PE investors often request (or desire), as a possible exit mechanism, that companies they invest in are able to buy their own shares. Until recently, this was not possible for Turkish companies. The new TCC allows this to a certain level: up to 10% in joint stock companies and 20% in limited liability companies. Although the thresholds are low, we see this as an improvement for minority PE investments. Furthermore, the general assembly can give a 5-year authorization to the Board to implement this instrument, and in certain situations, the Board can implement it directly even without being subject to such an authorization.
THE PROHIBITION OF FINANCIAL ASSISTANCE
With the enactment of the new TCC, a prohibition with respect to financial assistance has been introduced into Turkish law for the first time. Article 380 of the new TCC prohibits the provision of an advance, loan or security by a company for the purpose of the acquisition of its own shares by a third party. The new TCC brings only two exceptions to this prohibition. It will not apply to transactions performed by banks or financial institutions in their ordinary course of business; and it will not apply to transactions effected for share acquisition by the employees of the company or the employees of a subsidiary company. If, however, these exempted transactions may have the effect of reducing the reserves of a company below certain levels, even such transactions may result in being null and void.
It is certain that this will prevent direct financial assistance; provision of loan, advance or security by the OpCo. But the question whether it also prohibits certain structures like the merger of the holding company (HoldCo) with the OpCo is more of a grey area. There is no consensus amongst academicians and other interested parties.
Overall, the new TCC will have a positive effect on the process of M&A deal structuring in Turkey. The modernized company law will no doubt facilitate foreign investment.