Turkey’s code for growth

In an effort to modernise legislation to international and EU standards, a new commercial code (TCC 2012) came into effect in Turkey on 1 July. It will revolutionise Turkey’s commercial activity and conduct, and have a considerable effect on transparency and corporate management practices. It will also direct how company law is used and how mergers and acquisitions are structured.

One of the aims is to help attract direct investment into Turkey, in particular in non-listed companies that have previously been considered ‘black boxes’ by international businesses. It is also hoped that it will help to eliminate the country’s ‘grey market’ and raise tax revenue.

TCC 2012 has been in the pipeline for over a decade and the sudden revival of its enactment in early 2011 was solicited by the business community. Although Turkey is still considered a growth area it has suffered from slower growth in the global downturn, so the implementation of TCC 2012 coincides with government initiatives to boost the economy.

For the legal market, the code is good news. A large number of businesses are expected to require detailed advice on the changes, and many will need legal advice and support in the longer term.

One of the most significant changes is the rule framing the ­relationship between controlling ­entities and their subsidiaries. It aims to prevent parent companies from abusing their powers in forcing losses onto subsidiaries and acquiring ­financing from them. The subsidiary’s management will have to produce annual reports on an ex-post basis, explaining the relationships with other entities in the group.

Limited liability and joint stock companies will have to disclose financial statements, auditor and director reports on their websites. These must be prepared by an independent auditor and meet international standards, although small and mid-sized enterprises will be able to use Turkish-certified auditors.

There will also be greater protection for shareholders in joint stock companies. Minority shareholders will have the right to demand full transparency and a replacement of auditors if they are deemed to be partial, while a 90 per cent or more majority shareholder may buy out an uncooperative minority shareholder that violates the company’s interests.

It will also be easier to transfer shares, and legal deadlines within which shareholders must contribute the share capital they have committed will become shorter.

Questions, however, remain about how the code will be applied and whether any changes will be necessary to mitigate concerns. Many articles may have to be debated and the implementation process could become lengthy. In the weeks before the TCC came into force, the Turkish customs and trade minister announced amendments to accommodate criticisms raised by businesses.

It remains to be seen whether the code will achieve its goals for the economy, but at this stage it is clear there will be significant opportunities. It will be up to law firms there to take advantage of these.

Balcioglu Selçuk Akman Keki is Salans’ associate law firm in Turkey