With the Communiqué (the “New Communiqué”) related with the Amendments on the Procedures and Principles regarding the Application of the Provisional Article 13 of the Turkish Commercial Law No.6102 (“TCL”) published in the Official Gazette dated 28 October 2020, the implementation period of the Provisional Article 13 of the TCL regarding the prohibition on the distribution of profits more than 25% for the year of 2019, is clarified and extended until end of 31 December 2020.

In addition to this, the scope of principles regarding profit distribution limitations, the exemptions and exceptions to these limitations has been extended to include advance dividends.

As notified via our previous Newsletters dated 18 May 2020 and 18 September 2020, the Provisional Article 13 of the Turkish Commercial Code, adopted and added to the Turkish Commercial Code No.6102 (the “TCC”) via the Law No.7244 Amending Certain Laws and Aimed at Reducing the Effects of Covid-19 on Social and Financial Life entered into force on 17 April 2020, had introduced certain regulations to corporate law in the light of the negative economic effects caused by Covid-19; in particular regarding dividend distribution and general assemblies, for stock corporations (i.e. joint stock companies, limited liability companies and limited partnership divided into shares). Subsequently, the term was extended for 3 months until 30 December 2020.

The principles regarding profit distribution limitations and the exemptions to these limitations were mainly set forth in the Communiqué on the Procedures and Principles regarding the Implementation of Provisional Article 13 of the Turkish Commercial Code (the “Communiqué”), published in the Official Gazette and entered into force on 17 April 2020. The New Communiqué has extended the scope of principles regarding profit distribution limitations, the exemptions and exceptions to these limitations to include advance dividends as well.

As per Article 4 of the Communiqué, between 17 April 2020 and 30 September 2020 (In accordance with the recent amendment, it should be read as 31 December 2020);

If, before 17 April 2020;

1. a decision has already been adopted by the general assembly as to the distribution of dividends, but related payments have not yet been made to the shareholders either totally or partially; the payments related to the portion exceeding 25% of the net profit for the year 2019; and,
2. a decision has been made for the distribution from free reserve funds subsequent to loss in the financial year, all payments related to the unpaid portion

shall be postponed until the date of 30 September 2020 (In accordance with the recent amendment, it should be read as 31 December 2020). No interest shall apply to the postponed payments.If the managing organ (i.e. Board of directors as for the joint stock companies and the Board of managers as for the limited liability companies) was authorized by the general assembly for the distribution of dividend advances, the advance payments shall also be postponed until 30 September 2020 (In accordance with the recent amendment, it should be read as 31 December 2020).

Pursuant to Article 5 of the Communiqué, there are certain exceptions to the limitations in the distribution of dividends or advance dividends by the stock corporations. Notwithstanding the below-mentioned provisions of Article 6 of the same Communiqué, the aforementioned provisions bringing limitations to the distribution of profits shall not apply to those corporations who satisfy the following conditions:

 a)   corporations that have decided on dividend or advance dividend distributions equal to or less than TRY 120,000, except for those who employ employees who are put on short time work allowance and/or on unpaid leave due to force majeure circumstances caused by the new Covid-19 pursuant to additional Article 2 and Provisional Article 23 of Unemployment Insurance Law No.4447 dated 25/08/1999 and who benefit from the daily cash support pursuant to Provisional Article 24 of Law No.4447, and those who used Treasury-backed credit bail in accordance with Provisional Article 20 of Public Finance and Debt Management Law No.4749 dated 28/03/2002 and with other relevant Decrees and have remaining unpaid credit debt balance,

b)   corporations that have decided on dividend or advance dividend distributions, provided that more than half of the dividend distribution to be made is towards the fulfilment of the capital subscription to another stock corporation fully and in cash as per the relevant provisions of the TTC,

c)   corporations that have decided on dividend or advance dividend distributions, provided that the dividend distribution to be made shall be used in cash in the fulfilment of the obligations that shall become due until the end of 30 September 2020 (In accordance with the recent amendment, it should be read as 31 December 2020), within the scope of signed loan agreements or project finance agreements. For those corporations falling under this category, the payments related to the amount exceeding the fulfilment obligation of shareholders shall be postponed until the end of 30 September 2020 (In accordance with the recent amendment, it should be read as 31 December 2020).

The Article 6 of the Communiqué provides that, it is obligatory to request the opinion of the Ministry of Commerce regarding the dividend or making advance dividend distributions to be made pursuant to Article 5, in order for the matter to be discussed in the general assembly of shareholders. During the application process, the below documents shall be presented to the General Directorate of Domestic Trade of the said Ministry:a) a notary-approved copy of the managing organ’s decision to hold a general assembly,

b) financial statements for the financial year of the company,
c) profit or loss statements,
d) for the corporations who will make dividend distributions pursuant to the exception foreseen in Paragraph (a) of Article 5; an attesting document to be obtained from the relevant establishments stating that the supports in the mentioned paragraph are not being benefited from,
e) for the corporations who will make dividend distributions pursuant to the exception foreseen in Paragraph (b) of Article 5; for those who have the right to obtain more than the half of the dividend or advance dividend distribution to be made, a document attesting their requirement to fulfil the capital subscription towards another stock corporation,
f) for the corporations who will make dividend or advance dividend distributions pursuant to the exception foreseen in Paragraph (c) of Article 5; a document attesting their requirement to fulfil their obligation within the scope of loan agreements and project finance agreements.