TURKISH CAPITAL MARKETS BOARD REGULATED CONTROLLING SHAREHOLDERS’ SQUEEZE-OUT AND SELL-OUT RIGHT IN THE PUBLIC COMPANIES

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Capital Markets Board’s Communiqué on Squeeze-Out and Sell-out Rights (II.27.3) (“Communiqué”) has been published in the Official Gazette dated December 31, 2020 with the  number 31351 and by this renewal, the Capital Markets Board’s Communiqué on Squeeze-Out and Sell-out rıghts (II.27.2) (“Repealed Communiqué”) dated 12 November 2014 has been repealed. 

Within this 3 proportioned new Communiqué, regulations have been made on the “emergence of sell-out right”, “the method of calculation of voting rights”, “exercising the sell-out and squeeze-out rights” and “the determination of the prices using the rights” articles as well as Repealed Communiqué. As a side note, within this Communiqué, it is seen that some additional regulations has been introduced, unlike the Repealed Communiqué as follows.

What are the benefits introduced with this new Communique?

On 28 October 2020, a draft study (“Draft Communiqué”) regarding the Communiqué has been published and within this the most striking changes, such as the reduction of the voting rates required in order to squeeze-out other shareholder rate from 98% to 95%, and the regulation of equalizing the sale price regarding the squeeze-out other shareholder and the right to sell-out introduces with the agenda.

However, unlike the expectations, the Communiqué has not precisely been changed the voting rates required for squeezing out the other shareholder, unlike the Draft Communiqué and the voting rates remained as 98% as before. In accordance with that, controlling shareholder’s status expectations could not be fully corresponded. As for, within the framework of EU Harmonization laws in 2014, in the time while the voting rates was adopting into Turkish legislation as %98, some financial associations drew attention and made some researches through it. Accordingly, it is explained that even in the EU countries’ practices, the voting rates are generally in the range of 90-95%. Likewise, the situation is not quite different in the other financial centers such as the United States of America, Japan, China and Singapore except the EU.

With the Communiqué, the controlling shareholder’s squeeze-out right of the other shareholders from the partnership, exercising sell-out right to the controlling shareholder and the exercising method still remained. However, unlike the Repealed Communiqué, the definition of the management control such as jointly with persons acting in concert has been extended and a few exceptions have been made to sell-out right. Therefore;

In case that the partnership’s voting rights reaches up to 98% or, buying an additional share in the exact situation; controlling shareholder’s right to squeeze out reveals apart from the exceptions determined with the Communiqué, and other shareholder’s right to sell out their shares to the controlling shareholder as the same. 

It is also understood that, with the exceptions, CMB’s board decisions regarding squeeze out rights has been involved to the Communiqué. In this context, it is also determined that, squeeze out or sell out rights shall not be borne in situations such as; by free or the lump sum capital increases without limiting the rights of buying new shares or for reasons such as inheritance, reclaimed shares, freezing of voting rights. In other words, the squeeze out or sell out rights will not be borne due to lump sum capital increases without limiting the rights of buying new shares or for reasons such as inheritance, reclaimed shares, freezing of voting rights.

The regulation that the following rights cannot be used is also preserved in this Communiqué as in the Repealed Communiqué; while determining the rate of voting rights, direct and indirect shares owned by the controlling shareholder will be taken into considerations and, unlike concessions and rights on squeeze-out other shareholders regarding usufruct and pre-sale rights shall be also considered. 

In addition to this Communiqué, it is determined that if management control is obtained at the same time as the right to squeeze-out other shareholders and right to sell-out, there will be no liabilities arisen. In order to prevent the partners status loss, among the criteria for determining the price of the rights to squeeze-out/sell-out rights, the price to be calculated within the framework of the takeover bid regulations is also included.

In addition, regarding the exercise of the right to sell-out, the period stipulated for the preparation of the appraisal report in order to determine the share value of the relevant shareholder is at the latest 1 month following the material event disclosure to be made by the controlling shareholder; The period stipulated for the exercise of the right to sell is determined as 2 months following the public disclosure of the summary of the valuation report. The process regarding the payment of the right to sell price to the shareholders has been shortened. That is, the right of the minority who want to use the right to sell after the valuation report has been prepared has been reduced from 3 months to 2 months. The period for notifying the controlling shareholder of the demands of the minority who want to use the right to sell is at the latest 1 month in advance; In any case, while it was within 3 days after the public disclosure, it was reduced to 2 days with the Communiqué.

In addition to the right-to-sell-out process, the Central Registry Agency Joint-Stock Company in order to facilitate the provision of information from the , a provision has been added that partner information for registered shares will be confirmed from the CRA.

Regarding the right of exclusion process, upon the application of the controlling shareholder, with the cancellation of the shares of other partners in order to issue new shares to be issued to replace the said shares an expulsion to the controlling shareholder ; the decision to be taken by the Board of Directors of the shareholder and the deadlines for applying to the Capital Markets Board for approval of the issuance certificate following this decision are set as 5 and 10 working days, respectively. In addition, arrangements were made for the minutes to be given during the delivery of share certificates for shareholders whose shares are not traded on the stock exchange. It is allowed to destruction the share certificates at least twice a year. On the other hand, the practice of fulfilling the right to exclusion price, which must be blocked at the Istanbul settlement and custody Bank Joint-Stock Company for a period of three years, by means of a letter of guarantee instead of cash has been abolished.

With this Communiqué, a transitional provision has also been determined. as for the right to exclusion from the shareholder and the right to sell, the provisions of the communique on the rights to exclusion from the shareholder and sell will apply to numbered of Mulga II-27.2 .

METHOD AND EXERCISING OF RIGHTS

1- Emergence Of Right To Exclusion From The Shareholder And To Sell

In the Communiqué, the article number 4 titled “Emergence of rights and calculation procedure of voting rights” regulates the conditions under which the right to exclusion from the shareholder and to sell will emergence and how the voting rights to be taken into account in the emergence of these rights will be calculated. First of all, the situation in terms of controlling shareholder has been evaluated in the article. As follows;

In the event that the voting rights for the shares, including the takeover bid or acting together, reach 98% of the voting rights of the shareholder or if an additional share is received while in this situation, the following rights will emergence.

  • The right to exclusion from the shareholder regardless of whether their shares are privileged in terms of the controlling shareholder.
  • In terms of other shareholders, the right to sell their shares to the controlling partner

2- Using The Right To Exclusive From The Shareholder And The Right To Sell

In Article 5 of the Communiqué, the procedure for exercising the rights to sell by shareholders other than the controlling shareholder is determined. According to this:

First of all, gaining of the controlling shareholder position or in case of receiving an additional share while in this situation; public disclosure is required by the controlling shareholder within the framework of the Capital Markets Board’s regulations on public disclosure of material events. After this announcement, the share values should be determined in accordance with the relevant regulations of the Capital Markets Board within one month at the latest. For this, as required by CMB regulations, it is also stated that the appraisal report should be prepared and the summary of this report should be announced to the public.

  1. Regulations Relating To The Use Of The Right To Sell

In the event that shareholders rather than the controlling shareholder wish to use their right to sell, they have to submit in a written form of their claims to use the right to sell to the shareholder within two months after the public disclosure of the summary of the evolution report on the abovementioned share values. We would specifically state that this two month period is a foreclosure period and if the claim is not submitted within this period, they will not be able to use their rights according to this summary of the valuation report.

The period of use of the right to sell is not conditioned by the existence of the controlling shareholder, and until the end of this period, the controlling shareholder will be able to be used the right to sell even though a loss in its position. In the communique, it is clearly stated that except for selling or purchasing additional shares, the controlling shareholder will not be able to purchase additional shares within the aforementioned period. The controlling shareholder is required to pay the share prices to the shareholder account within two working days following the delivery of the exercising claim. In what way the conveyancing of the share will be carried out is regulated in the continuation of the article. Accordingly, the price of the shares owned by the shareholders seeking to use their right to sell will be paid following the first working day of the deposit of the share prices to the shareholder account, and the transactions of the conveyancing of the share will be concluded as recorded with the payment. It is also regulated that the right to sell can be used through an investment firm.

  1. Regulations Relating To The Use Of Right To Exclusive From The Shareholder

The controlling shareholder who wishes to exercise their right to exclusive from the shareholder may apply to the shareholder to use it for all privileged or non-privileged shares of other shareholders after the two-month period after the summary of the valuation report is disclosed to the public. In the said application, the information and documents stating that the bank letter of guarantee or the cash of this amount is blocked in a special account at the bank must be submitted to the shareholder.

In the continuation of the exclusion from the shareholder, the shareholder board of management; upon the application of the controlling shareholder within five working days at the latest, it takes a decision for the cancellation of the shares and the issuance of new shares to be issued and given to the controlling shareholder to replace the said shares. Also, it will apply to the Capital Markets Board for approval of the issuance document within ten working days after the decision is taken. The documents to be submitted during the application are also included in the annex of the Communique. Please note that, in accordance with the Communiqué, corporations whose shares are traded on the stock exchange will simultaneously apply to the stock exchange for the delisting of their shares.

The share price of the excluded partner will be deposited into the shareholder’s bank account by the controlling shareholder within three working days following the approval of the Capital Markets Board. And thus, the price of the shares to give the controlling shareholder and issued to replace the shares to be canceled by the shareholder will be covered from the amount deposited by the controlling shareholder into the shareholder account to use its right to exclusion. Besides these, the shareholders will apply to the trade registry for trade register for the registration of the certificate of issue approved by the board and publishing in the TTRG (Turkish Trade Registry Gazette) within three working days following the deposit of the right to exclusion from the shareholder exercising price to the shareholders account, and the shares issued to the use of the right to exclusion from the shareholder will be considered as canceled as of the registration date.

In accordance with the communique, in the event that the emergence of the right to exclusion from the shareholder and to sell occur at the same time as the obtaining of the control of the management, the obligation to the bid of the share purchase is accepted as null.

3- Calculation of the Calculation Method of Rights

The matters to be taken into account in the calculation of the exercising value are determined separately for the shareholders whose shares are traded on the stock exchange and the shareholders whose shares are not traded on the stock exchange. For shareholders whose shares are traded on the stock exchange, the situation is also regulated for those traded in the star market. The following will be considered as the share price;

  • The arithmetic average of the daily corrected weighted average prices in the stock exchange within the last one month period before the date of public disclosure of rights in shareholders whose shares are traded on the Star Market and for shareholders whose shares are traded in markets and platforms other than Star Market, the arithmetic average of the daily adjusted weighted average prices in the stock exchange within the last six months before this date and the average of the value determined in the valuation report prepared to determine the price for each share group and
  • In case the gain of the controlling shareholder position simultaneously leads to a change in management control, the higher one of the mandatory takeover bid price, which must be calculated within the framework of take-over bid regulations.

For companies whose shares are not traded on the stock exchange, the following will be considered as the share price. 

  • For each share group, the value determined in the valuation report prepared to determine the price and
  • In case the gain of the controlling shareholder position simultaneously leads to a change in management control, the higher one of the mandatory takeover bid price, which must be calculated within the framework of take-over bid regulations.

Finally, it has been clearly regulated that the right to squeeze-out other shareholders or to sell-out cannot be exercised for two years after the shareholder shares are first traded on the stock exchange. In the event that it has been publicly disclosed that if the controlling shareholder status has been gained before the effective date of the Communiqué or that an additional share has been received while in this situation; regarding the exercising fee of right to squeeze-out other shareholders or to sell-out, the provisions of the repealed Communiqué will be applied.

 

Hilal Şimşek, Attorney At Law

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