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LAW 514 LEGAL STRUCTURE OF FINANCIAL INSTITUTIONS AND MARKETS. Prof.Dr.Huriye Kubilay Spring Semester /2013. INTRODUCTION TO FINANCE LAW. Turkish Code of Obligations : The New Code of Obligations ("the New Code") became effective in Turkey as of 1 July 2012 .
Effectiveness: March 1, 2006
The TCO is based on “freedom of contract” principle and concept of “individual contract” drafted as a result of mutual negotiations of the parties. Individual contract is the contract in which the declarations of intent such as offer, counter offer, acceptance are achieved as a result of reciprocal negotiations. However, in present-day, enterprises such as finance companies, insurance companies or companies that offers goods and services to consumers use standard form contracts –also known as adhesion contracts- which are unilaterally and abstractly prepared for their later utilization in more than one transaction with respect to services rendered by them.
As to GTC, there is imbalanced relationship between the parties in favor of one party over the other during the preparation of the agreement; the terms of the agreement are not negotiated. Mostly, the prices are set forth based on the tariffs. In such case, the party, who will enter into an agreement with the related enterprise, has no opportunity other than accepting or rejecting the text which was prepared unilaterally.So a statutoryintervention is needed.In actual case, the parties are usually composed of one private individual and large organization do not negotiate equitably, because one of the parties has the power to determine the terms of the contract in favor of itself.
The provisions ofTCO regarding GTC are not new for Turkish law system, but expand the framework for better consumer protection.
Preserving the characteristics of the oldTCC, TCC, 6102is orientated to harmonize the TurkishEnterprise Law with European Law. Main pointsregarding this reform refer to accounting principlesforenterprises, commercialbooks, commercialregistry, unfair competition and further to agency
«Business enterprise» is defined in such a mannerthatcovers e-commerce.
One of the most remarkable reforms of the TCCis enforcing modern accounting rules and newnorms for commercial books. In this framework,TCCprescribes that all the accounting systemsof Turkish enterprises shall be arranged inconformity with Turkish AccountingStandards,which have been and will be further enforcedaccording to internationally accepted financialstandards(IFRS).
In addition to that, the enterpriseshall document and file all of its commercialtransactions, if necessary electronically, whichmeans that electronic registry mechanisms shallbe integrated within the accounting system of anenterprise(Art. 64/2 TCC). On the other part, anyrecords to appear in the commercial books of amerchant shall be complete, correct, on time andsystematic ( Art. 65/2 TCC). The most distinctiveaim of the lawmaker is, as reflected in the Code,“to enable an expert to achieve a proper pictureof the operations and of the financial situationof the enterprise within a reasonable period".
Inconnection with this hypothesis, rules referringto commercial books, accounting systems andauditing shall be regarded as a whole and thepractice shall be conducted in a manner to enabletransparencyandreliability.
Through the electronic registry, the transparencyof the enterprise records will be reinforced,whereas positive and negative functions of theregistry system shall be conducted in a moreefficient manner. In addition, the State and theChamber of Commerce, which shall hold thecommercial registry, are successively responsiblefor the damages arising from the transactionscarried out by the registry holder (Art. 25/2 TCC).
Other dimensions of the reform shall bementioned as the enumeration of several versionsof unfair competition and further more efficientrules for the compensation of the damages arisingfrom unfair competition. The Code enumeratesand classifies many trade practices as unfaircompetition cases in conformity with the decisionsof the European Court of Justice.
TCC pays special attention to preserve the Turkishjurisprudence evolved by the Turkish Court ofCassation up to date. Despite adopting the Swisslaw reform in respect with unfair competition,the lawmaker intends to maintain the formationof Turkish law in this discipline. New rules forunfair competition distinguish themselves bysafeguardingconsumerrights.
protection, TCC equivalently elevates the consumervalue, since competition restrictions invadethe consumer’s legal status. The core of unfaircompetition law is orientated to protect not onlyrivals but all themarket participators.
According to this regulation, in the event that1. the agency contract has not been dissolvedon the basis of the fault of the agent, 2. thatthe principalacquires eminent benefits fromthis dissolution 3. that the agent is deprived ofputting forward a legal claim, which he is entitledto put forward under normal circumstances and4. finally that the principle of equity necessitatesthe payment of such a compensation, the agentmay ask for a portfolio compensation, which shallbalance the enrichment of the principalthanks tothe clients acquired by the agent for the principaland the loss faced by the agent because of thedissolution of the contract without the fault of theagent.
TCC advances to release a concrete normwhich allows the portfolio compensation for othersimilar types of agreements such as exclusive salesagencyagreements.
Through TCC, Turkish company law experiencesa comprehensive reform. The generalprinciples of company law as well as to joint stockcompanies and limited liability companieswill be tackled.
TCC encompassesdetailedrulesconcerningmergers, scissions (splitting) andtransformationsof enterprises (Art. 134-194 TCC). Existing rulesare inadequate to meet the needs of the practice.Considering many decisions of Turkish CompetitionAuthority, there is a very evident lack of rules withmaterial law character, subject to regulate thetransformation of enterprises. New rules of thisdiscipline originate from European and Swiss lawsystems.
As a consequence of this event, TCC renounces themethod of gradual foundation and replaces thismethod with the method of public offer. In thisnew alternative, the company shall transform acertain part of the capital into pecuniary sharesand execute the public offer of these shares withina period of 2 months from the foundation of thecompany (TCC, Art.346).
With this perspective, TCC elevatesessential characteristics of joint stock company,by raising its anonymous character. Through thismethod, even private (not listed) companies maybenefit from the advantages of capital markets.
On theotherhand, this reform enables a shareholder to buy othershareholders’ shares and turn the company intoa company with a sole shareholder. In the eventof such a transfer of shares to a sole shareholder,the board of directors is bound to register this factwith the commercial registry within seven daysfrom the transfer. Otherwise the board of directorsshall be liable for the damages borne by thirdparties because of this transfer.
TCC implementsthegeneral principleforqualifiedsharecapital, namelythat the instrument shall be alienable and shallnot be subject to any liens or legal executions.For preserving the assets of the corporation, TCCprescribes that personalendeavor, service performance, commercialreputationandcredits which are not of due date,may not be submitted as a part of capital to thejoint stock company (Art. 342/1 TCC).
Board of directors
For the delegation of management powers, anevident regulation in the statute is necessary.In case of delegation, the board of directors isobligated to release a directive of organizationto enforce a management regime for thecorporation, which includes the powers of eachadministrative subject as well as the hierarchicalstructure between the board of directors andCEO’s and other management bodies.
Theobligation to release such a directive is in line withthe evolution of Modern Company Law throughcorporate governance principles. Through thesemechanisms, it is possible to achieve a moreeffective liability regime. On the other hand, inthe light of the principle of transparency, it willbe more evident for third parties, through whichmanagement mechanisms the corporation willadvance to achieve its own purposes.
Even in case that all the members of the boardshall function as non-executive directors; TCCunderlines the need for an efficient corporationamong the management units. The statute isthe exact instrument to achieve this functionalcooperation. Due to the management structure,TCC enables the monist as well as the dualiststructure. In other words, the managementstructure may solely consist of the board ofdirectors as well as of the board of directors andthesupervision board.
IndependentDirector is a member of BDswho does not have a material or pecuniary relationship with company or related persons, except sitting fees. Independent Directors do not own shares in the company.
Inthisrespect, decisions invading the principle of equality,conflicting with the essential character of thecorporation, invading the fundamental rights ofthe shareholders or further invading the definiteallocation of powers between the generalassembly and the board of directors shall bedeemed invalid (Art. 391 TCC).
a. As of the statutory amendments, TCC differsbetween listed companies and private (unlisted)joint stock companies. In listed companies,decisionssuch as capitalaugmentation, particularly the augmentation of the authorizedshare capital and the transformation of thecompany shall be formed with usual quorums (Art. 418 TCC).
b. Statutory amendments which impose secondaryobligations or the obligation to cover thebalance losses on shareholders may be solelyformed with unanimity (decision quorum).
c. The amendment of the subject of the company,the creation of preference stocks, restrictionsreferring the transfer of the shares shall bedecided and resolved with the votes of theshares amounting to 75 % of the whole capital (decisionquorum).
d. All other sorts of statute amendments shall bedecided on a basis of 50 % of the whole capital (decisionquorum).
Capital Market Law No. 2499 published in the Official Gazette number 17416 on July 30, 1981.
b) “Capital Market Instruments” : Securities and Other Capital Market Instruments.
“Securities” : Negotiable instruments which, represent a share or participation in the property of theissuer or an obligation of the issuer, represent a specified quantity of money, are of a series of instruments of thesame nature, have the same wording, are dealt in as a medium for investment, are fungible, earn periodic incomeand have the terms and conditions determined by the Board.
“Other Capital Market Instruments” :Instruments which are not Securities and which have terms andconditions determined by the Board, excluding cash, checks, bills of exchange, promissory notes and certificates
1) Paylar, pay benzeri diğer kıymetler ile söz konusu paylara ilişkin depo sertifikalarını,
2) Borçlanma araçları veya menkul kıymetleştirilmiş varlık ve gelirlere dayalı borçlanma araçları ile söz konusu kıymetlere ilişkin depo sertifikalarını,
- OtherCapital Market Instruments; derivativeinstruments-investmentcontracts…
Art.3 (u) Türev araçlar: Aşağıda sayılan veya Kurulca bu kapsamda olduğu belirlenen diğer türev araçları:
1) Menkul kıymetleri satın alma veya satma veya birbirleri ile değiştirme hakkı veren türev araçları,
2) Değeri, bir menkul kıymet fiyatına veya getirisine; bir döviz fiyatına veya fiyat değişikliğine; faiz oranına veya orandaki değişikliğe; bir kıymetli maden veya kıymetli taş fiyatına veya fiyat değişikliğine; bir mal fiyatına veya fiyat değişikliğine; Kurulca uygun görülen kurumlarca yayınlanan istatistiklere veya bunlardaki değişikliğe; kredi riski transferi sağlayan, enerji fiyatları ve iklim değişkenleri gibi ölçüm değerleri olan ve bu sayılanlardan oluşturulan bir endeks seviyesine veya seviyedeki değişikliğe bağlı olan türev araçları, bu araçların türevlerini ve sayılan dayanak varlıkları birbirleri ile değiştirme hakkı veren türevleri,
Pursuant to Article 484/2 of the New TCC, bearer share certificates may not be issued for the shares fully unpaid shares. The bearer share certificates, which have been issued contrarily to this rule are void, on the other hand, compensation rights of bona fide persons are reserved.
Pursuant to Article 486 of the New TCC regulating the principles pertaining to the printing of share certificates, similarly to Article 412 of the TCC, share certificates printed prior to the incorporation of the company are void, however, obligations resulting from the undertakings of subscription remain valid. Additionally, those who print share certificates prior to incorporation are required to compensate the damages resulting therefrom. The second and third paragraphs of Article 486 of the New TCC contain new provisions that were not included in the TCC. Accordingly, for bearer certificates, the board of directors shall, within three months following the payment in full of the share price, print the share certificates and deliver them to shareholders. With the said provision, a printing requirement with regards to bearer share certificates has been adopted. The board of directors’ resolution pertaining to printing the bearer share certificates shall be registered and announced, and published in the web site of the company. Moreover, the relevant article regulates that interim certificates may be issued until the issuance of original share certificates and shall be subject to the same the provisions as registered share certificates..
Pursuant to Article 486/3 of the New TCC, upon request of minority shareholders, registered share certificates shall be printed and delivered to shareholders. This provision is one of the innovations brought by the New TCC. With the statutory printing requirement of registered share certificates, inconsistent share ledger problems that may arise from not updated ledger records, are staved off. A very unbecoming practice, especially in closely-held joint stock companies, that unprinted share certificates may cause considerable obstacles of proving shareholding status. In the justification of the New TCC, it is stated that in case of infringement of the said article, shareholders are endowed to initiate a lawsuit. By this way, shareholders may benefit from an efficient statutory protection.Articles in the New TCC concerning the rules for the form of share certificates, reaffirm the relevant articles in TCC about the worn-out or defaced share certificates.
Pursuant to Article 490 of the New TCC governs the transfer of registered share certificates, and states that the transfer of share is realized with the convey of possession of the registered and endorsed share certificate. This article clarifies that the transfer of possession of the endorsed share certificate is a requirement for completion of legally binding transfer transaction. With this article, confusions about the statutory transfer requirement for the endorsed share certificate are prevented.
Pursuant to Article 504 of the New TCC, debt instruments - bills of exchange and commercial bills, securities- containing right to purchase and right to exchange and every kind of securities may be issued upon the resolution of general assembly, unless stated otherwise by legal provisions. Article 504 of the New TCC makes reference to Article 421/3 and 421/4 with regards to the resolution of general assembly to be adopted. Pursuant to the said provisions, these resolutions should be adopted by the votes of shareholders holding at least seventy five percent of the capital or their representatives. In the event that this quorum is not reached in the first general assembly meeting, the same quorum should be obtained for the following meetings. However, a provision on the contrary may be embodied to the articles of association (New TCC Article 504). Pursuant to the justification of the articles of the New TCC, it is possible to increase or decrease the quorum provided by the relevant article.
The general assembly resolution pertaining to issuance of security is required to contain all relevant terms and conditions of securities.The security certificates issued in accordance with Article 504 of the New TCC may be payable to the bearer, payable to order of specified person by bearer with nominal value. The general assembly and, in case it is authorized, the board of directors are competent bodies for determination of the nominal value. The last sentence of Article 504 contains a provision which regulates only debt instruments. Accordingly, the payment method of debt instruments should be in cash and it should be paid at the time of delivery.Pursuant to Article 505, unless otherwise regulated by law, the general assembly may authorize the board of directors with regards to issuance of security, determination of the terms and conditions related thereto and appointment of the operation auditor for a maximum term of fifteen months. In the justification of the articles of the New TCC, it is stated that the provision of a maximum term has been introduced for convenience purposes.
Reference is made to Articles 421/3 and 421/4 with regards to quorums which shall be applied to resolutions pertaining to authorization of the board of directors. Accordingly, the resolutions shall be adopted with the votes of shareholders holding at least seventy five percent of the capital or their representatives and in the event that this quorum is not reached in the first general assembly meeting, the same quorum should be obtained for the following meetings.Article 506 of the New TCC provides a limit concerning the total value of the debt instruments to be issued in accordance with the articles above. This value shall not exceed the sum of the company’s capital and reserve funds which appear on the balance sheet. Pursuant to Article 506/2 of the New TCC, provisions of the Capital Market Law are reserved.