ABSTRACT
Banking crises occurred in many countries between the years 1990 and 2000 have required a big and expensive revision on the banking systems and such restructuring seemed possible by collecting receivables of the banks.1 In those times, the banks came across with many challenges on the collection of receivables because of the major credits that have been given to the unsuccessful financial companies. Because of spreading over to the other sectors of the effects of the financing crises, many countries started to execute restructuring programmes. In this regard, asset management companies were established to purchase, collect and restructure the respective receivables within the scope of these restructuring programmes. Due to their crucial positions in the Turkish economy, asset management companies are subjected to a different regime and a set of special regulations have been made regarding their establishment and activities considering other ordinary joint-stock companies.
I. INTRODUCTION
Even though asset management companies showed progress in recent years in Turkey, leaving assets’ management to specialized agencies instead of the banks is not a new idea. First exercise on this matter has been made at the beginning of 1930s in Austria and within this context, an asset management company, established by Austrian National Bank with a collaboration of an accounting firm, has provided capital to the banks by purchasing their overdue receivables and share certificates. When an overall assessment is made regarding the asset management companies in Turkey, it is determined that Turkish asset management companies are brought to agenda for the first time within the Banking Sector Restructuring Programme executed by Banking Regulation and Supervision Agency (“BRSA”) for the purpose of restructuring banking and finance sector which was damaged due to the crises of 2000 and 2001. Main objectives of this programme are defined as improving the efficiency and competition capacity of the sector, preserving confidence to the sector, diminishing the damages which may be arisen because of the sector on economy to minimum, improving the endurance of the sector and protecting the rights and benefits of savers. 3 Within the Banking Sector Restructuring Program Progress Report prepared by BRSA dated November 2002 as a part of the program, it is stated that establishment of asset management companies are encouraged by regulating several tax and duty exemptions for the purpose of collection of the problematic assets belonging to the banks within the scope of the Law on The Restructuring of Debts of Financial Sector and Amendments in Some Laws. Herein this article regarding asset management companies, the development of which in Turkey and in the world as briefly explained above, the asset management companies would be examined from the legal perspective as to the establishment, operation permits, operations and supervisions of the companies’ will be explained respectively. The issues on asset management companies are regulated under Article 143 “Asset Management Companies” of Section 6 entitled “Prosecution and Collection Procedures” of Banking Law7 (“Law”). Regulation on Operating Principles of Asset Management Companies (“Regulation”), which has been prepared based on Article 143 of Law, was published and come into force on 1 November 2006 dated 26333 numbered Official Gazette as a secondary legislation. The previous Regulation on Procedures and Principles for Accounting Practices has been abolished once the Regulation has entered into force. Pursuant to first paragraph of Article 143 of the Law, asset management companies are established to purchase, collect, restructure and sale of the receivables of all financial institutes including the banks and Saving Deposit Insurance Funds (“SDIF”). According to Article 2 (e) of the Regulation, the asset management companies might be established to purchase, collect, restructure and sale of receivables of banks, SDIF and other financial institutes and permission is required for the establishment of the companies according to the Regulation. In the following paragraphs, the asset management companies which are very popular in these days would be examined by referring to the process of the establishment to the operation and the inspection.
II. ESTABLISHMENT OF ASSET MANAGEMENT COMPANIES
A. Conditions of Establishment
Pursuant to the Regulation, the establishment of an asset management company is subjected to the permission of the board of BRSA (“Board”). Other conditions for the establishment designated under paragraph 2 of Article 4 of the Regulation are as follow; (i) incorporation as a joint stock company, (ii) providing minimum paid-up capital of twenty million Turkish Liras (20,000,000.00), (iii) issuance of the whole shares of asset management companies for cash and as registered, (iv) including the expression of “Varlık Yönetim Şirketi” (Asset Management Company) in its trade name, (v) articles of association of the asset management companies’ compliance with the provisions of the Turkish Commercial Code (“TCC”), the Regulation and other respective regulations, (vi) qualifications of the founders of the asset management companies shall be complied with the conditions specified under the Law. Respective minimum paid up capital amount could be increased annually, if deemed necessary by BRSA, provided that this amount should not exceed two (2) times of the producer price index increase ratio announced by the Turkish Statistical Institute for that year. Pursuant to Article 330 of the TCC, except for the special provisions, the provisions regulated within the TCC should be applied for the joint stock companies of which are subject to special laws. For this reason, apart from the Law, the Regulation and other special provisions, the provisions regulated within the TCC regarding the establishment of a joint stock company shall be applied to the asset management companies as well.
B. Qualifications of Founders
Pursuant to the first paragraph of Article 337 of the TCC, the founders of the asset management company to be established as a joint stock company shall be real and legal persons who sign the articles of association and undertake the payment in return for the share pursuant to the first paragraph of Article 337 of the TCC. According to the Regulation, founders of the asset management companies shall possess the qualifications stated in paragraph 1 of Article 8 of the Law. Pursuant to the related Article, asset management company founders shall possess the following qualifications; (i) not to have been declared bankrupt pursuant to the Enforcement and Bankruptcy Law not to have applied for concordatum, not to have been ratified of the application on restructuring by conciliation or not to have obtained a decision to postpone bankruptcy, (ii) not to have qualified shares12 or not to have the control in the banks that the operation permission is cancelled or in the banks that are transferred to SDIF prior to the effectiveness of the Law (iii) not have qualified shares or not hold control in banker subjected to liquidation, and in other financial institutions subject to liquidation, excluding voluntary liquidation, in development and investment banks whose operating permissions have been revoked, or in credit institutions whose shareholder rights except dividends and management and control have been transferred to the SDIF or whose permission to conduct banking transactions and accept deposits and participation funds have been revoked, before the transfer of aforementioned credit institutions to the SDIF or before their permission and authorization for accepting deposit and participation fund have been revoked, (iv) not to have been sentenced for the crimes described in the Law or not to have been sentenced due to aiding and abetting such crimes (v) to have the financial strength and reputation (vi) to have the honesty and competence required by such work and (vii) for the legal entities, to be transparent and open of the partnership structure including its risk group.
C. Establishment Procedure
Pursuant to first paragraph of Article 6 of the Regulation, it is required to apply to BRSA along with the documents attached to the Regulation for the establishment of the asset management company or the conversion of an existing company to asset management Company. At the same time, in accordance with paragraph second of such Article, the provisions of the Regulation shall apply in comparison to the documents that will be provided by foreign nationals. Also, the BRSA has the authority to request additional information and documents.
III. OPERATION OF ASSET MANAGEMENT COMPANIES
Asset management companies should obtain permission from the Board to start their activities. Pursuant to paragraph 3 of the Article 6 of Regulation, the application for activity shall be made to the BRSA following to the establishment / conversion procedures are completed according to the related legislation provisions and the completion of registration and announcement procedures on the trade registry. Pursuant to paragraph 4 of the same Article, the notarized copy of the trade registry gazette that the articles of association is published, along with the documents proving that the board members and the general manager have the conditions specified in the Regulation and the signature circular of the company indicating the authorized signatories of the company and registered office information of the company shall be submitted to BRSA. If Board is satisfied that company is capable of carrying out its business activities, they will give such operation permit to the company. In case an asset management company would not apply for the permission of operation within one hundred eighty (180) days from the date that the permission of establishment is granted, its establishment permission will become invalid pursuant to the paragraph 5 of Article 6 of the Regulation. In addition to this, the Board will also cancel the operating permission of the companies that would not start to operate within one (1) year after the receipt of the relevant permit or that discontinue its operation uninterruptedly for a period of one (1) year. It is also stipulated that the company is required to notify its start-up to the BRSA within seven (7) working days that the company commences its operations. As it is previously stated, the members of the board of directors and general manager should have the qualifications stated in the Regulation for the operation permit. Article 8 of the Regulation stipulates such qualifications for the board of directors as follows; “The board of directors of asset management companies cannot be less than five people. The members of the board of directors that will serve in the asset management companies should possess the qualifications that are stated in Article 8, except for the sub clauses (e) and (g) stated in the first paragraph of Article 8 of Law and should be graduated from one of the following branches: law, economics, business administration, finance, banking, public administration and engineering branches or have at least five years of professional experience in the field of finance or management.” The requirements for the general manager are stated in Article 9 of the Regulation. According to the relevant regulation; “Those who will serve as general manager in asset management companies must possess the conditions first paragraph of Article 8 of the Law except for the conditions stated in the sub clauses (e) and (g); must have a bachelor’s degree or master’s degree on one of the fields that are law, economics, business administration, finance, banking, public administration and engineering branches or have at least seven years of professional experience in the field of finance or business.” As it is understood from the relevant regulations, most of the requirements for founders are also applicable for the members of the board of directors and general manager. The purpose of such provisions is to prevent probable negative effects on the banking sector of the asset management companies emerged for the restructure of the banking sector. However in contradiction to the founders, for members of the board of directors and general manager, the requirements of financial power and reputation and for the legal persons, explicit and transparent partnership structure with its risk group are not sought.
IV. ACTIVITIES OF ASSET MANAGEMENT COMPANIES
As mentioned above, asset management companies are established for the purpose of purchasing, collecting, restructuring and selling the receivables of banks, private financial institutions and other financial institutions. The institutions of which the receivables and other assets can be purchased and sold by the way of restructuring are specified in the Regulation. For this reason, asset management companies can only purchase the receivables and other assets of banks, private financial institutions and other financial institutions stated in the Regulation. On the other hand, operation fields of the asset management companies are specified in Article 11 of the Regulation. Accordingly, asset management companies may: “a) Purchase, sell receivables and other assets arising from services of SDIF, other financial institutions and insurance companies providing credit insurance services, collect the receivables that it has purchased, liquidate the assets, or sell such receivables and other assets by restructuring b) Operate, rent real estates or other properties, rights and assets acquired for the purpose of collection of their receivables or invest such real estates or other properties, rights and assets. c) Provide additional financing to their borrowers in order to collect their receivables. d) Provide intermediary, support and advisory services to bank, SDIF, other financial institutions and insurance companies providing credit insurance services for the purposes of collection, restructuring or sale to third parties of their receivables and other assets arising from their services. e) In order to perform its core activities operate within the scope of capital market regulations and issue securities, invest in the issued securities provided that relevant permissions are obtained. f ) Acquire subsidiaries so as to realize their operations. g) Provide consultancy services to the companies in corporate and financial restructuring.” Asset management companies are prohibited from operating in the areas other than those mentioned as per such Regulation. On the other hand, certain tax advantage has been granted for the transactions to be made by the asset management companies with the provision of Article 143 of the Law. Pursuant to such provision, transactions that have been made by the asset management companies established under the Law and the Regulation and the papers issued in connection with these transactions (including the incorporation transaction) should be excluded from (i) the stamp tax which should be paid in accordance with Stamp Tax Law15 (ii) the charges to be paid in accordance with the Law of Charges,16 (iii) the bank and insurance transaction taxes to be paid in accordance with the Expenditure Tax Law 7 for the amounts to be collected regardless of the name under which, (iv) the deductions that would be made from the funding support fund, (v) the Article 39 of the Law on the Protection of Competition18 during the calendar year they are established and for a period of 5 (five) years following the incorporation.
V.SUPERVISION OF ASSET MANAGEMENT COMPANIES
A. Independent Audit
Pursuant to first paragraph of Article 13 of the Regulation titled “Audit”, independent audit of asset management companies is performed in accordance with the TCC and the Decree on the Organization and Duties of the Public Oversight, Accounting and Auditing Standards Institution dated September 26th, 2011 and numbered 660 and other relevant legislation. According to the decision on the Determination of the Companies Subject to Independent Audit numbered 2006/10921 and published in the Official Gazette dated January 23rd, 2013 and numbered 28537, the asset management companies which are subject to the regulation and supervision of BRSA according to the Law are also subject to independent audit. Since asset management companies are established as joint stock companies, their audits will be subject to the provisions of the TCC. Pursuant to Article 397 of the TCC, the financial accounts of the companies shall be audited by an independent auditor in accordance with the Turkish Auditing Standards issued by the Public Oversight, Accounting and Auditing Standards Authority which is in compliance with the international auditing standards.
B. Audit of BRSA
The supervision of asset management companies by BRSA is regulated in Article 65 of the Law. In accordance with such Article, the institutions which are within the scope of the Law and their operations shall be subject to the audit and supervision of the BRSA. On-site audit is regulated in Article 14 of the Regulation and according to this clause, asset management companies are obliged to provide all kinds of information and documents required by the professional staff authorized to carry out on-site audits of the BRSA, to present the information and documents and to submit all the information and documents to BRSA if requested by the BRSA. In the same Article, it is also regulated that the independent audit reports of the company’s year-end financial statements that are not consolidated shall be reported to the database of BRSA until 15 April of the following year and that the financial tables and statistics requested by the BRSA shall be sent to the BRSA via within the time and methods described by BRSA. Paragraph second of Article 13 of the Regulation provides that in case of the detection of adverse conditions that may seriously affect the financial structure of the companies, BRSA may seek from the companies to take and fulfill some measures determined by BRSA and within the periods described by BRSA. In case of non-fulfilment of such obligation, the BRSA shall give a period of time up to three (3) months to the asset management company in order to recover such breach. If the company would not take the necessary measures within the period described above; its permission to operate may be cancelled by the Board by assessing the nature of the transaction subject to the breach, as to whether such breach arises from a justified reason or a force majeure event, or whether its fault requires removing the operating permit. Because of the public side of the audit of BRSA, such audit is different from the independent audit. While independent audit aims to protect the shareholders, investors and those concerned; public audit is performed in order to protect the credit and investment markets, banking sector and macroeconomics.
VI. CONCLUSION
One of the most obvious indicators of the crises in the asset management companies which are specialized in this field instead of banks. In particular, they are able to concentrate on their main activities by virtue of the removal of the long and detailed procedure of the banks for the collection of their receivables. On the other hand, as seen by the explanations stated above, the financial sector is being encouraged to transfer problematic receivables to asset management companies. In this regard, one of the most important regulations made in order to extend the transfer of receivables within banking sector is the deterioration of the bank assets. Such deterioration arises from the inability of conversion of the bank assets into the cash in a manner that such cash meets the liabilities of the bank. Reducing the problematic assets that adversely influence the payment abilities of the banks and reduces its effectiveness is one of the primary methods of overcoming banking crises. With the establishment of asset management companies, problematic assets have begun to be managed by this context is the tax exemptions provided in the Law. In practice, it is observed that the asset management companies operate their business in the fields of restructuring and liquidation of troubled financial institutions. Moreover, since these companies also rapidly resolve the problematic assets that they acquired during their operations increase their values by reconstructing and acts as a warehouse by taking out the problematic assets from the system, they are considerably helping the financial sector.
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