Provision of Security by Publicly Listed Companies under the New Communiqué on Corporate Governance

The Turkish Capital Markets Board (the “CMB”) has this year introduced new rules on the corporate governance principles in line with the latest Turkish Commercial Code and Capital Markets Law in order to follow global novelties. For this purpose, the Communiqué on Corporate Governance Principles No.II-17-1 was published on January 3, 2014 (the “Communiqué”) based on Article 17 of the new Capital Markets Law. Fundamental changes and amendments have been set in for the new Communiqué. For example, the previous “Communiqué No.IV-56 on Determination and Implementation of the Corporate Governance Principles” and “Communiqué No.IV-41 on Principles to be complied by Joint Stock Companies which are subject to Capital Markets Law” were abolished; moreover, the Decision on the provision of security, pledges, mortgages and sureties by public companies, adopted by the CMB on September 9, 2009 (the “Decision”) was elaborated in detail under the Communiqué. One of the novelties of the new Communiqué is to set forth the rules in relation to the provision of security, pledge, mortgage and surety by the publicly listed companies in favor of third parties, including their group companies, under a CMB Communiqué, which was previously regulated by the Decision. 

First of all, the new Communiqué provides outlines for the limitations applicable to security, mortgage, pledge and surety transactions of publicly listed companies in line with the aforesaid Decision but it also extends the applicability of the rule to their subsidiaries (bağlı ortaklık). Within this context, Article 12/1 of the Communiqué regulates that publicly listed companies and their subsidiaries cannot grant security, mortgage, pledge or surety in favor of any third party other than (a) for the benefit of its own legal entity; (b) for the benefit of the companies included in their financial statements in full consolidation; or (c) for the benefit of other third parties in order to pursue its ordinary commercial activities. Although the exception provided under this Article 12/1(c) seems broad enough to cover many other circumstances where security is provided in favor of third persons other than the companies included in their fully consolidated financial statements – which may also be their group company, the CMB’s interpretation would be crucial in order to determine the scope of this exception.