Category: Turkiye

Baker McKenzie Turkish affiliate Esin Attorney Partnership has advised Groupama Assurances Mutuelles on the sale of Groupama Investment Bosphorus Holding to AXA Mediterranean Holding. Gide Turkish affiliate Ozdirekcan Dundar Senocak advised the buyer.

According to ODSA, Groupama Investment Bosphorus Holding also controls Groupama Sigorta and Groupama Hayat.

Groupama is a Paris-headquartered insurance company. AXA Turkey is an insurance company operating in the Turkish market.

“We are pleased with the completion of the acquisition process of Groupama’s insurance operations in Turkey, which is a strong reflection of our strategy to create scale in our technical business lines,” AXA Madrid International Hub General Manager Nuria Fernandez commented. “With the new distribution channels in our network, we will increase our market share in our business lines and create a very different approach in our Turkey operation. We believe that we will achieve very successful projects together in the coming period.”

The Esin team was led by Partner Caner Elmas and included Senior Associate Sila Pinar and Associate Idil Arda.

The ODSA team included Partner Arpat Senocak, Senior Associate Iklim Gulsun Aytekin, and Associates Nil Duman and Ecem Nur Aksoy.

As the country quickly approaches the end of another election cycle, there appears to be an increase in litigation proceedings in Turkey – at least when it comes to the M&A and construction sectors – according to Esin Attorney Partnership Partner Demet Kasarcioglu.

“It’s been pretty busy lately,” Kasarcioglu begins. With elections just around the corner in Turkey, it would be expected for businesses to be slowing down but, quite to the contrary, Kasarcioglu reports that there is “activity across the board, which is very good and, additionally, spells good things for incoming work after the election cycle ends.”

Kasarcioglu says that litigation, especially commercial litigation and white-collar crime, is on the up. “We have seen quite some activity in this area, especially in terms of the M&A and construction sectors for commercial cases,” she says. “The Turkish construction sector, overall, does not have the requisite resources, it would appear at least for now, to lead to a massive escalation of disputes to official legal platforms in this area, but we are weary of the fact that there might be an uptick soon.” 

On the other hand, Kasarcioglu says the M&A sector is quite litigious. “Given the recent economic turmoil that the world found itself in, as well as the upcoming elections, we have seen a lot of disputes, settlements, but also transactions taking place.” According to her, following the end of the election cycle, there might be more disputes incoming, depending on the overall economic status of the country.

“Not to mention that, consequently, there might be some impact on the work of judges themselves,” Kasarcioglu says. “A first instance commercial case can take up to three years, to begin with, which only goes up to around five years in the best case but can be more than ten years for extreme cases for the proper finalization of matters – which is why most parties turn to arbitration as it is much quicker. This means that we might see an increase in arbitration proceedings that would, then, lead to a lower number of cases being tried before regular courts – thus lowering the burden on judges.”

Focusing on the drivers behind such strong dispute levels, Kasarcioglu first mentions inflation. “The inflation rising has led to a big hit for the construction industry, with construction materials becoming more expensive. Coupled with the war in Ukraine and actual shortages in these materials, the prices have skyrocketed, which placed a lot of pressure on the sector and all of its adjacent areas,” she explains. 

As for M&A disputes, it appears that the root cause is a much more familiar one – breaches of representations and warranties. “Based on our experience, almost 40% of M&A disputes come about following a breach of representation and warranties, with some 20% caused by price adjustments,” she continues. “These lead to shareholders choosing to exercise their options, in turn leading to positions in which corporate management principles might be breached,” she points out, “which then has a domino effect – inciting disputes between a wide plethora of parties on all levels.”

Seeing this, Kasarcioglu concludes “it is prudent to always remember that – when it comes to shareholder friction – dispute management and settlement is key in mitigating unnecessary lengthy legal proceedings and their related costs.”

Dentons Turkish affiliate Balcioglu Selcuk Ardiyok Keki Attorney Partnership has advised Vgames and 500 Emerging Europe on their participation in Frantic Games’ USD 2.4 million investment round that also included Golden Square I. Kumkumoglu Ergun Cin Ozdogan advised Frantic Games.

Frantic Games is a mobile game company that specializes in hybrid casual games.

Vgames is a venture fund focusing on game entrepreneurs. 500 Emerging Europe focuses on investing in emerging companies in Europe.

BASEAK’s team included Partner Okan Arican and Associates Dilruba Guldogan and Efe Ozen.

KECO Legal’s team included Partner Berk Cin and Associate Alper Katirici.

Former Senior Associate Cigdem Soysal has been promoted to an Associate Partner at KP Law.

According to the firm, Soyasl has been “an exceptional leader of our Employment and Contracts team, bringing a wealth of expertise, dedication, and strategic thinking to every project she’s tackled.”

Soysal has been with KP Law since 2020. Before joining the firm, she spent over five years as a Legal Affairs Manager with Dost Insaat ve Proje Yonetimi, a year as a Lawyer with Avivasa Hayat ve Emeklilik, and over two years as an Associate with Naipoglu.

Start-up, which was first introduced in Silicon Valley in the US, has started to be more and more involved in our lives with the globalizing world. The main purpose of start-up companies, which are rapidly increasing in number today, is to produce solutions to a specific situation or problem and provide their solutions to people in a short time. They aim to develop rapidly and become one of the most popular companies with these solutions that appeal to a wide audience. While they are mostly focused on software and technology, there are also start-up companies operating in different fields such as banking and finance.

To establish a successful start-up, it is sufficient to have the right business model, a strong network and minimum capital in the first phase of the company. However, a company that starts to grow over time may need to receive investment in order to ensure its continuity in a competitive environment and to make a profit. At this stage, legally determining the position of investors and start-up founders within the company is of great importance to ensure the balance between tangible and intellectual capital. Finding investors to provide financial support or functional contribution accelerates the growth process of start-ups.

What are the Types of Investors?

1) Angel Investor

The term angel investor is used in the business world for people who use their own funds to invest in start-ups and usually get shares in the company in return. Angel investors can contribute with their experience as well as financial support. Some of them even provide mentoring support to start-ups.

In the current legal regulations in Turkey, the term Individual Investment Participant (IIP) is used to cover the term angel investor. The “Regulation on Individual Participation Capital” on IIPs was prepared by the Undersecretariat of Treasury and entered into force with the Official Gazette dated 15.02.2013.

The relevant regulation regulates the conditions for being a IIP, the network they use and the state support that investors will receive. According to this regulation, only real persons can become an IIP. In other words, institutions and legal entities are not granted IIP licenses.The regulation also mentions the Individual Participation Investor Network (IPI Network), which is a legal entity formed by IPIs to enable companies to meet with investors. The Undersecretariat of Treasury communicates with IIPs through this network. IIPs can be a member of more than one network if they wish.

With this method, start-ups that cannot grow due to lack of funds have the opportunity to develop, while angel investors can both benefit from the state support provided under the regulation and have the opportunity to deduct 75% of their shares from income subject to income tax in accordance with the provisional Article 82 added to the Income Tax Law.

2) Venture Capital

Investors become partners in start-up companies that they believe will be valued in the long term through capital increases or share transfers. This method is known as venture capital or risk capital. The risk is the probability that a new service or product will survive in the market. This is why it is also known as the courage capital.

Venture capital investment creates a partnership between investors with money and companies seeking funding to develop their ideas. In the partnership, the invested start-ups are expected to be successful and bring significant profits to the investor in the long term.

3) Crowdfunding

Crowdfunding is a financing method in which many people provide the necessary budget for the realization of a specific goal by contributing small amounts through certain platforms. In our legislation, there are 4 types of crowdfunding methods: Equity Based Crowdfunding, Debt Based Crowdfunding, Donation Based Crowdfunding and Reward Based Crowdfunding.

Donation-based crowdfunding and Reward-based crowdfunding are models with no financial return. In donation-based funding, support is collected from the crowd in the form of grants without any compensation, while in reward-based funding, the company seeking financing obtains support from the customer as a pre-order. Equity-based crowdfunding and debt-based crowdfunding are essentially investments, and are therefore important for start-up companies.

Among the methods with a financial return, share-based crowdfunding was the first to be implemented in Turkey. In equity-based funding, in exchange for crowdfunding, the funder receives a share of the start-up company, which is a security. With the “Communiqué on Crowdfunding (III – 35/A.2)”, which entered into force on October 27, 2021, the debt-based crowdfunding method was regulated and a new method was created especially for start-up companies. In this method, the money people pay for funding is repaid directly with interest.

According to the relevant regulation, crowdfunding activities can only be carried out online and by platforms authorized by the Capital Market Law. The conditions for permitting platforms are specified in Article 5 of the Communiqué. Crowdfunding based on donations and rewards is excluded from the scope of the Communiqué.

Convertible Debt Agreements

A start-up that is still at the idea stage or has just been founded needs to somehow raise the cash it needs to grow. However, reasons such as the lack of a credit rating create a big problem for companies in terms of providing financing support. For this reason, as the world of entrepreneurship has evolved, start-up companies have started to use new methods to get investment. The type of agreement referred to as convertible debt is one of these methods.

The purpose of the agreement is to provide financing to the newly established company with low interest rates and short terms of 12-24 months. In return for the loan, the investor has the opportunity to become a shareholder in the company according to the pre-agreed value when the conditions specified in the agreement are realized. If the conditions set out in the agreement are not fulfilled, the company must repay the financing to the investor with interest.

The role of convertible debt agreements in Turkish Law

There is no exact equivalent of convertible debt agreements in Turkish law. In accordance with the principle of freedom of agreement in the Law of Obligations, it is seen that they are applied as financing agreements that can be converted into shares.

On 11.05.2020, the Capital Movements Circular (Circular), which entered into force on 02.05.2018, was amended and the concept of convertible debt was used for the first time. According to paragraph 12 of Article 6 titled “Payment of share fees in capital increases” of the relevant circular, the following conditions shall be required for convertible debt agreements concluded in foreign currency between Turkish residents and venture capital funds established in foreign countries. Provided that these conditions are fulfilled, in relation to the foreign currency transferred to the account of the Turkish resident party to the agreement, the conditions regulated under Article 14 of the Circular on the general rules of foreign currency credit utilization are not required to be fulfilled:

A provision stipulating that the debt shall be capitalized within a maximum period of 12 months from the date of transfer

The existence of a provision stipulating that such amounts shall be added to the capital (and not continue as debt) except in the event of dissolution or liquidation of the company

The existence of a provision stipulating that the entire amount transferred will be added to the capital.

By Beyza Sila Surmelr, Trainee, KP Law

Turkish law firm Karahan & Aydin has joined forces with CBC Law – formerly Cetinkaya Attorneys-at-Law – with Ahmet Karahan and Gurhan Aydin becoming CBC Law Partners, while Omer Faruk Ozdemir joined as a Senior Associate. 

According to CBC Law, Karahan, who joined the firm’s Dispute Resolution team, focuses primarily on administrative litigation and regulatory matters. Before founding Karahan & Aydin in 2018, he spent almost 12 years with Herguner Bilgen Ozeke.

According to the firm, Aydin, also joining the Dispute Resolution team, brings 15 years of experience in complex disputes and transactions. Before setting up Karahan & Aydin in 2018, he spent over four years with Kolcuoglu Demirkan Kocakli and over three years with Yamaner and Yamaner.

Karahan and Aydin’s “contributions will enable CBC Law to offer even more exceptional and effective results,” CBC Law announced.

Law No. 7445 on the Amendment of the Enforcement and Bankruptcy Law and Certain Laws (“Law“), also known as the 7th Judicial Package, has been published in the Official Gazette numbered 32154 on April 5, 2023.

With the new Law, it has become mandatory to apply for mediation before filing a lawsuit for the following disputes as of September 1, 2023;

• Disputes arising from lease agreements, excluding those related to the evacuation of leased immovables under the Enforcement and Bankruptcy Law,
• Disputes arising from the Condominium Law No. 634,
• Disputes relating to the division of movable and immovable properties and termination of joint ownership,
• Disputes arising from neighborhood rights,
• Objection, negative determination, and restitution lawsuits related to commercial and business disputes.

Otherwise, the lawsuit will be rejected by the court. However, this prerequisite will not be applicable to the cases currently pending as of September 1, 2023, before the Courts of First Instance and Regional Courts of Appeal and the Court of Cassation. Furthermore, disputes regarding the transfer of immovable property or the establishment of limited rights on immovable property can be resolved through voluntary mediation as of September 1, 2023.

As a result, it has been made mandatory to apply to mediation before filing the following lawsuits in the Civil Courts of Peace, which keep the courts quite busy:

• “Rent adjustment lawsuits (Article 138 of the Turkish Code of Obligations (“TCO”)”
• “Rental debt lawsuits (Article 315 of the TCO)”
• “Rent determination lawsuits (Article 344 of the TCO)”
• “Eviction lawsuits due to necessity (Article 350 and Article 351 of TCO)”
• “Eviction lawsuits following two justifiable notices (Article 352 of the TCO)”.

With this regulation, the aim is to reduce the workload in the courts.

By Özgür Güner, Partner and Cerensu Cetin Yenigun, Senior Associate, Moral, Kinikoglu, Pamukkale, Kokenek

Erdem & Erdem has advised Sisecam on its acquisition of EBRD’s stake in Sisecam Environmental Systems. Kinstellar Turkish affiliate Gen & Temizer Ozer advised the EBRD.

According to Erdem & Erdem, “operating globally in all areas of the glass industry, including flat glass, glassware, and glass packaging, Sisecam acquired the European Bank for Reconstruction and Development’s 10% of shares in Sisecam Cevre Sistemleri. As a result, Sisecam became the sole shareholder of Sisecam Environmental Systems, which Sisecam established with the EBRD in 2016 to support the industrialization of the glass waste collection and recycling sector in Turkey” (as reported by CEE Legal Matters on January 4, 2017).

Erdem & Erdem’s team included Partner Ozgur Kocabasoglu and Associate Helin Akbulut.

Gen & Temizer Ozer’s team included Partners Edmund Emre Ozer and Baran Gen, Senior Associate Yagmur Ipek Ozen, and Associate Ege Erol.

Law No. 7451 on the Amendment of the Law on Organized Industrial Zones and Certain Laws (“Law No. 7451“), published in the Official Gazette dated 10 April 2023 and numbered 32159, introduced significant amendments to energy legislation, and the Law on Organized Industrial Zones and entered into force on the same date.

What does the Law No. 7451 introduce?

Law No. 7451 introduces significant amendments to the Organized Industrial Zones Law No. 4562, as well as Mining Law No. 3213, Electricity Market Law No. 6446, Natural Gas Market Law No. 4646 and the Utilization of Renewable Energy Resources for Electricity Generation Law No. 5346. The main amendments are as follows:

1. Amendment to the Mining Law

License-exempt electricity generation facilities based on renewable energy resources, determined to be within the scope of Article 14 of the Electricity Market Law to meet the electricity consumption required within the scope of mining activities, were included within the scope of the definition of infrastructure facility. Accordingly, mining license holders will be able to establish license-exempt energy generation facilities based on renewable energy sources within their mining sites.

2. Amendments to the Natural Gas Market Law

Law No. 7451 introduced significant regulations regarding the liberalization of the natural gas market in Türkiye. In this context:

• The activities of BOTAŞ will be unbundled. Through unbundling, the aim is to ensure that natural gas supply and infrastructure activities are carried out by different legal entities to be incorporated. Principles regarding the companies to be established for this purpose, the matters regarding the transfer and similar transactions to be carried out within this scope will be regulated by a presidential decision. The vertically integrated legal entity of BOTAŞ will continue until the activities carried out by BOTAŞ are separated and restructured as a horizontally integrated legal entity.
  With the permission of the Ministry of Energy and Natural Resources (“Ministry“), the transfer of quantities subject to BOTAŞ’s natural gas purchase contracts or the transfer of contracts can be made. BOTAŞ will not be subject to the market share limitations stipulated under Natural Gas Market Law until the contract transfer processes are completed, and BOTAŞ’s Treasury guaranteed obligations are reserved.
• The Energy Market Regulatory Authority (“EMRA”) has been authorized to determine procedures and principles for export transmission tariffs, provided that the opinion of the Ministry is received, thereby ensuring that the transmission tariffs are not subject to the restrictions of the domestic transmission tariffs.
• Financial guarantees to be taken from legal entities engaged in import or export activities within the framework of the security of supply and issues related to ensuring competition will be regulated by EMRA with the opinion of the Ministry.

3. Amendment to Law on the Utilization of Renewable Energy Resources for Electricity Generation

• Pumped storage hydroelectric power plants will benefit from the Renewable Energy Support Mechanism (“YEKDEM”) and domestic contribution price support, regardless of the reservoir area.

4. Amendments to Electricity Market Law

• Along with YEKDEM, domestic contribution price support will also be applied to electricity storage facilities established in integration with wind and/or solar power generation facilities.
  Law No. 7451 clarified that the termination and cancellation of charging network operator licenses will be determined by EMRA.
• The sanctions for real and legal persons regarding entering the market, obtaining a license, having direct or indirect shares in legal entities applying for a license, and taking part in the boards of directors, which are regulated under Electricity Market Law and applicable to legal entities whose licenses are cancelled for three years, will similarly apply to legal entities whose charging network operation licenses are cancelled.

5. Amendments to Organized Industrial Zones Law

• Organized Industrial Zones (“OIZ“), certified by the Turkish Standards Institute within the framework of the environmental, economic, social and administrative criteria determined by the Ministry of Science, Industry and Technology, within which resource and energy efficiency, lean production, industrial waste cooperation and environmentally friendly practices stand out, are defined as “Green OIZ”.
• In this context, projects prepared to meet Green OIZ criteria will be evaluated primarily by the Ministry of Science, Industry and Technology when the use of loans is required for the activities of OIZs to facilitate the fulfillment of the Green OIZ criteria.
• Within the areas designated as industrial areas in the current zoning plans, OIZ areas will be finalized without the OIZ site selection process if the opinion of the administration that approves the zoning plans is provided, and the geological and geotechnical surveys based on the zoning plans are carried out.
• Before Law No. 7451 entered into force, pursuant to paragraph 4 of the Article 4 of the OIZ Law, lands with private ownership could be acquired through expropriation or purchases in the process of OIZ site selection. With the amendment, owners of the parcels who undertake to make investments within the conditions and periods specified in the regulation will be given space by the OIZ in the selected area without expropriation. However, the properties of those who do not fulfill their commitments will be expropriated.
• With Law No. 7451, lower limit of the size of the common areas within the OIZ is reduced from 8% to 5%, and the maximum size of the service and support areas is increased from 10% to 15%.
• In order to prevent the delay of OIZ investments, in the areas where the borders are finalized as OIZ by Ministry of Science, Industry and Technology, OIZ management will be able to commence infrastructure construction and allocate and provide the licenses and permits for the investments following the deposit of the property value appraised by the court to the bank account based on the decision of expropriation and the issuance of the decision of urgent expropriation.
  OIZ legal entity will be able to build superstructures on the parcels located in the industrial or service support areas; and will be able to lease the parcels with superstructures or sell them with superstructure to investors who undertake and commit to commence production.
• Within the framework of the procedures and principles to be determined by a regulation to be published, participants in the OIZ will be able to lease their facilities to one or more tenants for production purposes.

Conclusion

With Law No. 7451:

• Regulations encouraging the use of renewable energy were introduced within the significant amendments made in the energy legislation. In this context, those engaged in mining activities will be able to establish license-exempt electricity generation facilities based on renewable energy resources to meet their electricity consumption needs. Furthermore, pumped storage hydroelectric power plants will benefit from YEKDEM and domestic contribution price support.
• The aim is to create a competitive natural gas market. Within this framework, natural gas imports will be liberalized for both BOTAŞ and private sector legal entities, and the general principles regarding the transition period have been determined.
• The concept of Green OIZs are introduced to the legislation, and pave the way for OIZ investors to complete their investments faster and more effectively. It is expected that Green OIZs, which are of great importance for a sustainable future, will provide significant opportunities for investments and will support production and export activities with high added value. Further, the green transformation of the country is expected to accelerate with the increase in the number of Green OIZs.

By Nigar Gokmen, Senior Associate, Tugay Hanegelioglu, Berk Bengi and Bertan Baskaya Associates, Esin Attorney Partnership

After the Central Bank of the Republic of Turkey announced that it will complete the first CBDC tests at the end of 2022, it was announced that the blockchain-based digital identity application would be implemented in the “Digital Turkey 2023 First Meeting” held under the chairmanship of Vice President Fuat Oktay at the Presidential Complex in the first days of 2023. With the login system that will work within the scope of the e-wallet application, it will be possible to log in to the e-Government with digital identities created in the blockchain network.

Vice President Fuat Oktay announced the introduction of a “digital identity” application as a blockchain-based login system to the e-Government platform. Citizens will be able to access e-Government services using digital identities created on a blockchain network and a login system that works within the e-wallet application. Oktay stated that the transition from online e-Government to offline e-Government is possible, and that the first steps have been taken to develop a system that allows users to keep their digital information on their mobile phones safely. As a result, blockchain technology will be used in the login process for online public services in Turkey.

The use of a blockchain-based digital identity to authenticate the citizens of the Republic of Turkey while logging in the “e-Government” digital government portal, which will help access a wide range of public services in Turkey, can be considered as an indication that blockchain technologies have started to take place in the public sphere as well.

In addition, as a result of the evaluation conducted with the Turkish Notaries Union, services such as certificate of inheritance, e-appointment/application, e-determination (e-tespit), and “registered vehicle inquiry on behalf of the inheritor” will also be implemented to the system. With the “inheritance certificate inquiry” service available through the e-Government Gateway, citizens will be able to easily access the certificates of inheritance without having to visit a notary public.

By Onur Kucuk, Managing Partner, and Melodi Ozer, Associate, KP Law