Formalities

Date of reorganisation

Can a corporate reorganisation be backdated or deemed to have already taken place, for example from the start of the financial year?

According to the TCC, corporate reorganisations become legally effective upon registration with the competent trade registry. Therefore, it is not possible to backdate corporate reorganisations.

Documentation

What documentation is required in a corporate reorganisation?

Mergers and demergers require:

  • a merger or demerger agreement to be executed by the board of directors, which should be approved by the general assembly of shareholders;
  • a merger or demerger report to be issued by the board of directors; and
  • an audit report for companies that are subject to independent audit.

A change of corporate type requires:

  • a conversion plan (which also includes the new articles of association of the company) to be issued by the board of directors and approved by the general assembly of shareholders;
  • a conversion report to be issued by the board of directors and approved by the general assembly of shareholders; and
  • an audit report for companies that are subject to independent audit.

In addition, if the companies in question are operating in a sector that is governed by sector-specific regulations (eg, banking, energy sectors), approval should be obtained from the relevant governmental bodies, and ultimately the corporate approvals mentioned above (general assembly resolutions, etc) should be registered with the trade registry.

For tax-neutral corporate reorganisations:

  • in acquisitions, the acquiror and the acquiree jointly sign and deliver the CIT return of the acquired company to its tax office, and the acquiror gives written commitment for the tax dues (past or future) and other tax liabilities of the acquired company;
  • in full spin-offs, the spin-off and the new company jointly sign and deliver the CIT return of the spun-off company to its tax office, and the new companies give written commitment for the tax dues (past or future) and other tax liabilities of the spun-off company.
Representations, warranties and indemnities

Should representations, warranties or indemnities be given by the parties in a corporate reorganisation?

There are no mandatory representations, warranties or indemnities to be given by the parties to a corporate reorganisation under Turkish law. However, unless a reorganisation is fully intra-group reorganisation, it is common to obtain certain representations, warranties, and indemnities from the parties to corporate reorganisation.

Assets versus going concern

Does it make any difference whether assets or a business as a going concern are transferred?

The transfer of business is regulated both under the TCC and Turkish Code of Obligations No. 6098 (TCO). Especially from the TCO’s perspective, the distinction between an asset transfer and a business transfer is important for liability sharing. According to the TCO, transfers of assets are treated as contractual transactions and therefore do not normally require any notification or registration. However, if such transfer relates to a significant portion of assets or a specific business or business unit of a company, the relevant provisions of the TCO regulating the business transfer will apply. The test to determine the existence of a business transfer is made by evaluating whether or not the sale of assets will affect the integrity and continuation of the business or company or continuation of a specific business unit. If the response to that question is positive, then such asset sale will be deemed a business transfer and will be subject to the registration and documentation requirements set forth under the TCO. Furthermore, in a business transfer, the assets of the business and the liabilities pertaining to such assets must be transferred, otherwise they will be deemed transferred by operation of law.

Pursuant to article 408 of the TCC, approval from the general assembly of shareholders is required before the major asset sale or transfer. If the company is subject to the CM Law, then a major transfer of assets is defined as a significantly qualified transaction under article 23 of the CM Law. Valuations of these assets by independent experts and public disclosures are required by the secondary legislation.

Types of entity

Explain any differences between public, private, government or non-profit entities to consider when undertaking a corporate reorganisation.

The general corporate reorganisation provisions under the TCC apply to commercial companies, foundations and associations that operate a business to fulfil their goal of incorporation, as well as institutions and organisations that are established by the government, special provincial administration, a municipality or a borough, or other public legal entities for the purpose of commercial operation or to operate under private laws pursuant to their laws of incorporation.

In respect of state-owned entities, Decree Law No. 233 regarding State-Owned Enterprises (Decree Law No. 233) states that, apart from the provisions of this Decree, state-owned enterprises shall be subject to private law provisions. However, unlike private law entities, corporate reorganisation of state-owned entities is subject to the approval of a governmental body, namely the High Planning Council, a non-permanent body composed of the President of the Republic of Turkey and the ministers designated by the President. However, pursuant to the Circular numbered 2018/3 published in the Official Gazette on 2 August 2018, the duties of the High Planning Council have been transferred to the President.

Post-reorganisation steps

Do any filings or other post-reorganisation steps need to be taken after the corporate reorganisation takes place?

The TCC requires the following filings to be made following corporate reorganisation:

  • notification to the trade registry for registration of transfer of shares; and
  • notification to the trade registry for registration of sole shareholder.

Moreover, additional actions (such as notices to creditors) may be required depending on the facilitated corporate reorganisation mechanism.