THIS WAY PLEASE 2011 / II. he world went through a busy year

Transcription

1 2011 / II THIS WAY PLEASE he world went through a busy year T in all aspects: economics, politics, regulatory and social matters. It is not easy to name the current state of play of the world in general, as many states are going through different stages, be it an economic crisis, recession, slowdown or uncertainty. Particularly, the economic crisis in Greece played a huge role on causing turmoil in Europe. Despite economic exposures creeping around Turkey, nearing the end of the final quarter of 2011, we realize that Turkey has gone through so many changes as well. It is without doubt, the country strengthened its global presence by proving its resilience to the economic slowdown and the recession that was standing there within an earshot. Meanwhile, Turkey finds itself placed in a safety zone. Continued on page 3 Corporate 4 Six Reasons for Foreign Investors to Like the New Company Law 6 Anticipated Effects of the Corporate Governance Regulations under the New Turkish Commercial Code on Investment Culture in Turkey 8 A New Era Dawns for Listed Companies 10 Turkish M&A and Private Equity: Opportunities and Considerations 12 Removing the Obstacles of the Reciprocity Principle 14 Winds of Change - the Extent of the Board of Director s Liability 17 Legal Analysis of Business Transfer under the Turkish Code of Obligations 19 Amendment Requirements of Tender Documents and Public Procurement Contracts 21 Strict Approach Taken for Consortia: Liabilities in Open Tender Implementations 23 E-Commerce: E-Contracts And Consumer Protection 25 Asset Transfer Deals in Turkey 27 Recent Developments in the Trading of Electricity in Turkey 29 Recent Developments in the Turkish Solar Energy Market 31 The Recent Reform of the Turkish Mining Law: Is it Attractive for Foreign Investors? Competition 34 An Effective but Under-Utilized Institution of Competition Law: Leniency 36 The Concept of Affected Market under the New Merger Communiqué and its Recent Interpretations by the Turkish Competition Board IN THIS ISSUE 38 The Right to Seek Damages-Attempts to Have More Effective Redress Mechanism by Antitrust Plaintiffs in Turkey Project & Finance: 40 Islamic Bond Market Starts to Attract Participation Banks in Turkey 42 Developments in International Financings in Turkey 45 An Update on the PPP Hospital Programme 47 Legal Aspects of Spin-Off Transactions and Advantages 49 The Commercial Enterprise Pledge 51 Issuance and Sale of Warrants in Turkey under Capital Markets Law Litigation & Arbitration 53 The ICC Rules of Arbitration- Highlights about the New Rules 54 Disputes Arising from Goodwill Compensation Claims under the New Commercial Code 56 Legal Actions Against Board Resolutions from the New Commercial Code Perspective 58 Jurisdiction Selection Agreements under the New Civil Procedural Law 59 General Terms of Contract 61 Manufacturer s Liability Against Tradesmen 62 An Icy Path on the Way to Jurisdiction: Pre- Arbitration Procedures 64 Insured Party s Pre-Contractual Duty of Disclosure and Consequences of its Failure 65 Are Your Shares Still Privileged? 67 The New Turkish Commercial Code: Harsh Penalties For Non-Compliance! 69 Changes on the Injunction Procedure under the New Turkish Procedural Law 71 Legal Remedies for Breach of Non-Compete Obligations in an Employment Relationship 73 General Overview of Changes in the Code of Civil Procedures Employment 75 Non-Competition Agreements in Line with the New Code of Obligations 77 Mobbing under Turkish Law, Remedies and Precautions 79 Employee Earnings Subject to and Not Subject to Premium 82 Procedural Changes in Labour Adjudication 84 Termination of Service Contracts under the New Code of Obligations 86 Legitimacy of a Release Deed under the New Code of Obligations Intellectual Property & Technology 88 New Legislation on Working Rules of Doctors in the Public Sector 90 New Regulation on Promotion of Pharmaceuticals 92 Medical Device Market Legal Agenda 94 Foreign Trademark Owners Combat Against Local Partners Acting in Bad Faith 95 VoIP Networks and Legal Framework in Turkey 97 The UK Bribery Act 99 New Pathways for the Retail Sector 101 European Progress Report in Regard to Intellectual Property Rights

2 No. 4 Disclaimer BÜYÜKDERE CAD. NO: 127 ASTORIA A KULE KAT: 5, 6, 24, 26, ESENTEPE ISTANBUL TURKEY TELEPHONE: +90 (212) TELEFAX: +90 (212) info@yukselkarkinkucuk.av.tr WEBSITE: Legal News Bulletin Turkey YükselKarkınKüçük Adına Yayın Sahibi / Owner Cüneyt Yüksel Editör / Editor Cüneyt Yüksel Sorumlu Müdür / Responsible Gökhan Gökçe Yayın Türü / Type of Publication Yerel Süreli / Local Periodical Baskı / Printing PINARBAŞ Matbaacılık Ltd. Şti. Rami Kışla Cad. No: 88 Topçular İstanbul Tel: (212) This bulletin is designed to provide general information to the public and clients and has been prepared for educational and information purposes only. The information included herein is not for advertising purposes. The information in this bulletin is not intended to be nor does it constitute legal advice of and does not necessarily reflect the opinion of any of DLA Piper Consultancy Services Foreign Attorney Partnership and YükselKarkınKüçük Attorney Partnership. Professional legal advice should be obtained for specific questions and concerns. DLA Piper Consultancy Services Foreign Attorney Partnership and YükselKarkınKüçük Attorney Partnership will not be liable directly or undirectly for any loss that may arise from relying on the data included herein. Receiving this bulletin does not create an attorney-client relationship. Copying part or all of the contents in any form of this bulletin is prohibited and the contrary constitutes copyright infringement. For further information, contact Cüneyt Yüksel, Buyukdere Cad. No: 127 Astoria A Kule Kat: 5, 6, 24, 26, Esentepe, Istanbul TURKEY, Fax: +90 (212) , info@yukselkarkinkucuk.av.tr Copyright 2011, DLA Piper Consultancy Services Foreign Attorney Partnership and YükselKarkınKüçük Attorney Partnership. All rights reserved.

3 Intro Previous page to continue Turkish banks retaliated against threats to the economy, providing a comfortable accommodation to investors including foreigners as the Central Bank of Turkey played a crucial role in critical interventions to FX fluctuations. In this respect, 2Q11 GDP growth was realized at an impressive rate of 8.8% and a sizable drop in the unemployment rate occurred, emphasizing macroeconomic stability. In the meantime, S&P s upgrade of Turkey s local currency sovereign rating from BB+ to an investment grade of BBB- hit the spot still attracting foreign capital. Last but not least, the general elections of 12 July 2012 resulted with a high turnout. As well as consistently welcoming foreign investments to the country, Turkish capital has begun to occupy foreign agenda by reaching out to new business opportunities abroad. Being the largest deal of this type, after Ülker tested the waters with its US$800 million acquisition of Godiva, Anadolu Efes intriguing deal with SABMiller for the acquisition of its Russian and Ukraine beer businesses at a near US$2 billion deal value was recently announced. Without doubt, we expect various others to come over the next years where we will more often see names of Turkish corporations in cross-border M&A. Legal developments in Turkey are calling for compliance with the EU acquis and western approximation such as the new amendments to (1) the Civil Procedural Law facilitating filing and court proceedings, (2) the Commercial Code including the amended company law, (3) the Code of Obligations regulating contractual affairs and securities and (4) the Competition Regulation for Mergers and Acquisitions bringing a closer alignment with the EU merger rules. The 2011 EU Progress Report of the EC quoted: Overall, the legal system continues to provide effective support to the business environment. As a growing law firm comprising of around 70 lawyers and a support staff of 40, we bestow a full service principle roundthe-clock in practicing the law. We are going through continuous growth in terms of number of lawyers, practice areas and office space. In addition to our 5-floor occupancy in the Astoria building, we are taking up new office space in the same block. About to celebrate its 6th anniversary, YKK is still a young firm but it never let go of the principles of growth and improvement. Legal practice is an evolving one that is renewed through time in accordance with persons needs. In this respect, we are taking out our real estate practice from the Corporate Group, by setting up a separate Real Estate practice group which will provide for a stronger team and specialized expertise in this area. In periodically writing about legal developments, we believe that the Legal News Bulletin Turkey is an opportunity for our readers to get a grip of the legal happenings in Turkey in literally every area of the law. Our target audience is not only law practitioners but the people running businesses with existing or potential affairs in Turkey. In this respect, the Bulletin intends to address their legal needs with an understanding of their businesses. Quite noticeably, the Bulletin contains a well-selected range of articles. The legal subjects that are touched on this issue have been meticulously selected by a dedicated team. This issue contains 50 articles with an analysis either of recent legal updates or of areas of the law needing an emphasis such as real estate, company law, capital markets, antitrust, finance, dispute resolution, pharmaceuticals, energy, employment, antibribery, insurance and many more (in general terms). Please flip through now to see what we have prepared to offer to you in detail. We welcome your questions and/or suggestions at all times. Should you have any, please contact us at bulletin@yukselkarkinkucuk.av.tr. 2011/II 3

4 Corporate Six Reasons for Foreign Investors to Like the New Company Law Gizem GÖKER A s The New Turkish Commercial Code ( TCC ) is expected to enter into effect on 1 July 2012 with the introduction of substantial changes regulating the Turkish company rules and regulations. Various requirements under the existing code were burdensome to foreign investors. As a significant step in Turkey s European Union integration process, the New TCC is creating a foreign investorfriendly environment for a number of reasons. This article will lay out the six main highlights in this context. a significant step in Turkey s European Union integration process, the new TCC is creating a foreign investor-friendly environment for a number of reasons. 1. Compliance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). The New TCC authorizes an official accounting board to set the Turkish Accounting Standards in parallel to the IFRS. This will facilitate accounting audits by the foreign shareholders of a Turkish entity as it will be easier to take a nonresident through the financial statements of a Turkish company. This has always been a foreign investor request in shareholders agreements in Turkish joint ventures where one of the parties is a foreign entity and had little enforceability. 2. A direct branch set up by a foreign entity will be faster. Companies that are based abroad may directly set up branches in Turkey in lieu of establishing a legal entity such as a joint stock company or a limited liability company. Before the New TCC, a branch incorporation required formalities such as obtaining the approval of the relevant department of the Ministry of Commerce that is located in Ankara as a prerequisite to registering the branch. The New TCC removes this requirement and enables foreign companies to directly apply to the company register that is located in the city of the target branch for setting up operations in Turkey. These types of branches will be registered on the same footing as the branches of Turkey-based companies. 3. Ability to squeeze out a minority, which is a new concept for Turkish companies, will be possible. Under the existing TCC, there is no a mechanism for a minority shareholder squeeze out. With the New TCC according to Article 577 (l) companies will be allowed to incorporate the reasons for a squeeze out in their Articles of Association. The other shareholders also have a right to resort to the court to squeeze out the other shareholder based on just reasons. Additionally as per Article 202 and 208 of the New TCC, where a parent company directly or indirectly holds at least 90% of the issued capital stock of a company, it may exercise a right to buy out if the minority shareholders are blocking a resolution on a strategic matter such as merger, de-merger, termination of the company and in significant amendments to the articles without 2011/II 4

5 T oday any justifiable reason. The buyout is achieved through resorting to the court and the valuation method set out under the TCC. This will be an important step in dealing with minority shareholders in vital matters. 4. One-shareholder company requirement will be history. Turkish company rules require having at least 5 shareholders for a joint stock company and at least 2 shareholders for a limited liability partnership. For years, we had this rule which was rather alien to foreign investors and burdensome for everyone because entities had to retain nominee shareholders to meet this rule. Also, entities borne the risk of termination of the company had it failed to retain the minimum number of shareholders. After the effective date of the New TCC, this there exists almost 26,000 companies, a majority of which have been incorporated within the past few years. It is without doubt that the New TCC with its attractive changes will be a catalyst for Turkey in the process of becoming a more-investor friendly country. tradition will be left behind and a one-shareholder joint stock company or limited liability partnership will be allowed. Existing companies may also prefer to reduce the number of their shareholders pursuant to this rule. 5. Facilitated meetings. Under the current TCC, board meetings are held in person. If Board meetings were not held in person then it had to contain the signatures of all directors. After the effective date, it will be possible to hold board meetings by electronic means. As for the shareholder meetings (general assembly meetings), the current TCC requires a meeting in person or via proxy that must be held with the presence of the relevant Chamber of Commerce officer. With the New TCC, meetings will also be held in an online format and a special regulation will be released on the conduct of online meetings. These changes are definitely advantageous for foreign capital companies that have directors/ shareholder representatives residing outside of Turkey. 6. A company can buy out its own shares. In the current TCC, a company cannot acquire its own shares except for very exceptional circumstances. With the new arrangements, this will be enabled subject to the following conditions: The company may acquire its own shares or take on security in its favor up to 10% of capital stock. The board must be authorized by the shareholders assembly for such acquisition which would be valid for at most 18 months (as may be subject to renewal). If there is a serious and imminent risk of loss on account of the company, the board may act at its own discretion to acquire such shares. This is facilitated mainly for the purpose of avoiding traded companies from being affected by manipulation. Each year, as Turkey attracts more investments coming from abroad, the number of foreign capital companies rapidly increase. Today there exists almost 26,000 companies, a majority of which have been incorporated within the past few years. It is without doubt that the New TCC with its attractive changes will be a catalyst for Turkey in the process of becoming a more-investor friendly country. 2011/II 5

6 Anticipated Effects of the Corporate Governance Regulations under the New Turkish Commercial Code on Investment Culture in Turkey Elifcan ARGUN Corporations and their governance remained to be a matter of academic debate long before the rise of the managerial firm as the dominant economic actor in major economies. Many legal and economic theories have developed to explain why companies exist, how companies should be managed and controlled and to whom managers should be accountable. Answers to these questions have changed over time and from country to country. Outsider systems tend to have a significant capital market with uncommitted shareholders focused on financial return on equity whereas insider systems are characterized by the significance of the state, families and banks as a source of funding or control. As an example of the latter, pyramidal and complex ownership structures have been predominant in Turkey. Concentration of ownership and control in the hands of families as the dominant shareholders reduced agency costs however, raised expropriation problems: self-dealing or tunneling. Furthermore, shortcomings in the legal and regulatory framework made individuals unwilling to invest in the Turkish capital market since they did not find it trustworthy. Therefore, good corporate governance along with the basic principles of equality, transparency, accountability and responsibility has become more of a necessity for Turkey. Turkish Company Law is mainly governed under the Turkish Commercial Code ( TCC ) dated To meet the needs of the companies within a challenging international environment, the New Turkish Commercial Code ( New TCC ) was adopted on 13 January 2011 and will be in force on 01 July Another important source of Company Law is the Capital Market Law ( CML ), which empowers the Capital Markets Board of Turkey ( CMB ) to regulate and supervise markets with the aim of ensuring fairness, efficiency and transparency and improving their international competitiveness. A set of non-binding principles of corporate governance was issued by the CMB in July 2003 based on the OECD Corporate Governance Principles. The CMB Principles apply on a comply-or-explain basis and contains detailed guidelines on the rights of shareholders, public disclosures and transparency, stakeholders and the board of directors. The CMB communiqués have a binding force for publicly listed companies. As a starting point, it is obligatory to issue an annual corporate governance compliance report showing the extent of their compliance with the principles and explaining the reasons for any deviation. Although the CMB communiqués keep the Turkish capital market law dynamic, it is important to embody these principles in general company law in order to ensure a stable and transparent investment environment both for foreign and local investors. The New TCC aligns Turkish commercial regulations with EU Acquis and puts the following principles into effect: a. Shareholders Rights The New TCC introduces important structural changes to facilitate the exercise of shareholders 2011/II 6

7 R egulatory rights such as introducing the corporate representation system (similar to proxy voting system in the USA), making it obligatory for the representative to receive instructions before the general meetings, granting a comprehensive right to information and examination, procuring active participation in general meetings through online participation and voting. Minority rights that can be exercised by the shareholders representing 10% of the share capital, in the case of publicly listed companies exercised by shareholders representing 5% of the capital, have been improved by adopting exceptions to the loyalty of agenda, strengthening the position of the special auditor and introducing new rights such as the right to request the company s dissolution and the dismissal of the auditor where there is a violation of impartiality. In addition, according to the New TCC, both minority and foreign shareholders shall be subject to equal treatment under equal terms. changes should be embedded within the cultural values of the society by developing an awareness of the wider social implications of the concept of corporate governance. b. Disclosure and Transparency The Company s website should be actively used as a means of public disclosure, the financial statements, the annual report of the board of directors, the board s annual statement in adherence to the corporate governance principles and the auditors reports should be published. As a sine qua non of corporate governance, financial statements shall be organized according to International Financial Reporting Standards and be audited in accordance with International Accounting Standards. Accordingly, an audit committee consisting of independent, impartial and non-affiliated auditors should be kept under surveillance. The establishment of an early risk recognition and management committee will be obligatory for publicly listed companies. c. Board of Directors The New TCC emphasizes the importance of professional management and that full transparency makes a significant difference between investors and management and also separates the board and management concepts. Accordingly, at least one quarter of the board members must have higher education, the number of non-executive independent directors should be increased, and a professional board shall be composed since it is no longer a requirement to choose the directors among the shareholders. The joint and several liability of directors under the existing TCC differentiates into solidarity liability, distinct from another s liability and the directors liability insurance is also adopted pursuant to the New TCC. Most importantly, remuneration of the board members should be indicated in the Articles of Association and disclosed in the general shareholders meeting, and should be scrutinized. In case of insolvency, an unreasonably high amount of bonus or other benefits received in a period of three years before the insolvency by directors shall be paid to the creditors of the company. d. Stakeholders The New TCC narrowly defines stakeholders as the creditors and employees of the company. Creditors have the right to sue the company s directors or auditors in case of any violation of the law or the Articles of Association. Additionally, in order to protect creditors and employees, impact of the merger or division on the employees and creditors of companies participating in the merger or division shall be explained in a report. Conclusion The New TCC codifies the corporate governance principles that were initially imposed on publicly listed companies and makes these principles applicable to all joint stock companies. However, these regulatory changes should be embedded within the cultural values of the society by developing an awareness of the wider social implications of the concept of corporate governance. Pursuant to the Central Registry Agency s records, the ratio of the foreign shareholders in the Turkish Capital Market corresponds to 62,71% as of 21 October As asserted by the CEO of the CMB, protection of small investors through CMB and the TCC regulations will pave the way for more public offerings within 2012 along with cyclical improvements. Introducing new schemes, such as investment clubs, and ensuring maximum participation of the local investors will increase investor confidence and enhance the efficiency and resiliency of the Turkish capital market. 2011/II 7

8 A New Era Dawns for Listed Companies Burçak ÜNSAL Elifcan ARGUN The Communiqué Serial: IV, No: 54 on Determination and Implementation of Corporate Governance Principles ( Communiqué ) of the Capital Markets Board of Turkey ( CMB ), lays the foundation of a new era for the listed companies trading in the Istanbul Stock Exchange s ( ISE ) National 30 Index, i.e. flagships of the Turkish capital markets. Although this was no surprise to the market players, the date it entered into force (11 October 2011) was particularly interesting as the decision was issued with immediate effect. Just a day before one of the Turkish GSM operator s extraordinary general meeting at which some shareholders were hoping to dismiss the chairman, claiming that he favored the Turkish shareholders of the company to the detriment of other shareholders. The CMB dismisses the assertions, gaining strength from the timing of the Communiqué, that its decision was designed in a fashion which implicitly protects the national interest and proposes that this decision was aiming to further corporate governance through the observation of international markets and local experience accumulated in a term of eight years, since the corporate governance rules were first introduced. Leaving the aforementioned debate aside, the Communiqué is a milestone, especially in terms of ensuring effective disclosure to small investors; their fair representation in the companies; norms, duties and rights with respect to the independent directors and the extent of their presence at the boards in correlation with other board members. The new principles introduced by the Communiqué seem to boost the transparency, accountability, and protection of all stakeholders and thereby, eventually, create a more competitive, reliable and lucrative stock market for both domestic and foreign investors. The Communiqué introduces rules to the Turkish capital market similar to those of the New York Stock Exchange and the London Stock Exchange with respect to appointment of independent members to the boards of the listed companies. Accordingly, at least one third of the boards shall be independent directors. Under any circumstance, at least two members at a board shall be independent. A person who has served as a member within the last six years cannot be appointed as an independent member to the board. A member of the board who satisfies the following requirements may be appointed as an independent member: Not to be previously elected as a board director representing a certain group of shareholders, Not to be employed by or have acted as a manager in any auditor or consultant of the company which has audited or advised the company under, within the last five years, Not to be previously employed by the external auditor of the company or not to have been included in the external audit process of the company within the last five years, Not to be previously employed by or acted as a manager to a firm rendering significant amount of services and supplying products to the company, Not to have any blood or in-law relatives, up to third degree as executives, controlling shareholders or shareholders holding more than 5% of the company s share capital, Not to receive any compensation other than the remuneration; to hold common shares of less than 1% if he/she is a shareholder due to his/her duty, provided that such shares are not preferred shares, and He/she or their spouse, blood or in-law relatives up to the third degree should not have 2011/II 8

9 T had any direct or indirect relationship of interest such as shareholding, employment, or trade and commerce with the company, its subsidiaries, affiliates or any other entities related to the persons controlling directly or indirectly more than 5% of the company s share capital, within the last five years. Even though each one of the foregoing prohibitions are a disqualifier, the CMB may allow one to act as an independent member at a board for a maximum term of one year, provided that there is reasonable ground for appointment of such person as an independent member by the shareholders of the company. Any independent member of the board shall provide a written declaration to the board, stating that he/she is independent as required by the he Communiqué is a milestone, especially in terms of ensuring effective disclosure to small investors; their fair representation in the companies; norms, duties and rights with respect to the independent directors and the extent of their presence at the boards in correlation with other board members. legislation and the Articles of Association. Upon provision of such declaration, the board shall evaluate the independency of the individual and shall provide a report with respect to the shareholders (at a general assembly). Following the general assembly s decision on the appointment of the independent director, such appointment together with the discussions and debates held at the assembly and its reasons, dissenting votes and independency assessment of the board shall be posted on the website of the company. In a situation where a candidate is appointed as an independent director and the shareholders holding at least 5% of the company s share capital vote against that candidate at the general assembly meeting, the CMB shall step in, conduct a separate assessment and make a decision regarding the independency of the appointed director. In addition to introducing the director independence criteria, the Communiqué brings novelties related to the general assembly meetings. In order to ensure maximum shareholder attendance, as well as the communication procedures to convene the shareholders, invitation to the general shareholders meeting shall be announced via all means of communication including electronic means, at least three weeks before the date of the general assembly meeting. Before the shareholders general assembly meeting, the following information and documents should be made available to the shareholders for inspection: The total number of shares, share classes and their respective numbers and privileges, and the relevant voting rights, all changes that occurred in the previous fiscal year, or projected changes in the management and operations of the company, its affiliates and the subsidiaries together with reasoning thereof, annual reports and annual financial statements together with financial statements from the previous three fiscal years for all entities involved in such corporate structure change, the information and the reasons with respect to any dismissal and/or appointment to the board of directors occurred in the relevant fiscal year. In the case where there is a cross ownership in group companies with controlling privileges on one another, the companies in such cross ownership should avoid exercising their respective voting rights in the general shareholders meeting and disclose the issue to the public, unless this results in unsatisfied quorums. Conclusion The Chairman of the CMB, Vedat Akgiray, announced that the Communiqué would become applicable to all listed companies within one to two years and the scope of its provisions would be extended. The chairman and CEO of ISE, Hüseyin Erkan has seconded to the messages of Akgiray and asserted that this would pave the way for more public offerings in the near future. Notwithstanding the circumstances in which the Communiqué has been introduced into force and despite certain provisions that might allow discretion to the CMB, taking the provisions of the Communiqué and commitment of the authorities into consideration, we are hopeful that the Communiqué will foster a stronger, more reliable, more competitive capital market, which will inspire further velocity to an already dynamic economy in Turkey. 2011/II 9

10 Turkish M&A and Private Equity: Opportunities and Considerations Jonathan CLARKE Introduction: opportunities 2011 has been a great year for M&A and private equity transactions so far. Deal numbers have already eclipsed 2010 figures and deal value has already increased this year to the highest level since the failure of Lehman Brothers in There have been two $2.1billion transactions this year: TPG and Actera s disposal of Mey Içki (Turkey s largest spirits producer and distributor) to Diageo plc; and the merger between Turkey s Genel Energy and Vallares Plc (an investment company run by former British Petroleum CEO Tony Hayward). As the eye-catching exit of TPG and Actera shows, private equity has been involved in many of the Turkish M&A transactions this year and it is a tribute to the maturity of the Turkish market that activity has been at different deal sizes and stages of fund cycle. Other private equity disposals to note were BC Partners privately placing a 17.4% stake in Migros (Turkey s largest supermarket conglomerate) for $515 and selling subsidiary discount supermarket brand Sok for $380 million. There has also been a host of mid market acquisitions in sectors such as education (Carlyle and Turkven), pharmaceuticals (NBGI) and infrastructure (CVCI). In addition, despite choppy global economic conditions, new Turkey-centric funds in the $500million plus range were announced by Actera and Cerberus/Garanti Securities. All of this shows a healthy investor appetite for Turkish M&A deals- fuelled by Turkey s high economic growth and consumer confidence combined with low levels of household debt. Therefore, in a legal environment where 2 major pieces of legislation affecting Turkish companies and contractual relationships- the New Turkish Commercial Code and Code of Obligations- were enacted earlier this year and will come into effect in July 2012, what legal issues should companies and funds bear in mind when investing in Turkey? Considerations Four important high-level considerations that companies and funds should be aware of when doing Turkish M&A deals are as follows: 1. Transaction timing issues and costs. Although Turkish Competition Board thresholds have recently been relaxed, Turkish M&A transactions very rarely have simultaneous signing and closing. Acquisitions in regulated sectors such as banking, energy, insurance, media and mining also require regulatory pre-consents. This will naturally extend the timeline and cost of an acquisition. Acquirers should also consider how to deal with Turkish stamp duty which is currently charged on 0.825% of the highest figure stated in each original of a relevant transaction document (such as a Share Purchase Agreement or Shareholders Agreement). 2. Security is important. Legal risks arising from due diligence are often difficult to bottom out given limited due diligence documentation and a lack of detail as to sanctions in relevant legislation. In particular tax risks often present potential liabilities that are difficult to precisely define. Therefore for a buyer contractual protections are important, and are often accepted by Sellers (for example, general tax 2011/II 10

11 I indemnities are common practice in Turkey), but need to be secured. Post-closing adjustments are one important way of securing price but escrow accounts or other securities such as irrevocable and unconditional letters or guarantee or share pledges (in joint venture situations) are also helpful tools. The New Turkish Commercial Code contains a number of provisions that promote transparency (such as requirements for Turkish companies to publish information on websites and comply with International Financial Reporting Standards) which will help reduce (but not obviate) the impact of this issue. n a legal environment where 2 major pieces of legislation affecting Turkish companies and contractual relationships- the New Turkish Commercial Code and Code of Obligations- were enacted earlier this year and will come into effect in July 2012, what legal issues should companies and funds bear in mind when investing in Turkey? 3. Beware of asset transfers. Asset transfers are less useful Turkish transactions than in other jurisdictions. There are two areas of concern here. Firstly, under the Turkish Code of Obligations if all or a substantial part of the assets of a company is transferred to the transferee, all liabilities of the transferor relating to the transferred business and existing before the transfer date may follow the transferee. Secondly, there are various issues with the transferability of particular types of assets (e.g. if a Turkish contract is silent as to assignability, the general rule is that the contract cannot be assigned without the consent of the counterparty). 4. Shareholders Agreements: reserved matters and exit mechanisms. Although the New Turkish Commercial Code expands minority shareholder rights, minority investors still do not receive much protection under Turkish law. Therefore, reserved matters or veto rights become important. Minority investors need to be careful how they document these rights and they will need to be split into board and shareholder reserved matters if they are to be correctly reflected in a company s Articles of Association. In addition, deadlock mechanisms may be difficult to enforce given ongoing legal debate as to whether it is possible to obtain specific performance for breach of share transfer obligations. And this debate is also relevant for share transfer provisions relating to exit mechanisms which are of key importance in private equity investments. The New Turkish Commercial Code contains two provisions that will help these issues. Firstly, single shareholder companies are possible (previously the minimum number of shareholders in a Turkish joint stock company was 5) which will clear up group structures and simplify share transfer mechanisms or share pledge security. Secondly, where previously a board could theoretically refuse to register a share transfer for any reason, it now needs to provide an important reason for doing so (which must be clearly set out in a company s Articles). Conclusion Both trade and private equity investors are looking to capitalize on M&A investment opportunities in Turkey in a legislative environment that is becoming increasingly investor-friendly. However, Turkish deals have their own peculiarities and it is important that investors are aware of these as early as possible in a transaction so that they can negotiate them effectively. 2011/II 11

12 Removing the Obstacles of the Reciprocity Principle Merve ÇIKRIKÇIOĞLU The majority of real estate acquisitions in Turkey by foreigners are regulated by Article 35 of the Title Deed Law No:2644. Under the current legislation, acquisition of any real estate or limited rights in rem on real estate by foreigners is subject to certain restrictions and limitations. In this respect, acquisition of real estate by a foreign real person depends on the existence of reciprocity between Turkey and the country of the relevant foreign real person. The reciprocity principle has always been an important obstacle for nationals of certain foreign states which prohibit Turkish citizens from purchasing real estate in their countries. However, the Ministry of Environment and Urban Planning ( Ministry ) has recently announced that it is now preparing a draft amendment to the Title Deed Law No.2644 ( Title Deed Law or the Current Law ), which will be introducing a more liberal regime for foreign investments. The draft amendment aims to reduce restrictions on real estate acquisitions by foreign persons following the removal of the reciprocity principle from the Law. The Ministry is expected to complete the draft text shortly, and submit it to the approval of the Council of Ministers. Current Regime According to Article 35 of the Current Law, foreign real persons may acquire any real estate or limited rights in rem on real estates, upon compliance with the legal restrictions and the reservation of the reciprocity principle. Reciprocity Principle According to the reciprocity principle, a foreign real person may acquire real estate designated as a residential or commercial area (under the applicable development plans or local zoning plans), only if there is reciprocity between Turkey and the country of the relevant foreign real person. In implementation of the reciprocity principle, it is essential that real estate acquisition rights given by a foreign country to its own citizens according to the laws of these countries are also given to the citizens of the Republic of Turkey. Please note that this principle is solely applicable to foreign persons, rather than Turkish companies established with foreign shareholding. There are currently 54 countries [1] in the world, which comply with the reciprocity principle of Turkey. However, there are 39 countries such as, Saudi Arabia, Kuwait, United Arab Emirates and Qatar, where the nationals are not allowed to acquire real estate in Turkey. From an investors perspective, the reciprocity principle constitutes a serious problem for the real estate investment sector in Turkey, both for the Turkish market and the foreign investors who are prevented from investing in Turkey. [1] Andorra, Japan, Argentina, South Korea, Australia, Latvia, Austria, Liechtenstein, Bahamas, Lithuania, Bangladesh, Luxembourg, Barbados Malawi, Belgium, Malaysia, Belize, Mali, Benin, Malta, Bolivia, Mauritania, Bosnia-Herzegovina, Mauritius, Bostwana, Mexico, Brazil, Monaco, Cameroon, Mozambique, Canada, Netherlands, Cape-Verde, New Zealand, Central African Republic, Nicaragua, Chile, Nigeria, Colombia, Norway, Costa Rica, Panama, Cote D ivoire, Paraguay, Croatia, Peru, Denmark, Philippines, Ecuador, Poland, El Salvador, Portugal, England, San Marino, Estonia, Senegal, Finland, Singapore, France, Somalia, Gabon, South African Republic, Germany, Sri Lanka, Ghana, Spain, Guinea, Swaziland, Grenada, Sweden, Guatemala, Switzerland, Guyana, Tanzania, Haiti, Republic Of Dominic, Honduras, Turkish Republic of Northern Cyprus, Hungary, Usa, Ireland, Uruguay, Israel, Venezuela, Italy, Yugoslavia, Jamaica. 2011/II 12

13 T he Restrictions Regarding the Acquirable Area Please note that the reciprocity principle is not the sole restriction in this regard. The Current Law contains certain limitations with regard to the acquirable area by foreign real persons. The total area of real estate and limited rights-in-rem on real estate a foreign individual can acquire within the country shall not amount to more than 25,000 square meters. In addition, The Council of Ministers may determine an upper limit for each sub-province, which may amount up to 10% of the total area covered by the main zoning plan and the local zoning plan of such sub-province rather than the entire area of a province. Furthermore, real persons are not allowed to draft amendment aims to reduce restrictions on real estate acquisitions by foreign persons following the removal of the reciprocity principle from the Law. acquire property and limited rights-in-rem in such areas that require special protection due to their significance for irrigation, energy, agriculture or mining purposes or for conservation of faith or culture; sensitive areas that require protection due to their flora and fauna; and strategic locations concerning national security. Expected Regime There are many foreign individuals from Gulf countries and Turkic Republics who cannot acquire real estate in Turkey due to the current legislation. Despite their willingness to invest in Turkey, they are prevented as a result of this reciprocity principle. In the current structure, the common practice for a foreign individual is to establish a company within the framework of the Turkish Commercial Code and then acquire real estate in Turkey, which is also subject to certain limitations and restrictions pursuant to the recent amendments. The announcement made by Mr. Erdoğan Bayraktar, the Minister of Environment and Urban Planning, has given hope to many foreign investors and individuals interested in purchasing real estate in Turkey, for both commercial purposes and to own residential areas. The possibility of the removal of the reciprocity obstacle from the current legislation created an expectation on Turkish investors with regard to development of the real estate investment sector in Turkey. Investors believe that upon entry into force of this draft amendment, The Turkish market will be earning approximately five billion US Dollars every year. Conclusion In the current regime, Turkish real estate investors are unable to sell real estate to foreigners, primarily to those in Middle East countries. These foreigners are not entitled to acquire real estate in Turkey, which prevents them from making investments in Turkey. Complying with the reciprocity principle is not a simple process. It takes many years to execute inter-state treaties/ protocols with other states to implement this principle. The principle of reciprocity clearly constitutes an impact on the progress of the Turkish market. Without removing this obstacle, Turkish market will not be benefiting sufficiently from the effects of globalization and the free market economy. The removal of this condition will enable many foreigners, who are willing to enter in to Turkish market, to invest in Turkey. Therefore, once this amendment is entered into force with the Current Law, there will be numerous business opportunities for both Turkish and foreign investors. 2011/II 13

14 Winds of Change - the Extent of the Board of Director s Liability Özlem ALTAY The Board of Directors ( BoD ) is the most effected corporate body in terms of the corporate governance rules stipulated in the New Turkish Commercial Code (the New TCC ) to enter into force in July Under the New TCC, the liabilities of the BoD members are modified and regulated in detail. This article aims to provide a brief outline of the amendments and innovations to be put into force with the implementation of the New TCC as it relates to the liabilities of the members of BoD. Pursuant to the provisions of the Current Turkish Commercial Code (the Current TCC ) in relation to the liability of BoD members whilst executing their duties, the BoD members may not be held personally liable for any transactions and contracts concluded on behalf of the company. The BoD members can be jointly liable towards the company, its shareholders, and its creditors in the following circumstances: If amounts subscribed by the shareholders in the share capital of the company are not duly paid, If dividend distributions are not made out of net profit or reserves allocated for such purpose; If the statutory books of the company are non-existent or not duly kept; If the decisions of a general assembly meeting are not executed without any reason; If the other statutory duties or duties under the Articles of Association ( AoA ) of the company are not fulfilled, whether intentionally or in negligence. Consistent to the Current TCC and the New TCC, a member of a BoD may be held liable for his breach of duties only if damage is incurred either by the company, its shareholders or creditors and negligence is attributable. Therefore, under the Current TCC and the New TCC, BoD members may be relieved from liability if they prove that no negligence is attributable to them. The rule for the liability of BoD members applicable under the Current TCC, whereby any or all of the BoD members are liable for losses against the company, the shareholders and the creditors, will be changed once the New TCC comes to force. According to the New TCC, where more than one of the BoD members are liable for compensation of a damage incurred by the company, each of the BoD members could also be held liable in proportion to the degree of their negligence and as far as the essentials of the case requires. Accordingly, a BoD member who is not negligent may not be held liable and the ones who are negligent will be held liable proportionate to the degree of their negligence. Liability in Delegation of Management and Representation Powers According to the Current TCC, members of the BoD may delegate their management and representation powers, partially or entirely, to another member of the BoD or to a manager. Members of the BoD will not be held liable for the acts of the delegated member/manager. According to the New TCC it is explicitly stated that in case of delegation of powers, members of BoD will only be held liable if it is proved that they did not act with a reasonable duty of care while choosing these delegates. The New TCC separates the management representation powers of the BoD. The BoD may be entitled to delegate its powers, partially or entirely, to certain members of the BoD and or to third parties under a special provision included in the 2011/II 14

15 U nder AoA of the company and an internal directive to be issued regarding the delegation of management of the company. This directive will define management functions, duties and the reporting chain within the company. Unless otherwise provided by the AoA or if the BoD is not compromised of one member, the authority to represent and bind the company will be used by two BoD members. The BoD may be entitled to delegate its representation power. Please note that at least one BoD member must always hold the power of representation. Non-delegable Duties and Responsibilities Non-delegable duties and responsibilities of the BoD stated under the New TCC are as follows: High-level management of the company and giving related instructions and orders Determination of the company s organization plan. Establishment of the organization for the financial planning, to the extent required by the accountants, financial auditing and management of the company. the New TCC, the liabilities of the BoD members are modified and regulated in detail. Appointment and dismissal of managers and persons at the same status as the managers and authorized signatories. High level auditing of managers and representatives with regard to their compliance with laws, AoA, internal directives and written instructions of the BoD. Keeping a share ledger, a board resolution ledger and a general assembly meeting books, the preparation of annual activity report and declaration of corporate governance and the submission of the same to the general assembly, the preparation of general assembly meeting minutes and the enforcement of general assembly meeting resolutions. Notification of the court in the event of insolvency. Fiduciary Duties and Responsibilities The Current TCC makes reference to the provisions of the Turkish Code of Obligations (the TCO ) regarding the duty of care of the BoD members. These provisions require the BoD to act as prudent company executives while performing their duties. According to the New TCC, members of the BoD and third parties engaged in company management should be responsible in acting with the care expected from a cautious executive. The members of the BoD will not be held liable where damage or loss occurs, if the BoD member acted cautiously. The New TCC does not make any reference to the TCO in order to prevent ambiguity. The duty of loyalty is unquestionably regulated in the New TCC. It states that the BoD members are responsible for protecting the interests of the company in compliance with the principles of good faith. Liability of Recently-Appointed BoD Members for Past Actions Under article 337 of the Current TCC recently appointed BoD members may be liable if they do not inform the Statutory Auditors of any evident irregularities of their predecessors. However, this should be very narrowly interpreted and is applicable only under exceptional circumstances. Please note that the New TCC does not introduce any provisions to substitute Article 337 of the TCC. Moreover, the New TCC has introduced a new provision. Pursuant to Article 553/3 of the New TCC, BoD member cannot be held liable for the violation of law, the articles of association or fraudulent activities which are beyond his/her control. This unaccountability may not be challenged based on duties of care and supervision. Accordingly, it may be theoretically argued that recently appointed BoD members will not be held liable for the actions of their predecessors, unless they are directly involved in such action or it is within their control. Nevertheless, implementation of this new regime will be formed by jurisprudence and secondary legislation. Liability of BoD Members of a Subsidiary According to the New TCC, a parent company may instruct its wholly owned subsidiary to take certain actions which are detrimental to the profitability of the subsidiary, provided that such instructions are in line with the predetermined and solid policies of the parent company or the group companies. The members of the BoD of the subsidiary, who carry out such instructions, cannot be held liable for the consequences arising subsequently. 2011/II 15

16 T he The Release of BoD Members According to the New TCC, shareholders and creditors of the joint stock company are entitled to file a lawsuit against the members of the BoD. The release of the BoD members is one of the mandatory items that should be included in the agenda and be discussed at an ordinary general assembly meeting. Once the shareholders decide to release the BoD members from their liabilities that may arise through their actions pertaining to the financial term for which the general assembly is convened, such resolution cannot be revoked. Nevertheless, shareholders who attended the meeting and objected to such resolution may file a lawsuit against the BoD members within 3 (three) months from the date of the resolution, i.e. the date of the general assembly meeting. The BoD members may not be released from their obligations arising from incorporation and capital increase unless 4 (four) years has passed as of the date of registration clearer corporate governance rules in the New TCC, such as non-delegable duties of BoD members, provide a more precise understanding of the liabilities of BoD members. of the company. However, if the minority shareholders are against the resolution of the general assembly regarding the release of the BoD members, such resolution may not be approved by the general assembly. Criminal and Legal Liability The New TCC provides separate provisions regarding legal and criminal liability for certain activities conducted while managing and representing a joint stock company. In this respect, the persons who commit these acts will bear such liability accordingly. Please note that the liability explained under this provision is not exclusive for BoD members. To the extent the managers of a joint stock company breaches such provisions of the New TCC, they may be held legally or criminally liable for such activities. These general rules refer not only to the BoD members, but everyone who may be concerned by committing these actions by their acts or omissions. Sanctions for such breaches vary from fines to several years of imprisonment. These actions are, inter alia, listed as follows: Inaccuracy of the documents and declarations Misrepresentation on share capital and being aware of incapability to satisfy capital undertaking Irregularity in valuation of in-kind capital Failure to keep company books Failure to launch company web site Breach of confidentiality duty Collection of capital from the public without the permission of the Capital Markets Board with the aim or promise of establishing companies, increasing capital and using this money contrary to the aim of collection Liability of BoD Members Due to Non- Payment of Public Debts of the Company An important liability of BoD members which must be stressed, though not a part of the TCC but remains unchanged and effective, is stipulated under the Tax Procedural Law and Law on Collection Procedure of Public Receivables. Pursuant to Tax Procedural Law, authorized representatives of the company are obliged to fulfil tax obligations. In the event that such authorized representatives do not fulfil their obligations, taxes and the related receivables, which are totally or partially not satisfied by the company s assets shall be paid by such authorized representatives from their private assets. The law on the Collection Procedure of Public Receivables extends the liability of the representatives by contemplating that the public debts other than the taxes will also be collected from the private assets of the representatives and that the debts will be paid by the representatives if the company cannot or it is evident prima facie that they cannot pay such public receivables. Please note that BoD members are held severally and jointly liable for taxes and other public receivables that have accrued in their office terms. Conclusion Liabilities of the BoD members are stipulated much more explicitly in the New TCC. The clearer corporate governance rules in the New TCC, such as non-delegable duties of BoD members, provide a more precise understanding of the liabilities of BoD members. In addition to the relatively more explicit provisions of the New TCC, case law and secondary legislation along with the interpretation of scholars and practitioners will also be essential. This will inspire confidence to the BoD members in performing their duties and investors will be encouraged by this reform in one of the key platforms of corporate governance. 2011/II 16

17 Legal Analysis of Business Transfer under the Turkish Code of Obligations Nihan PALTA Under Turkish Law, business transfer is stipulated under Article 179 of the Turkish Code of Obligations dated 22 April 1926 and numbered 818 ( TCO ). Pursuant to the said article Whoever acquires assets and liabilities, or an enterprise with assets and liabilities, becomes automatically liable to the creditors for the liabilities connected therewith, as soon as the transfer has been notified to creditors by the transferee or is published in the press. The previous debtor (transferor) is jointly and severally liable however, together with the transferee for two more years, which start running for claims due from notification or publication date, and for claims becoming due subsequently from the due date. Business transfer definition under the TCO As per wording of Article 179 of the TCO, a person, who takes over an asset or business with actives and passives, shall be liable for such asset or business debts against third parties from the announcement date of the transfer. Therefore, all liabilities (third party receivables, tax liabilities etc.) of the transferor relating to the transferred business and existing before the transfer date will follow the transferee. In such cases, the transferor and the transferee shall be jointly and severally liable for liabilities arisen for a period of 2 years from the announcement date of the transfer. Meanwhile, the liability gap of the transferee will be subject to limitation depending on statutes of limitation under the applicable statute relating to each liability set forth in the relevant legislations. Business transfer regulation under The Enforcement and Bankruptcy Code This concept is set forth under the Enforcement and Bankruptcy Code dated 9 June 1932 and numbered 2128 ( EBC ), stating that a person who acquires the whole or significant part of a commercial enterprise or the commercial assets of a workplace shall be deemed to have known the transferor s intention to harm its creditors [1] (Article 280 of EBC). This presumption may be rebutted by notifying the creditors in writing, announcing such transfer in the trade registry gazette or via other appropriate means 3 months prior to the transfer date. Therefore, the business transfer legislation aims to protect third party creditors against such transfer and it is necessary to inform creditors (without the need to obtain their consent) before such transactions are closed. Please note that according to the same Article, creditors may initiate a lawsuit for nullity of the transfer on the grounds that the transactions have been consummated with the intention to harm the creditors. Therefore, the notification or publication of the transfer to creditors has a vital importance so as to avoid the cancellation risk of the transaction. Theory of Security As mentioned above, the transfer of part of the assets are binding in line with scholars and the Court of Appeal; however, a transfer of the majority or all of the assets while excluding liabilities thereto would not be binding under Turkish law. The law here aims to protect third party bona fide creditors when regulating joint liability regarding business transfers. Therefore, assets can be considered as the natural allowance of debts of the debtor. In accordance with the Theory of Security doctrine created by Kevork Acemoğlu, and shared by many scholars which was finally applied by the Court of Appeal [2], where the sole transfer of actives of a company would endanger creditors receivables and cancellation lawsuit would not provide ex- [1] Decision of Court of Appeal, 15 th Civil Chamber, , E. 2001/5078, K. 2001/5528 [2] Decision of General Assembly of Civil Chambers of Court of Appeal, , E. 2001/ , K.2001/1077; Decision of Court of Appeal, 13 th Civil Chamber, , E. 1994/9457, K.1994/ /II 17

18 T herefore, pected legal protection and mutual consent of the transferor and transferee regarding the excluding of passives would not be sufficient in order to bypass application of Article 179 of TCO. Business transfer deals in cases where substantial part of the assets of a company is transferred Business transfer risk is most probable when all assets and liabilities are transferred to the transferee. However, please note that all assets are not required to be transferred as a pre-requisite of business transfer. Accordingly, if no exception has been stipulated under the asset transfer agreement, all components enumerated in Article 11 of the TCO are deemed to be involved in the transfer [3]. However, a business transfer may also be triggered if all or substantial part of assets of a company is transferred to the transferee [4]. As stated by the doctrine, if assets subject to transfer enable the transferee to operate business, such transfer will be considered as a business transfer. In other words, some all liabilities (third party receivables, tax liabilities etc.) of the transferor relating to the transferred business and existing before the transfer date will follow the transferee. of the assets, rights and receivables may be kept outside the transfer provided that transferred assets would keep a commercial enterprise character. In this respect, the fundamental and secondary components (stated in Article 11/2 of the TCC) required for the commercial enterprise to continue its commercial operations should be included in the transfer as a pre-requisite of business transfer. Therefore, Article 179 of the TCO should be applied when major assets or operational units of a company are transferred to another company. Please note that the kind of assets that needs to be taken over, in relation to business transfers, is evaluated based on practices if any, commercial experiences and on a case by case basis. In other words, if the fundamental asset components required by a commercial enterprise to continue its operating activities are not transferred, a business transfer may not be the case [3] Decision of Court of Appeal, 11 th Civil Chamber, , E. 1974/3626, K.1975/1217; 11 th Civil Chamber, , E. 1999/1896, K.1999/6794 [4] Decision of Court of Appeal, 21 st Civil Chamber, , 7077/8844; 15 th Civil Chamber 7545/1231; 15 th Civil Chamber, , E. 2004/1477 K. 2004/3653; 15 th Civil Chamber, , E. 1999/2641 K. 1999/2937; HGK , /1 and the liabilities of the transferor shall not be assumed by the transferee. Fundamental components are considered as components without which the commercial enterprise cannot continue to perform its operating activities. (For example, a refrigerator is considered as a fundamental asset component for commercial enterprises such as markets, restaurants and patisseries). Therefore, the kind of assets and the value of transferred assets are important in order to deem the transaction as a business transfer. Importantly, the subject, purpose and the scope of the transferor s activities target customers and the fact that whether the customers portfolio is transferred or not may be significant while determining substantial character of the transferred assets. Business transfer under New the TCO and the New TCC According to the New TCO numbered 6098 to be entered into force on 1 July 2012, the same concept of business transfer is set forth in Article 202. There are only certain amendments that relate to procedural issues in the New TCO, those being i) publication of transfer and ii) validity of transfer against third parties. Also note that the Service Agreements under Section 6 of the New TCO, the full text of Article 6 of the Turkish Labor Law ( TLO ) was inserted under Article 428. The aim here is to ensure coherency between the New TCO and the TLO concerning business transfer and evaluate business transfers in respect of service agreements executed with employees of the transferor under the new TCO. The New TCC numbered 6102 will be entered into force on 1 July 2012, the legal definition of the commercial enterprise stated in the Turkish doctrine is reflected under Article 11 of the New TCC. Apart from that, in the New TCC, form of transfer agreements together with all agreements regarding all components of commercial enterprise is required to be executed in writing and registered with trade registry and announced in the trade registry gazette. It should be noted that this article may cause confusions since there is no exception for assets, the transfer of which are subject to more complex procedures (transfer of a real estate before the Land Registry). As a general note, the business transfer issue is rather discussed in theory and it is mostly reflected in practice in respect of labor law issues. Therefore, labor law aspects and consequences should also be taken into account when analyzing business transfers under Turkish Law. 2011/II 18

19 Amendment Requirements of Tender Documents and Public Procurement Contracts Merve ARSLAN The legal framework for public procurement in Turkey revolves around Law No: 2886 (the State Bidding Law), which entered into force on 1 January Due to the fact that the State Bidding Law fails to meet the current needs of our society, the Turkish Parliament enacted the Public Procurement Law numbered 4734 ( PPL ) on 4 January 2002 and the Public Procurement Contracts Law numbered 4735 ( PPCL ) on 5 January 2002, which have been drafted in line with the European Union regulations and international tender practices. Since the implementation of both the PPL and the PPCL, their enforcement was supported by several legal amendments. The Law Amending the Public Procurement Law and the Law on Public Procurement Contracts No: 5812 was recently adopted by the Turkish Parliament, widely amending the relevant legal framework. This article considers whether and to what extent (i) tender documents can be amended after the tender announcement and (ii) Public Procurement Contracts can be amended following a successful bid. Amendments to the Tender Documents after the Tender Announcement Pursuant to the PPL, tender documents shall not be amended after the advertisement of the tender announcement. In case an amendment is required to be made, reasons thereof shall be certified in an official report, previous announcements shall become invalid, and the tender announcement shall be re-advertised. However, following the advertisement of tender announcement, tender documents may be subject to revisions in the event material or technical errors or deficiencies that may have an impact on preparation of offers or realization of work outlined within the framework of tender documents are (i) determined by the administration or (ii) notified by tenderers through a written notice. The addendum relating to such amendments and constituting a binding part of the tender documents shall be notified to all tenderers who have already purchased tender documentation so as to ensure that they are informed of the situation ten days in advance of the deadline for submission of tenders. In case a time extension is needed for preparation of the offers due to the amendments implemented by the addendum, the tender date may be postponed once for a maximum of twenty days. In case of issuance of an addendum, tenderers who have already submitted their tender offers prior to such arrangement shall be entitled to withdraw their offers and submit new offers. In addition, more than one addendum may be issued. Any and all addendums issued constitute an integral part of the bidding and pre-qualification document. Shortcomings in the announcement may not be subject of the addendum. Announcements are corrected by publishing an announcement of correction if required in the regulation. Amendments to the Procurement Contracts following a Successful Bid The PPCL states that provisions of public procurement contracts shall not be amended other than the cases specified therein. The only exception to this principle is demonstrated by Article 15 thereof. Accordingly, the contract provisions on matters stated below may be amended after 2011/II 19

20 A great the execution and signing of the contract, provided that the price of the contract is not exceeded and there exists a mutual agreement between the contracting entity and the contractor: a. Location of performance of work or the place of delivery. b. Duration of work and conditions of payment in accordance with such duration provided that it is completed or delivered before it is due (as originally specified under the contract). amount of complexity exists in the application of the provisions regarding the amendment of tender documents and procurements contracts. The tender process is often interrupted by the unreasonable requests of bidders. Subsequently, a supplementary contract shall be executed in order to amend the contract in line with the foregoing terms and conditions. Except for the existence of foregoing conditions, contracts cannot be amended and supplementary contracts cannot be executed. It is crucial that these issues are clearly stated under the contract. We would like to emphasize that contracting entities should be careful with respect to the amendment of the location of performance of work or place of delivery since these conditions are one of the most important factors bidders consider in preparing their bids. Amending these conditions, following the execution of the contract, to the detriment of the contracting entity and without indicating any reasons may give rise to unfavourable considerations. For instance, it may be claimed that the contracting entity and the bidder have agreed in advance and amended the contract in accordance with their mutual agreement. In order to prevent such claims, any amendments to the contracts regarding the location of performance of work or place of delivery shall be based on acceptable, reasonable and concrete (supported by documentation) reasons. Conclusion A great amount of complexity exists in the application of the provisions regarding the amendment of tender documents and procurements contracts. The tender process is often interrupted by the unreasonable requests of bidders. Thus, it is of utmost importance that the above-stated explanations shall be considered in deciding the time and subject of the amendments. 2011/II 20