Effective from 16 April 2020, a provisional article was added to the Turkish Commercial Code No. 6102 (the "Law") with the Omnibus Bill No. 7244, which provides that until 30 September 2020, a maximum of 25% of the net profit of capital companies for the year 2019 can be distributed, that profits of previous years and free reserve funds of such companies could not be subject to any distribution, and that their general assemblies would not be authorised to empower the managing body of the company for distribution of advance dividends .
In this respect, a Communiqué on the Procedures and Principles Regarding the Implementation of the Provisional Article 13 of the Law (the "Communiqué") was published in the Official Gazette No. 31130 dated 17 May 2020, effective on the same date, aiming at determining procedures, principles and exceptions regarding the implementation of the abovementioned new rules under the Turkish Commercial Code.
Exceptions for dividend distribution restrictions
In accordance with principles introduced in the Communiqué, the distribution restrictions defined in Provisional Article 13 of the Law shall not apply to share capital increases made from internal resources in accordance with Article 462 of the Law.
Furthermore, the following companies shall also be exempted from restrictions on distribution of dividends and advance dividends:
- Companies that have decided to distribute dividends amounting to TRY 120,000 or less (except those companies whose employees benefit from short-time working allowance for compulsory reasons due to Covid-19 and/or employees on unpaid leave benefiting from money wage support, and those that use credit surety supported by the Ministry of Treasury and Finance and still have an outstanding loan debt balance);
- Companies that have decided to distribute dividends, where more than half of the dividends are to be used by the shareholders in cash in the payment of capital commitments to another capital company falling within the scope of the Law; and
- Companies that have decided to distribute dividends, where such dividends are to be used by the shareholders in cash, in the performance of liabilities that will become due until 30 September 2020 within the scope of loan agreements or project financing agreements (provided that payments regarding any amount in excess of the shareholders' execution liabilities must be delayed until 30 September 2020 inclusive).
Obligation to obtain assent from the ministry
For companies that fall within the scope of the abovementioned exceptions to be allowed to discuss dividend distributions at General Assembly meetings, the prior assent of the Ministry of Commerce must be obtained, through submission of the following documents to the Ministry of Commerce General Directorate of Domestic Trade:
- Notarised copy of the resolution of the managing body on convening a general assembly;
- Statement of financial position and statement of profit or loss related to the company's accounting period;
- Only for companies that have decided to distribute dividends amounting TRY 120,000 or less: documents to be obtained from relevant institutions confirming that they do not benefit from the supports excluded from the scope of the exemption;
- Only for companies that have decided to distribute dividend to be used in cash and at once for payment of capital commitments to another capital company: documents evidencing the obligation of the shareholders receiving more than half of the distributed dividends to pay such capital commitments;
- Only for companies that have decided to distribute dividends to be used in cash and at once for payment of liabilities within the scope of executed loan agreements or project finance contracts: document evidencing such obligations.
Financial statements as basis in calculation of the dividends
The basis for calculation of the dividends must be the financial statements to be prepared (i) in accordance with Article 88 of the Law for those companies that must prepare their financial statements in accordance with the standards determined by the Public Oversight, Accounting and Auditing Standards Authority or (ii) in accordance with the Tax Procedure Law No. 213 for other companies.
Dividend amounts looking to be distributed cannot exceed the total amount of resources subject to dividend distribution in the records kept in accordance with the Tax Procedure Law.
Postponements for dividend payments
In addition to the circumstances stated in the Communiqué and the Provisional Article 13, the Communiqué further stipulates that in cases where a dividend distribution is made from free reserve funds despite the occurrence of a loss during the relevant accounting period, all payments concerning the unpaid portion of such dividends shall be postponed until 30 September 2020 and that no interest rate shall be accrued for such postponed payments.
Furthermore, it has been decided that advance payments shall be postponed until 30 September 2020 in cases where authority to distribute advance dividends has been granted to the managing body by the general assembly prior to 16 April 2020.
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In compliance with Turkish bar regulations, opinions relating to Turkish law matters that are included in this client alert have been issued by Özdirekcan Dündar Şenocak Avukatlık Ortaklığı, a Turkish law firm acting as correspondent firm of Gide Loyrette Nouel in Turkey.
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