With a new Communiqué that entered into force on January 10, 2020, namely the Communiqué on Principals Regarding Revocation of Voting Privileges and Privileges to be Represented on the Board of Directors, the Turkish Capital Markets Board (the “CMB”) is now authorized to revoke voting privileges and privileges to appoint members of the board of directors in public companies which have recorded losses for five consecutive years.
Shares with voting privileges carry more voting rights than ordinary shares. The privilege to appoint directors can be granted to certain share groups or to minority shareholders. Both types of privileges must be provided for under the company’s articles of association.
The Communiqué does not apply to privileged shares held by governmental institutions and organizations. If and when revoked, privileges held by private parties may no longer be exercised following the date of the CMB’s decision. Articles of association provisions that violate the CMB’s decision cannot be enforced. In addition, the company must take necessary action to amend its articles of association accordingly.
With the Communiqué, the CMB will be able to take action to implement a better management and control mechanism in public companies, fulfilling its duty to protect investors. In a public statement, the CMB made it clear that the intention is not to appoint trustees and/or new directors to these companies.
The CMB may provide an exemption if losses can be justified by the company’s activities. In order to have an exemption, the loss-making company will apply to the CMB, explaining that the losses have been incurred as a reasonable and mandatory result of its activities. This application must be filed within 20 business days of the announcement of its financial statements pertaining to the fifth financial year. In evaluating the application, the CMB will take into consideration any situation beyond the management’s control which has a negative effect on the economy and the relevant sector or the company itself.
The Communiqué provides an exception for mandatory tender offer requirements, stating that if, as a result of revoking such privileges, a party acquires the management’s control through the acquisition of more than 50% of the voting rights, then the acquiring party is not obliged to make a tender offer to the other shareholders.
Lastly, the calculation of the five year period starts (i) for companies whose financial year is a calendar year as of the financial year which ended on December 31, 2013 and (ii) for companies who have a special financial year (as determined by the Ministry of Treasury and Finance upon application by the company) as of the annual special financial year which ended in 2014.