing (China).

    Raicam is based in Manoppello, Italy, and produces and manufactures brake pads, drum brake pads, and brake shoes for Oem, Oes, and after market for cars, commercial vehicles, and trucks. Production is carried out in three factories in Italy and two others in England and India. According to a Raicam press release, “by integrating the division acquired in its organization, [the company] will have the capabilities and the resources to manufacture the entire clutch and actuation system, to provide customers with a faster and integrated service and to facilitate the industrialization of the active hydraulic actuators, developing innovative products and systems that can contribute to the reduction of C02 emissions in the automotive industry.”

    The Turunc team consisted of Partner Kerem Turunc and attorneys Nilay Enkur, Grace Maral Burnett, Beste Yildizili, and Gozde Kiran.

    The Cleary team consisted of Partner Matteo Montanaro, Associate Federico Cenzi Venezze, and Trainee Pietro Meineri.

     

  • Paksoy Advises Akfen on Agreement to Construct Turkish Wind Farms

    Paksoy Advises Akfen on Agreement to Construct Turkish Wind Farms

    Paksoy has advised the Akfen Group on agreements to construct and service four wind farms with a total capacity of 242 MW in the Turkish cities of Canakkale and Denizli. As the EPC contractor and service provider, Siemens Gamesa will supply and install 81 turbines for these projects, each with 3 MW capacities, and provide long term maintenance service.

    Paksoy assisted Akfen in relation to the drafting of O&M agreements with the EPC contractor and conducted negotiations with Siemens Gamesa throughout the process.  The firm’s team included Partner Zeynel Tunc and Senior Associate Asli Kehale Altunyuva.