Category: Turkiye

It has been an interesting, fruitful, and innovative year for the Turkish financial sector. Most importantly and possibly surprisingly, the Turkish financial regulatory authorities are at full speed in implementing a legal framework to support a more sustainable Turkey.

Turkish Banking Sector Transition to the Circular Economy

Throughout 2021, the Banking Regulatory and Supervision Authority (BRSA) and the Capital Markets Authority (CMA) recognized the global trends surrounding sustainability and the need to raise awareness of, and be in compliance with, ESG principles and a move to digitalization.

As the climate crisis expanded and as the effects of COVID-19 became more apparent, the potential and importance of green finance and its instruments became a focal point in Turkey. Following a sector-specific approach to legislation and after the Capital Markets Board of Turkey published its sustainability compliance framework in late 2020, which set out ESG and sustainability principles for specific companies, in July 2021, the Turkish Ministry of Trade published the Green Deal Action Plan to harmonize Turkey’s efforts with the EU’s actual and planned policy changes, specifically the EU Green Deal. The Green Deal Action Plan targets various sectors by the adoption of compliant roadmaps for foreign trade. Following this, in October 2021 Turkey then finally ratified the Paris Agreement ahead of COP26. These significant steps have initiated an approach that actively raises awareness of the critical role of financial regulatory institutions in the transition to a circular economy.

In addition, various other steps were taken. Turkish banks are prioritizing projects that limit the effects of climate change, such as renewable energy projects, by providing local funding for such projects utilizing sustainable finance acquired from abroad. The BRSA also regulated the procedures and principles for banks conducting identity verification processes remotely and executing agreements electronically.

Looking Ahead – What’s Next?

Looking forward, the head of the BRSA signaled that it would continue implementing measures to meet Turkey’s sustainability goals. The introduction of a green taxonomy, in line with the European Union’s Green Taxonomy, has also been agreed to by related ministerial and agency authorities, which will heavily affect the financial sector. In the scope of digitalization, the BRSA also published a draft regulation specifying the general rules and principles of branchless banking, which it believes will provide faster and more efficient banking services for SMEs, which will eventually help them conduct businesses sustainably. Lastly, the BRSA is expected to share its sustainable banking strategy paper by the end of 2021.

Turkish Capital Markets – Crowdfunding and ESG Drive

2021 was also an exciting and exhausting year for those keeping abreast of new CMA legislation. The CMA started the year with a heavy schedule to firstly establish a bond guarantee fund – unfortunately yet to be realized – which will guarantee that investors can partially collect their investment in the event of default, and secondly to further regulate crowdfunding and incentivize investments in green bonds. After the CMA published its resolution in October 2021 on the types of campaigns in which share-based crowdfunding platforms may not participate and the partnerships with which such platforms may be affiliated, the CMA approved several platforms for the first time in its history. Then, in October 2021, the CMA published a communique regulating crowdfunding platforms, platforms’ activities, investment limits, and other principles and procedures for share-based and debt-based crowdfunding.

Naturally, the BRSA was not the only financial regulatory authority to act on Turkey’s ESG agenda. After organizing a workshop last July on green bonds and green lease certificates in collaboration with the World Bank, the CMA published its draft guide on green debt instruments and green lease certificates, prepared in line with the Green Bond Principles of the International Capital Market Association, aimed at increasing the issuance of green investment instruments, enhancing investor confidence via transparency and external evaluation, and diversifying investment opportunities in projects contributing to sustainable development.

Looking Ahead – What’s Next?

In any case, after a year focused on sustainability, it can be observed that Turkey has prioritized financial sector regulation and facilitation to advance Turkey’s ESG agenda, and we expect further regulation, financial products, and incentives in 2022 on the way to a more sustainable and greener Turkey.

By Alaz Eker Undar and Hulya Kemahli, Partners, CMS Turkey

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Former Counsel Maral Minasyan has been promoted to Partner at Kolcuoglu Demirkan Kocakli, as of January 2022. She leads the firm’s Employment Law and Data Privacy Law practices.

Minasyan specializes in corporate and commercial law, insurance, employment law, and personal data privacy. Minasyan joined KDK in 2006, as a Senior Associate. In 2016 she became a Counsel with the firm. Prior to that, she was an Associate Lawyer with Sanver Bozanoglu.

“Maral started with Kolcuoglu Demirkan Kocakli at its inception in 2006,” the firm announced. “We congratulate Maral and look forward to her continued success as Partner in our growing firm.”

Nazif Karatas and Gozde Saruhan Berk have been promoted to Partner at Nazali.

Labor law specialist Karatas joined the firm as a Lawyer in 2015 and has been the firm’s Labor Law Director since 2017. He holds LLB and LLM degrees from Marmara University.

Specializing in tax and restructuring, Saruhan Berk has been with the firm since 2013, having been promoted to Managing Senior Associate in 2019. She holds LLB and LLM degrees from Istanbul Bilgi University.

Companies, for various reasons such as tax benefits, liabilities and as may be required by authorities, may decide to change their legal types. Turkish corporate law allows companies to change their types in accordance with Article 181 of the Turkish Commercial Code No. 6102 (the “TCC”) which sets forth which company types are allowed to convert into another.

As per the relevant provisions, companies change their legal type without transferring or making any changes in assets while keeping the economic unity and continuity of shareholders shares and rights. In the same vein, the new entity shall take up the old entity’s place. So, merely “the shell” of the company will be changed.

The companies and which types they can convert into are numerus clausus as per Article 181 of the TCC, and the said article prohibits conversion of a stock corporation to a sole proprietorship and a cooperative to sole proprietorship.

The Procedure

As per Article 184/1 of the TCC, the provisions pertaining to incorporation of the type under the TCC will be applicable during the conversion, save for minimum number of shareholders, share capital subscription in kind and signing of the articles of association of the shareholders in stock companies. In other words, although the provisions are similar, the “change of type” does not construe “incorporation”, however the legal requirements for each type will be uphold in each change.

Furthermore, if more than 6 (six) months had elapsed between the balance sheet date and the date of the change of company type or material changes has incurred, an interim balance sheet must be prepared. The change can only be based on valid and up to date balance sheet. Preparation of physical inventory is not required during this process.

The steps during a type change are briefly as follows:

1. Articles of association: The articles of association of the company must be amended to ensure that it is in accordance with the legal requirements of the new type.
2. Type change plan: As per Article 185 of the TCC, the managing body of the company changing its type must prepare a plan on the change. This plan must be in writing and it must be approved by the general assembly. The plan must include the following:

• the commercial name of the entity prior to changing type and the name after,
• the articles of association of the new type,
• the shareholders’ number of shares, type of shares and shares’ amounts or details on shareholders’ shares after the change.

3. Type change report: As per Article 186 of the TCC, the managing body of the company changing its type must prepare a type change report in writing. This report must explain the following from legal and economic perspectives and their rationales must be provided:

• purposes and consequences of type change,
• that the incorporation requirements of the new company have been fulfilled,
• the new articles of association,
• the percentages regarding the shareholders’ shares they held prior to change and the shares they will hold subsequently,
• personal performance obligations and personal liabilities concerning shareholders due to type change, if any,
• the obligations of shareholders which will arise as a result of the change of type.

The report on changing company’s type can be excluded from the process of small and medium-sized enterprises provided that all of the shareholders approve to exclude.

4. Shareholders’ right to inspect: As per Article 188, pursuant to shareholders’ right to inspect, the company converting must submit the (i) type change plan, (ii) type change report and (iii) past 3 (three) years’ financial statements, and interim balance sheet if any, for the shareholders’ inspection, 30 (thirty) days prior to the general assembly decision regarding company type change at the headquarters and for publicly held joint stock companies, at the place where the Capital Markets Board sees fit. In addition, the company must inform the shareholders that the shareholders have the right to inspect. Moreover, copies of the said documents will be provided to the shareholders upon their requests.
5. Decision of the shareholders: The change plan as prepared by the managing body of the company must be approved by the general assembly of the shareholders as per the relevant applicable quorums provided under the TCC or articles of association of the company (whichever provides a higher quorum).

6. Registration and announcement: Pursuant to Article 189/2 of the TCC, the managing body of the company must register the change of type and the new articles of association with the relevant trade registry. The type change of the company will become valid upon registration. The decision on type change of the company will be announced in the Turkish Trade Registry Gazette.                   

Protection of Shareholders

As per Article 183 of the TCC, the shares of the shareholders and their rights shall be preserved during the type change. For the non-voting shares, shareholders will be given shares in equal value or shares with voting rights in return. For the privileged shares, shares in equal value shall be given or an appropriate compensation shall be paid.

As per Article 190 of the TCC, shareholders who are liable for company’s debts shall remain liable for debts after the change. However, the debts must have arisen prior to announcement of the type change or the sources of the debts must have occurred prior to that date. The claims regarding shareholders’ personal liabilities can be pursued within 3 (three) years from the date of announcement of the change of the company.

Liabilities regarding public bonds and other promissory notes shall continue until the date of redemption, unless the prospectus does not stipulate otherwise.

Rights of the employees arising from their contracts of service shall also be preserved.

Conclusion

Changing the type of a company does not alter the company’s status as a legal entity or its legal relations, therefore, the company will continue existing under a new type and all of the rights and liabilities of the previous company will automatically pass to the new company. In addition, it is ensured that changing company type cannot be used as a means to escape liabilities, and the rights of shareholders will not be adversely affected.

By Gonenc Gurkaynak, Partner, Nazli Nil Yukaruc, Partner, and Irmak Yetim, Legal Intern, ELIG Gürkaynak Attorneys-at-Law

Baker McKenzie and its Turkish affiliated firm Esin Attorney Partnership have advised ING Bank, ING-DiBa, and SACE on a EUR 50 million SACE Push Facility for the Izmir Metropolitan Municipality.

SACE is the Italian Export Credit Agency and provides insurance and financial solutions.

According to Baker McKenzie, the facility benefits from an 80% commercial and political risk SACE guarantee and is intended to be used for infrastructure projects by Izmir Metropolitan Municipality.

Based in Frankfurt, ING-DiBa is a German direct bank and ING subsidiary. The ING Group is a global financial institution with a European base, offering banking services through its operating company ING Bank. The bank’s more than 57,000 employees offer retail and wholesale banking services to customers in over 40 countries.

The Esin Attorney Partnership team included Partner Muhsin Keskin and Associate Nihat Aral. Baker McKenzie fielded teams in Germany and Italy.

The Turkish Data Protection Authority (“DPA”) has published Draft Guidelines on Cookies (“the Draft Guidelines”) on January 11, 2022, providing explanations on cookies and practical advices for data controllers who process personal data through the use of cookies.

The Draft Guidelines mainly provides an introductory note on the definition of cookies and provides information as to the types of cookies. Upon providing a general definition of cookies, it categorizes cookies based on (i) timeframe (i.e. session cookies, permanent cookies), (ii) purpose (i.e. mandatory cookies, functional cookies, performance–analytical cookies, ad/marketing cookies), (iii) parties (i.e. first party cookies, third party cookies.) 

DPA further assesses the legal basis on the application of the Law No. 6698 on Protection of Personal Data (“DPL”) for processing of personal data through the use of cookies. Even though cookies are not explicitly regulated under the DPL, DPA concludes that Article 51 (3) of Law No. 5809 on Electronic Communications (“Electronic Communications Law”) applies to data controller operators, but does not explicitly apply to “information society services” (which are explicitly regulated in Article 5 (3) of the 2002/58/EC of the European Parliament (“Directive 2002/58/EC”). Therefore, DPA deduces that as Electronic Communications Law does not regulate information society services, DPL applies to processing of personal data through the use of cookies.

In the fourth section of the Draft Guidelines, the DPA elaborates on the conditions that need to be taken into consideration regarding cookies. Draft Guidelines state that personal data may be processed by the use of cookies if, (i) explicit consent is obtained, or (ii) if one of the conditions set forth in Article 5 or Article 6 of the DPL exists. It also recommends that a balancing test should be performed if “legitimate interest of data controller” is the sole basis for data processing, and that when performing such test, the two-fold European Union Criteria are recommended to be taken into account.

In the following sections, the DPA gives some use cases that do and do not require explicit consent. Accordingly, the Draft Guidelines lists the following types of cookies as the ones which do not require explicit consent: (i) cookies created as a result of users signing in and creating submission forms (i.e. when picking items to fill out an online-shopping basket), (ii) cookies that form as a result of identification verification tools, (iii) cookies created by the user’s security preferences, (iv) multimedia player session cookies, (v) cookies that help with network load balancing, (vi) cookies created by user interface personalization, (vii) add-on content for social networking such as liking, sharing, commenting on posts, (viii) cookies used for managing the explicit consent platform, (ix) first-party analytical cookies, and (ix) cookies used for security of the website.

The scenarios which do require explicit consent are listed as (i) social tracing add-ons (such as those used for marketing and behavioral or analytical research tools); (ii) online behavioral advertising cookies.

Furthermore, the Draft Guidelines elucidates the elements that must exist in lawfully obtained consent. Accordingly, a lawful consent must be (i) related to a definite subject; (ii) based on being informed; (iii) expressed with free will.  

Moreover, the Draft Guidelines mentions parties’ liability and notes that some websites may utilize “Cookie Walls” (i.e. if the user does not accept the collection of all cookies, the user is prevented from using the website). The Draft Guidelines concludes that a case-by-case evaluation must be made to determine whether such cookie-walls hinder explicit consent; however use of alternative options to cookie walls would be recommendable.

In the eighth section, the Draft Guidelines sets out how obligation to inform should be duly fulfilled before personal data is processed by cookies. By referencing Article 5 of the Communique on Procedures and Principles on Providing Explicit Consent and Article 10 of the DPL, it states that information notice should be clear, plain and easily accessible, and the methods that make it difficult for the data subjects to access it should not be used. Draft Guidelines also states that when a person visits a website for the first time, an information notice on cookies should be provided (e.g. through pop-up messages). It also recommends that the name and purpose of cookies along with the usage period of cookies and information on whether there is a first or third party exists should be included in the information notice.

In the ninth section, the Draft Guidelines cites the decision dated February 27, 2020 with number 2020/173 of the DPA, as an example of how DPA has previously decided in a case which involved the collection of cookies by a website.

Finally, the Appendix section of the Draft Guidelines includes documents for practical use such as “Check List for Use of Cookies”, good and bad examples regarding cookies, and a sample information notice.

As a side note, DPA makes it clear that the Guidelines on Cookies are published as a “draft” version, and welcomes opinions and evaluations from relevant parties in writing or by e-mail messages (çerez@kvkk.gov.tr) until February 10, 2022. 

By Gonenc Gurkaynak, Partner, Ceren Yildiz, Partner, Noyan Utkan, Associate, and Gamze Yalcin, Associate, ELIG Gürkaynak Attorneys-at-Law

Paksoy has advised Global Founders Capital on leading a USD 2 million seed funding round for Norma. The Arikan Law Firm reportedly advised Norma on the deal.

Global Founders Capital is a seed and growth investor fund. Norma is a Turkish start-up offering a banking and financial management services platform for small businesses.

The GFC investment, according to Paksoy, is a “seed-stage venture capital investment aiming to create value by boosting long-term growth potential.”

Paksoy’s team included Partner Elvan Aziz, Senior Associate Hazal Korkmaz, and Associate Yeseren Sozuer.

Paksoy has advised Global Founders Capital on its USD 600,000 investment in Beije. Kinstellar Turkey affiliate firm Gen Temizer Ozer advised Beije on the deal.

Global Founders Capital is a seed and growth investor fund. Beije is a direct-to-consumer e-commerce feminine hygiene products brand.

Paksoy’s team included Partner Elvan Aziz, Senior Associate Hazal Korkmaz, and Associate Yeseren Sozuer.

Gen Temizer Ozer’s team included Partner Emre Ozer, Senior Associate Yagmur Ozen, and Associates Beliz Zorlu and Ege Erol.

The currency fluctuations in Turkey have resulted in challenges but have also created opportunities for investment in the country, according to Esin Attorney Partnership Partner Caner Elmas.

“The past few months we have witnessed an interesting phase in the Turkish M&A market, considering the inflation and currency fluctuations,” Elmas says. “The major obstacles are related to the valuation of assets for both buyers and investors, due to the ever-changing value of the Turkish Lira.” At the same time, Elmas points out that “investors who either have a presence or operations in Turkey have benefited from the current situation, as the situation has created an opportunity to buy Turkish assets and invest in Turkey.”

Overall, Elmas considers that the Turkish Lira fluctuation has had a significant impact on the market. “It has become very difficult for financial investors to invest in Turkey, where the target business is primarily focused on the local market. However, when the target business has income in foreign currency, for instance, by selling products abroad, it is a completely different story, as they have significant advantages,” he says.

“For strategic investors, this has been a very opportunistic era,” Elmas adds. “We have seen an increased number of clients coming to Turkey to either increase their operations capacity or to build a hub for their nearby markets. The pandemic definitely has played a significant role in this process where international trade has been affected due to issues in transportation costs and timing.” According to him, “due to the obstacles in the international transportation of products and services from the far East, many businesses are considering ways to substitute their location of production.” Eventually, Turkey has become “a place of attraction for those who are either familiar with or believe in the Turkish market and the importance of the country’s location,” he concludes.

In terms of legislative updates, Elmas says that there has been no major change regarding the investment schemes. “Legal environment in terms of investments remains more or less the same for a number of years,” he explains. “Foreign investors are treated equally as domestic investors, which has been important for foreign investment. The legislative framework in that regard remains unchanged.”

Many economies, particularly those in the European Union [“EU”], are now centered on the environment-oriented and sustainable economy model known as “Green Transformation,” which aims to mitigate the negative environmental consequences of human-induced parameters on the ecosystem. Turkey, also, had signaled that it would not stay out of this shift by ratifying the Paris Climate Agreement in October 2021.

In this context, the Capital Markets Board of Turkey [the “CMB”] prepared and presented the draft of “Green Debt Instrument and Green Lease Certificate Guide” [the “Draft Guide”] to support “green projects” that contribute to environmental objectives, particularly in fight against climate crisis, efficient use of resources, and development of environmentally friendly technologies. Accordingly, only the debt instruments issued in compliance with the Draft Guide can be referred to as “green” debt instruments. In other words, those who want to issue green debt instruments must comply with the requirements of the Draft Guide in addition to the existing rules on issuance of debt instruments.

The Draft Guide is grounded on the Green Bond Principles endorsed by the International Capital Markets Association [“ICMA“], which have also been adopted by the EU countries with the European Green Deal, according to the release on the CMB’s official website. Green debt instruments and green lease certificates, as well as the concepts and principles that must be followed in their domestic and international issues, are regulated in the Draft Guide.

Core Components

Under the heading “Core Components of the Green Debt Instrument”, the Draft Guide regulates four key topics. These topics are as follows:

1. Use of proceeds obtained from the issue: Proceeds obtained from the issue will only be used for green projects.
2. Project evaluation and selection process: Issuers will disclose details about the environmental sustainability objectives of eligible green projects, what type of green project the project falls under, possible environmental and social risks arising from the project, and their management process.
3. Management of proceeds obtained from the issue: All types of data will be tracked in a secure manner, and proceeds obtained from the issue of green debt instruments will be held in separate and special ledger accounts.
4. Reporting: Significant developments and up-to-date information on the use of proceeds will be disclosed to the public once a year as of the issue date, or on maturity for the issues with a maturity of less than a year, including funding from the issue of green debt instruments, a list of projects to which this fund has been allocated, a brief description of the projects, the amount used for the projects, and the estimated impacts of the projects.

Within this framework, green debt instruments can be defined as any debt instruments that are used to partially or totally finance or refinance new and/or existing green projects.

It should be noted that the general concepts, principles, and obligations defined in the Draft Guide for green debt instruments also apply to green lease certificates. In terms of green lease certificates, the obligations regarding the issuers will be fulfilled by the asset leasing company and/or fund user in green lease certificate issues.

Conditions that must be met for issuance of green debt instruments

To issue a green debt instrument, the board of directors of the issuer must initially prepare a framework document, which is a document that demonstrates the compliance of the instrument with the definitions and principles in the Draft Guide and introduces sustainability strategies and policies. [A copy of this document is provided in the annex to the Draft Guide.] Furthermore, an institution providing external review services must verify the green debt instrument’s compliance with the Draft Guide. Organizations that provide external review services [ICMA, Climate Bonds Initiative, etc.] are required to explain their competency, relevant areas of expertise and the scope of their review in the reports or documents they prepare as there are four types of external review––these are: second-party opinion, verification, certification, and green debt instrument scoring/rating.

In this context, the conditions that must be met for the issuance of green debt instruments can be summarized as follows:

1. The issuer must affirm in the framework document that the issuance will follow the principles given in the Draft Guide.
2. As indicated in the framework agreement, proceeds obtained from issue or an amount equal to these should be utilized to partially or fully finance or refinance green projects.
3. The compliance of the green debt instrument with the Draft Guide should be verified by an institution providing external review services [External review 1].
4. The issuer should consult an external reviewer for inspection of the internal monitoring methods and allocation of proceeds from the green debt instruments to eligible Green Projects [External review 2].
5. The issuer should publicly disclose the framework document and the prospectus or issuance documents approved by the CMB containing external review 1, as well as the external review 2, and green bond framework documents containing taxonomy, green standards or certificates, if any, used in the selection of green projects.

Issuance of Green Debt Instruments Abroad

The framework document, prepared in accordance with the foreign green bond standards to which the issue is subject, and the external review regarding its compliance with the foreign standards, must be submitted to the board of directors in applications for the issue of green debt instruments abroad. The framework document must also be made publicly available on the issuer’s website and on the Public Disclosure Platform [the so-called “KAP“] if the issuer is a member of the KAP. Proceeds allocation reports prepared in accordance with foreign standards must be submitted to the CMB within one month as of their preparation.

By Zahide Altunbas Sancak, Partner, and I. Selin Nacar Ozturk, Associate, Guleryuz & Partners