On 3 January 2014, the Turkish Capital Markets Board issued two important communiqués (statements) to regulate in detail the system of the Turkish Capital Markets Law.

Among the communiqués issued, the Communiqué on Corporate Governance and Share Buy-Backs is of particular importance to companies in the capital markets.

The Communiqué includes a revision of the Corporate Governance Principles (II-17.1) as part of an ongoing process which was launched on 30 December 2012 by the introduction of the new Capital Markets (CM) Law no.6362. The new Corporate Governance Communiqué reformulates some main corporate governance principles concerning companies planning to go public, related party transactions, the quota for women on company boards, investor relations departments etc. Furthermore, the new Communiqué changes slightly the rules on squeeze out rights and sell out principles, which changes shall become effective on 1 July 2014.

The new Communiqué specifies some of the compliance requirements to be observed by a board of directors:

• The Board shall exercise its duties in a transparent and fair manner
• The Board shall provide the company with a suitable internal control and risk management system that examines the financial and operational risks of the company
• The Board shall review at least once a year whether this internal control and risk management system is effective, and the Board shall inform the company in its annual report about the operation and performance of such control system.

Furthermore, it is expected from companies in the capital market to determine a target rate (should not be less than 25%) and a target date for raising the percentage of female members on the board of directors and to create appropriate policies to achieve these goals. The board of directors should evaluate the progress achieved in reaching these goals annually.

The Communiqué on Share Buy-Backs (II-22.1) regulates the process and principles to buy back a company’s own shares by taking into account the provisions and limitations set out in the Turkish Commercial Code (TCC) and the Turkish Capital Markets Law. According to this new Communiqué, in order to proceed with the share buy-back, the general assembly of shareholders must give their approval to the buy-back program (presence of ¼ of the share capital and the majority of the votes present), which approval is prepared by the board of directors and which authorises the board to carry out the transaction. The period of the buy-back program is three years for public companies which shares are traded on the stock exchange and one year for public companies which shares are not traded on the stock exchange. The program must also be disclosed to the public and published on the company’s website three weeks prior to the general assembly meeting.

Under the new Turkish Commercial Code, the nominal value of the buy-back shares must not exceed 10% of the issued or paid-up share capital of the company (Article 379 TCC). The purchase price of the buy-back shares must not exceed the total amount of the funds which can be distributed as profits.

Dr Gökçe Uzar Schüller (Avukat)