Recent Development

The Capital Markets Board (the "CMB") issued the Communiqué on the Principles of Abolishing Voting Rights and Representation in Board of Directors' Privileges (the "Communiqué").

The Communiqué entered into force upon its publication in the Official Gazette No. 31004 dated January 10, 2020. The Communiqué entered into force upon its publication in the Official Gazette No. 31004 dated January 10, 2020.

What's New?

  • The CMB issued a Communiqué on the revocation of preferred voting rights and the right of representation in the board of directors of public companies introduced with the Capital Markets Law No. 6362. The Communiqué sets forth the rules and procedures for the revocation of the aforementioned preferred rights.
  • Pursuant to the Communiqué, the CMB can remove preferred rights regarding voting and representation in the board of directors of public companies that, according to their financial statements showed losses (except for those that had to be reasonably incurred in the furtherance of the business) for five consecutive years.
  • Companies subject to CMB's decision to abolish these preferred rights, must make the necessary amendments to their articles of association at the first general assembly meeting following the issuance of the decision.
  • The Communiqué grants CMB solely the authority to abolish the aforementioned preferred rights. In other words, the CMB does not become entitled to appoint trustees and/or board of directors' members to the companies that fall under the scope of the Communiqué.
  • After the CMB revokes these preferred rights, if any one or a group of the Company's shareholders acquires more than 50% of the voting rights entitling them to control the management, the controlling shareholder will not be obliged to undertake a tender offer to purchase the shares of the other shareholders.
  • In accordance with the Communiqué, the five-year period shall be calculated as of the first annual accounting period following the year the company gains the status of a public company.
  • When calculating the losses of five consecutive years, the calculation will be based on "the parent company's loss of the financial year" for the companies that are required to prepare consolidated financial statements and "the company's loss for the financial year" for the companies required to prepare individual financial statements.
  • As per the exemption in the Communiqué, the provisions of the Communiqué shall not apply if the preferred rights regarding voting or representation in the board of directors belong to public institutions.

Conclusion

The Communiqué establishes a control mechanism for public companies that suffer consecutive annual losses, and thus the Communiqué ensures the effective protection of small investors with stakes in public companies.