By virtue of Article 12 of the Law numbered 7244 on Minimization of the Economic and Social Effects of the New Coronavirus (Covid-19) Epidemic and Amendments Made on Certain Laws published in the Official Gazette dated 17 April 2020 and numbered 31102 (the “Omnibus Law”), a provisional article has been added to the Turkish Commercial Code ("TCC") numbered 6102. Through the Omnibus Law, it is aimed to (i) eliminate the negative effects of Covid-19 on economic activities, (ii) not to reduce the resources of the companies, (iii) to protect the existing equity structures of the companies, and (iv) to avoid the need for additional financing for the companies against the COVID-19 epidemic, which poses a serious threat to the economic life as well as to public health.
In a nutshell, the followings were brought to the Provisional Article 13 of the TCC in line with Article 12 of the Omnibus Law:
- only up to 25% of the net profit amount of year of 2019 can be distributed in the capital companies until 30 September 2020.
- Retained earnings and free capital reserve of the capital companies cannot be distributed until 30 September 2020.
- the Board of Directors cannot be authorized by the general assembly to distribute advance dividends until 30 September 2020.
- This provision shall not apply to the companies more than 50% of the share capital of which are directly or indirectly owned by (i) state, special provincial administration, municipality, village and other public legal entities and (ii) funds more than 50% of the share capital of which are publicly owned.
- If the companies have already decided to distribute dividends for the fiscal year of 2019; but no payment has yet made or partial payment has been completed to the shareholders for the 2019 fiscal period, dividend payments which exceeds 25% of the net profit amount of the year of 2019 shall be postponed until 30 September 2020.
- The President of the Republic is authorized to extend for three months or shorten the periods specified here.
- The Ministry of Commerce is authorized to determine the exceptions regarding the capital companies within the scope of this article and the procedures regarding their implementation, by taking the opinion of the Ministry of Treasury and Finance.
Rendering any decision on the annual profit is regulated as on the non-transferable duties and authorities of the general assembly pursuant to Article 408 of the TCC. However, the regulation under the Omnibus Law restricts such duties and authorities of the general assemblies in accordance with the precautionary policy.
In addition, the companies more than 50% of the share capital of which are directly or indirectly owned by (i) state, special provincial administration, municipality, village and other public legal entities and (ii) funds more than 50% of the share capital of which are publicly owned are explicitly exempted from the limitations under the Omnibus Law.
We think that the general assembly resolutions of the companies that distribute cash dividends in violation of the criteria specified in detail above may be canceled or alleged to be void.
The perspective for these measures taken within the scope of the Covid-19 outbreak will become clearer with the implementation in upcoming days. Therefore, it is beneficial to follow the updates closely.
Have a healthy day.