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REGULATIONS RELATED TO THE DISTRIBUTION OF DIVIDENDS IN CAPITAL COMPANIES
 
Dear Clients and Business Partners,

As is known, the Law on the Minimization of the Effects of the New Coronavirus (Covid-19) Epidemic on the Economic and Social Life and Amendments to Certain Laws numbered 7244 (the “Law Numbered 7244”) has been entered into force by its publication in the Official Gazette dated 17.04.2020, within the scope of the minimization of the impact of the COVID-19 pandemic on economic and social life. Following the regulations related to the distribution of dividends set forth under the relevant law, the necessity to regulate the procedures and principles related to the implementation of the matter has been generated, and within this scope, the Communiqué on the Procedures and Principles Related to the Implementation of the Provisional Article 13 of the Turkish Commercial Code Numbered 6102 (the “Communiqué”) has been published on 17.05.2020. The aim of this newsletter is to explain to you, in general terms, the scope of the regulations related to the distribution of dividends in capital companies, entered into force by both the Law Numbered 7244 and the Communiqué.

REGULATIONS NEWLY ADOPTED BY THE LAW NUMBERED 7244

Through article 12 of the Law Numbered 7244, provisional article 13 has been added to the Turkish Commercial Code numbered 6102 (the “TCC”) and below regulations have been adopted, until the date of 30.09.2020, regarding the distribution of dividends in capital companies, except for companies under the public sector’s control:
  • Distribution of up to solely 25% (twenty five percent) of the net profits of the year 2019 may be decided;
  • Past years’ profits and free reserves shall not be subject to distribution;
  • No authorization to distribute advance dividends shall be granted to the board of directors, by the general assembly;
  • In the event that, a decision on the distribution of dividends regarding the fiscal year of 2019 has been already taken by the general assembly; but no payments have been made yet to shareholders or have been made partially, payments regarding the part exceeding 25% (twenty-five percent) of the 2019 net profit, shall be postponed until the date 30.09.2020; and
  • The T.R. President is authorized to extend or decrease said period, by 3 (three) months.
NOVELTIES ADOPTED BY THE COMMUNIQUÉ
 
Through the Communiqué, published following the regulation set forth under the Law Numbered 7244, principles and regulations related to the implementation explained above provisional article 13 of the TCC, have been regulated. Pursuant thereto, in addition to the provisions regulated under the Law Numbered 7244, below matters have been entered into force:
  • The regulation stipulating that, up to solely 25% (twenty five percent) of the net profits of the year 2019 may be distributed in cash, until the date of 30.09.2020; that past years’ profits and free reserves shall not be subject to distribution, shall not be implemented for the capital injections to be made from internal resources.
  • In the event that, a decision on the distribution of dividends regarding the fiscal year of 2019 has been already taken by the general assembly; but no payments have been made yet to shareholders or have been made partially, payments regarding the amounts exceeding 25% (twenty-five percent) of the 2019 net profit, and in the event that a decision has been taken on the distribution from the free reserves against a possible loss in the fiscal period, all balance payments, shall be postponed until the end of the date 30.09.2020; no interest shall be accrued related to the postponed payments; and
  • In the event that an authorization to distribute advance dividends has been granted to the managing body, by the general assembly, advance payments shall be postponed until the end of the date 30.09.2020.
EXCEPTIONS BROUGHT BY THE COMMUNIQUÉ
 
Regulations explained hereunder and brought by the Law Numbered 7244 and the Communiqué, related to the distribution of dividends in capital companies, except for companies under the public sector’s control, shall not be implemented to the companies, meeting below conditions:
  • Companies, employing those who benefit from the short-term working allowance due to a compulsory reason based on Covid-19, and from the cash support among the ones that were enforced to unpaid leave and companies which have decided a distribution of dividends with an amount of TRY-120.000 (one hundred and twenty thousand Turkish Liras) and less, except for those using credit bail supported by treasury and having an outstanding credit debt.
  • Companies that have taken a decision on distribution of dividends, provided that, more than half of the dividends, decided to be distributed by shareholders, will be used in fully payment of the debt on capital commitment to another capital company, in cash; and
  • Companies that have taken a decision on distribution of dividends, provided that, dividends, decided to be distributed by shareholders, will be used in fulfilment of the obligations which will become due until the date of 30.09.2020, within the scope of signed credit agreements or project finance agreements[1].
At this point, it is important to state that, in order to discuss dividend distributions to be made in this way in general assembly, assent of the T.R. Ministry of Trade (the “Ministry”) shall be required to be taken.
 
In applications to be made before the Ministry for the purpose of obtaining the assent, (i) notarized copy of the managing body’s decision; (ii) company’s statement of financial position related to the fiscal year, along with profit or loss statement; and (iii) in accordance with the above exceptions, documents to be received from related institutions, certifying to be within the relevant exceptions, shall be required to be presented before the Ministry Directorate General Of Domestic Trade.
 
This newsletter is for general information purposes only, and should not be regarded as legal opinion. Should you have a request for any legal opinion regarding the subjects within this newsletter and their implementation, please do not hesitate to contact us.


POSTACIOGLU


 
[1] In companies that have taken a decision on distribution of dividends in this way, payments related to the amounts exceeding fulfillment obligations of shareholders, shall be postponed until the end of the date of 30.09.2020.

POSTACIOGLU LAW FIRM
Abdi Ipekci Caddesi No. 65/2 Macka 34367 Istanbul Turkey
postacioglu@postacioglu.av.tr
+90 212 232 22 02


 
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