Share Repurchases Under The Capital Market Law No. 6362 And Current Practice In Türkiye

• Published date: 03 April 2024
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Debt Capital Markets, Corporate and Company Law, Shareholders
• Law Firm: Nazali
• Author: Nazali Attorneys

INTRODUCTION

Since how profits are invested is critical to the development, growth, and financial stability of a company, one of the fundamental managerial issues for companies is how to utilize the profits gained. Companies can utilize the profits they have earned in various ways such as investment in new business areas, retaining the earnings in the company by setting aside reserves for challenging times or through capital increases, distribute dividends to shareholders, or repurchase their own shares. In this article, repurchasing of its own shares in publicly traded companies in Türkiye in scope of Capital Market Law no. 6362 ("CML") will be explained.

I. IN GENERAL

For publicly traded companies, the matter of share repurchases is regulated specifically under the CML differing from the rules for private equity companies which are regulated in Turkish Commercial Code No. 6102 ("TCC"). Article 22 of the CML states that publicly traded companies can repurchase their own shares within the framework of conditions determined by the Capital Market Board ("Board"). Moreover, the same article grants authority to the Board, in regulating the conditions, transaction limits, disposal or redemption of repurchased shares, and the procedures and principles regarding the disclosure of these matters concerning publicly traded companies' repurchase of their own shares. In this regard, the Board has enacted the Communiqué on Repurchased Shares ("Communique"). The repurchasing of shares in publicly traded companies will be evaluated in scope of CML, Communique, Board announcements and principle decisions.

II. AUTHORIZATION REQUIREMENT

Parallel to the TCC, the first paragraph of Article 5 of the Communiqué specifies that it is essential for the general assembly of a company ("GA") to authorize the board of directors ("BoD") for the company to engage in repurchases ("Authorization Requirement"). Accordingly, a repurchase program will be prepared by the BoD, and upon approval of this repurchase program by the GA, the authorization will be granted.

For publicly traded companies whose shares are listed on the stock exchange, an exception has been made to the authorization requirement. According to the fourth paragraph of Article 5 of the Communiqué, these companies can repurchase without the authorization requirement with a BoD decision to avoid imminent and serious loss. In this case, they must comply with the disclosure obligations in Article 12 of the Communiqué. Unlike...