ABSTRACT
The strict prohibition on self-acquisition of companies’ own shares has been limited and in the frame of these limitations, possibility to acquisition and acceptance of the pledge on these shares have been enabled by the Turkish Commercial Code No 6102 (“TCC”)1 which was come into force on 01 July 2012. As a result of that regulation it is possible for companies to acquire their own shares within the scope of specific conditions without constituting fraud against the law. In this study, the conditions of the self-acquisition have been introduced.
I. INTRODUCTION
The acquısıtıon of the companıes on theır own Shares is prohibited as a reflection of the idea that it may affect the market value of the shares and create a factitious price on the stock market2. In addition to that, entitling the companies with the limitless right of acquiring their own shares would hinder the control of the shareholders on company and would endanger the corporate structure of the company3.
The stated prohibition of the acquisition on the time of the prior Turkish Commercial Code numbered 6762 and dated 09.07.1956 (“former TCC”)4 was a mandatory rule, except some requisite cases. It has been moderated by recent TCC and self- acquisition by companies is permitted under some conditions.
In this article, prohibition of acquisition and regulated exceptions of the respected prohibition are introduced initially. Then, the conditions to be met for a company to acquire its own shares are explained. Afterwards, exceptions of the prohibition of acquisition which are regulated in the TCC and are similar with the former exceptions that were regulated in the former TCC are stated. Lastly, the term of fraud against the law which may arise as a result of the related acquisition as well as prohibition of financial aid are emphasized.
II. THE PROHIBITION OF ACQUISITION ACCORDING TO THE FORMER TCC
In accordance with the article 329 of the former TCC, companies were not allowed to acquire their own shares and to accept them as a pledge. The transfer and pledge transactions and the related contracts, as a result of not complying with the law, were deemed invalid and the share certificates had to be immediately destroyed by writing a report and this report had to be delivered to the trade registry.
Even though the prohibition was perceived as a strict one, in the presence of some exceptional situations, companies were allowed to acquire their own shares in accordance with the former TCC. Those exceptions are listed below:
• Acquisition of the shares based on a decision to reduce the capital of the company;
• Acquisition of the shares in order to pay the claims of the company based on a different cause than the subsidiary commitment due to the establishment of the company or the duplication of the principal capital;
• Acquisition of shares by the company as a result of the disposition of an estate or an entity with its debts and dues;
• Acquisition of shares due to transactions that are part of the company subject to the main contract;
• Voluntary transfers.
Although the above mentioned exceptions allowed companies to acquire their own shares, the companies who acquired their shares had to sell out those shares at the earliest opportunity in accordance with the article 399/2 of the former TCC. For instance, it is stipulated in the former TCC that in the event of acquisition of its own shares by a joint stock company, as a result of a decision regarding the decreasing the capital, related shares shall be amortised whilst they shall be sold out in the earliest convenience in case of other exceptions arise5. Again, if a bank, which has been taken over, owns the shares of the bank that took over it, the respected shares would be acquired but had to be sold out as soon as it is possible. The aforementioned shares shall not be represented in the general assemblies during their time in the possession of the bank that took over6.
III. CONDITIONS FOR A COMPANY TO ACQUIRE ITS OWN SHARES ACCORDING TO THE TCC
Even though the self-acquisition of the shares for the companies is still prohibited, within the scope of some exceptional conditions and some clauses, the prohibition has been moderated by the contemporary TCC in order to fulfil the various economic necessities and to avoid encountered problems. The abovementioned exceptional conditions are regulated in the TCC between the articles of 379 and 389 for the joint stock companies with the side title of “Acquisition of own shares by the company or acceptance of shares by way of pledge” and in the article 612 for the limited liability companies, with the side title of “Stock capital share subject to transactions7."
A. Acquisition via Authorization of the General Assembly
In accordance with the article 379 of the TCC, the companies have the right to acquire their shares up to onetenth of the capital. However, in order to perform the acquisition, firstly, the general board of the company must authorize the board of directors. The relevant authorization decision has to be taken by the ordinary majority of the general assembly, and the general assembly has the right to revoke the authorization, provided that it is not otherwise agreed in the company’s articles of association. Furthermore, the general assembly may impose limitations on the price of the shares as well as restrictions pursuant to the current status of the market or the nature of business or partnership8. Such an authorisation may be granted for a maximum of five years. Besides, the nominal values of the shares to be acquired are indicated and the sublimit and the upper limit that can be paid by the company is indicated as well. The violation of the norms stated above will invalidate the authorization and therefore the self-acquisition of the shares. The relevant conditions cannot be put forward against third parties, since the registration and the announcement of the general assembly decision on the authorization is not foreseen in the TCC9.
B. Acquisition without an Authorization of the General Assembly
In accordance with the article 381 of the TCC, it is possible for a company to acquire its own shares without the authorization decision of the general assembly in case it is necessary in order to avoid a close and serious loss. In the first following general assembly board of directors has to inform the assembly concerning the reason and purpose of the acquisition, the numbers of shares acquired, the sum of the nominal values, the amount of the capital represented and the cost of the acquisition and the payment terms. In this respect, it is not compulsory that the immediate and serious danger has been realized nor embodied. The appearance of the signs showing the danger is about to arise is enoug10. According to the article 385 of the TCC, shares acquired in contrary to the articles between 379 to 381 of the TCC, should have dismissed at least within the six months from the cquisition date.
C. The Principle of Capital Maintenance
At the same time, the companies must be financially convenient to this transaction, in order to acquire their own shares. The partial loss or entire oss of the capital by a company or situation of the going into dept hinders he company to acquire its own shares. The article 379 of the TCC foresees a formula to provide financial adequacy. The aforementioned article provides “Following the deduction of the share to be repurchased, the remaining net assets of the company should be at least the amount of the share capital or the sum up of the issued capital and the reserve funds that are not to be distributed”. The incentive behind this regulation is the principle of capital maintenance. Because, the price of the acquired shares will be paid from the capital rather than the place where the company may dispose freely in case the amount of the acquired company’s net assets is less than the sum of the basic or issued capital and the reserve funds that are not allowed to be distributed in accordance with the legislation or the articles of association11. However, the transactions that may cause the result of return of the company’s capital which is a part of its own equity are prohibited12.
Net asset of the company – Amounts of the shares to be acquired > Company’s capital + reserve funds that are not allowed to be distributed
The TCC does not state any difference in terms of the use of its own resources and facilities or the attraction of credits in the acquisition of their shares by companies which are financially eligible under the above formula.
In addition to the statements above, the article 520 of the TCC introduces an obligation for the acquisition of shares. According to the relevant provision, it is necessary for a company to allocate reserve funds in the amount that meets the values of the acquired shares as of the date of the acquisition. Under which circumstances the reserve funds that are allocated in accordance with their acquisition prices of the company’s own shares may be used is also regulated in this article. These reserves, which are allocated for the acquired shares, shall be used for capital increase from internal sources in case the transfer or the destruction of the shares13.
IV. EXCEPTIONS OF THE PROHIBITION FOR A COMPANY TO ACQUIRE ITS OWN SHARES
As explained above, under the new TCC regulations, inparticular circumstances, the companies are allowed to acquire their own shares but when the certain situations arise, there are some exceptions to this regulation in parallel with the former TCC. Accordingly, even if the present acquisition exceeds one tenth of the capital, in exceptional cases, the company may acquire its own shares, without being subject to any limitation, permission or any other conditions.
The exceptions listed in the article 382 of the TCC are as stated below:
(i) If the company is applying the provisions of the articles 473 to 475 to the reduction of the registered or issued capital,
(ii) If it is necessity of the rule of universal succession ,
(iii) If it is arising from a legal purchasing obligation,
(iv) If it is for the collection of the receivables of the company from the execution and provided that all the costs have been paid
(v) If the company is a security company, it can acquire its own shares without any condition.
No regulations exist in the TCC regarding the amount of time that is necessary for the company to dispose the acquired shares in the event that the company acquires its own shares due to exceptional circumstances. However, according to the prevailing argument presented by academia, such shares must be removed from the company without causing any harm14.
In the light of the relevant regulations, although there is a possibility for companies to acquire their own shares under some conditions and in some exceptional cases, there are some restrictions on those shares. These restrictions arise from the principal of equality. Accordingly, these self-acquired shares are not taken into consideration in the determination of the quorum of the general assembly and the rights arising from the related shares are frozen for as long as the company holds them. In other words, the company cannot use right to vote arising from those shares, cannot take premium, or cannot use the pre-emption right15. The reason for that is, except for the acquisition of the shares without consideration, company’s own shares acquired by itself shall not entitle the company to be a shareholder pursuant to the article 389 of the TCC16.
V. FRAUD AGAINST THE LAW
The notion of the fraud against law can be defined as reaching to a goal that is forbade by mandatory provisions of law by another way bypassing the application of this provision17. Under the article 380 of the TCC, there are some regulations for the companies to prevent them from acquiring their shares by evasion of the prohibition and some regulations about the fraud against the law. The said concept of fraud against the law is qualified by the academia as “prohibition of financial aid18."
In accordance with the article 380 of the TCC, the legal transactions that the company makes with another person for the purpose of acquiring their shares, such as giving advance, loan or collateral, are null and void19. Thus, the companies cannot provide collateral for third persons to borrow any money or pay in advance to them or to borrow any money from third parties to acquire their own shares. The fact that it is not legal for a company to be guarantor for the person who wishes to buy that company’s shares constitutes an example of this regulation. Moreover, it is commonly accepted that the bank’s inability to know for what purpose the loan is to be used would not make any difference20. The transactions, which are mentioned in the Law, constitute only examples and other transactions that would create same results are also prohibited. Thus, the wealth of the company and also the interests of the company’s shareholders and their receivables are protected.
The article 380 of the TCC, does not consider the concerned transaction prohibited in the presence of one of the two exceptional cases. However, if these exceptional transactions reduce the funds reserved in accordance with the Law or the articles of association or violate the rules regarding the consumption, and do not allow the allocation of reserve funds as stipulated in the article 520 of the TCC, they shall be deemed invalid.
The first exception is related to the operations that credit and financial institutions constantly engaged in. In the case that credit and finance institutions provide funds for their shares to be acquired, the prohibition of financial aid shall be invalid whereas such share acquisitions shall be valid. Even though, the banks usually come to mind as credit and finance institutions, this exception applies not only for the banks but also for the other credit and financial institutions.
The second exception is that the companies’ giving advance, lend and collateral to their own employees or employees of subsidiaries to acquire the company’s shares. The employees are promoted by this exception to become shareholders of the company.
VI. CONCLUSION
In the light of the regulations of the former TCC, companies were exceptionally given the opportunity to acquire their own shares, but in parallel with the changing economic conditions in the global world, the prohibition was softened by some restrictions in the TCC. The legislator has restricted this right with the regulations brought by the TCC and aimed to prevent to abuse of it. Even in the presence of such conditions and exceptional circumstances, in order to protect the assets, shareholders and their lenders, the legislator disqualifies the ways and irregularities against the law and urges the company to dismiss these shares within a certain period of time. These regulations seem to be reasonable in terms of meeting various economic requirements arising over time.
BIBLIOGRAPHY
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Ali Murat Sevi, “Anonim Ortaklığın Kendi Payını Devralması Üzerine bir İnceleme”, Banka ve Ticaret Hukuku Dergisi, Vol. 22, Issue1, June 2003.
Erdoğan Moroğlu, “Bankaların İhtiyari Birleşmesi”, Banka ve Ticaret Hukuku Dergisi, Vol.23, Issue 4, August 2006.
Fatih Bilgili/Ertan Demirkapı, Şirketler Hukuku Dersleri, Dora Basın Yayım Dağıtım, February 2017.
Ferah Türkoğlu Utku, Türk Anonim Şirketler Hukukunda Kayıtlı Sermaye Sistemi, Adalet Yayınevi, Ankara 2016.
Gönen Eriş, Ticari İşletme Hukuku, Vol. 2, Seçkin Yayınevi, Ankara 2017.
Hasan Pulaşlı, 6102 sayılı Türk Ticaret Kanununa Göre Şirketler Hukuku Şerhi, Vol. 2, Adalet Yayınevi, Ankara 2011.
İbrahim Murat Haznedar/Özay Şule Gürses, Bankacılar için Kefalet Hukuku, Legal Yayıncılık, 2017.
Mehmet Sadık Çapa, 6102 sayılı Türk Ticaret Kanunu’na Göre Şirketin Kendi Paylarını İktisap Etmesi, Eskişehir 2013.
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FOOTNOTE
1 14.02.2011 dated and numbered Official Gazette (“OG”).
2 A. Bumin Doğrusöz, “Anonim Şirketlerin Kendi Hisselerini İktisabı”, Yaklaşım Dergisi, 1996, (Last Access: 09.09.2017) http://www.degerymm. com.tr/icerik/12n07RXa79yy3T6kEi0RV35f0aIv5R.pdf
3 Reha Poroy/Ünal Tekinalp/ Ersin Çamoğlu, Ortaklıklar Hukuku I, 13th Edition, Istanbul 2014, p. 583.
4 OG dated 09.07.1056 and numbered 9353.
5 Ali Murat Sevi, “Anonim Ortaklığın Kendi Payını Devralması Üzerine Bir İnceleme”, Banka ve Ticaret Hukuku Dergisi, Vol. 22, Issue 1, June 2003, p. 256.
6 Erdoğan Moroğlu, “Bankaların İhtiyari Birleşmesi”, Banka ve Ticaret Hukuku Dergisi, Vol. 23, Issue 4, August 2006, p. 27.
7 Mehmet Sadık Çapa, 6102 sayılı Türk Ticaret Kanunu’na Göre Şirketin Kendi Paylarını İktisap Etmesi, Eskişehir 2013, p. 34.
8 Oruç Hami Şener, Teorik ve Uygulamalı Ortaklıklar Hukuku, 3rd Edition, Ankara 2017, p. 394-395.
9 Poroy/Tekinalp/Çamoğlu, p. 587.
10 Ünal Tekinalp, Sermaye Ortaklıklarının Yeni Hukuku, 3rd Edition, Istanbul 2013, p. 88.
11 By transfer from Çapa, p. 46, Hasan Pulaşlı, 6102 sayılı Türk Ticaret Kanununa Göre Şirketler Hukuku Şerhi, Vol. 2, Adalet Yayınevi, Ankara 2011, p. 1235.
12 Fatih Bilgili/Ertan Demirkapı, Şirketler Hukuku Dersleri, Dora Basın Yayım Dağıtım, 2017, p.489.
13 Ferah Türkoğlu Utku, Türk Anonim Şirketler Hukukunda Kayıtlı Sermaye Sistemi, Adalet Yayınevi, Ankara 2016, p.212-213.
14 Poroy/Tekinalp/Çamoğlu, p. 599.
15 Şener, p.399.
16 Gönen Eriş, Ticari İşletme Hukuku, Vol. 2, Seçkin Yayınevi, Ankara 2017, p. 2048.
17 Turhan Esener/Fatih Gündoğdu, Borçlar Hukuku I, Sözleşmelerin Kuruluşu ve Geçerliliği, Vedat Kitapçılık, Istanbul 2017, p. 227.
18 Tekin Memiş/Gökçen Turhan, Sermaye Piyasası Hukuku, Seçkin Yayıncılık, 3rd Edition, Ankara 2017, p.137.
19 It is stated in the legislative intention of the respected article that “…its purpose is preventing the neutralization of the article 379 by constituting the transactions of the company involving helping, financing and supporting a third person in order to buy its shares void”. Therefore, a connection between the prohibition of financial aid and the prohibition of acquisition is established.
20 İbrahim Murat Haznedar/ Özay Şule Gürses, Bankacılar için Kefalet Hukuku, Legal Yayıncılık, 2017, p. 22-23.
