Restriction on dividend distributions under COVID-19 – Ministry of Commerce’s announcement 

Turkey

On March 31, 2020, the Ministry of Commerce, circulated a letter to the Union of Chambers and Commodity Exchanges of Turkey (Türkiye Odalar ve Borsalar Birliği) (“TOBB”).

In this letter, the Ministry of Commerce has emphasized the importance of the preservation of companies’ equities due to coronavirus (COVID-19) and referred to Article 13 paragraph 5 of the Regulation on Procedures and Principles of the General Assembly Meetings of Joint Stock Companies and the Participation of the Representatives of the Ministry of Commerce, and directed the discussion of certain issues in general assembly meetings.

The Ministry requested TOBB to pass on this announcement to companies. However, the legitimacy, as well as the legality of the Ministry’s actions has been challenged.

The announcement dictates the following:

"Except for state-affiliated companies, the decision to distribute cash dividends to be included on the agenda of general assembly meetings to be held this year in relation to the fiscal year 2019, profits of the years preceding 2019 shall not be distributed and the distribution of dividends of the 2019 financial year should not exceed 25% of the net profit of 2019 and the board of directors shall not be granted the authority to distribute dividend advances."

In short, all companies except those which are state-affiliated, will have to conform to the below mentioned policies when determining the agenda of general assembly meetings for the 2019 financial year to be held this year:

  • The profits of the years preceding 2019 should not be distributed,
  • The distribution amount should not exceed 25% of the net profit of 2019,
  • Board of directors should not be granted the authority to distribute dividend advances.

The announcement led to several criticisms in the Turkish market, arguing that the relevant regulation does not grant the Ministry of Commerce the authority to restrict dividend distributions, and such authority is vested solely to the general assemblies of companies in accordance with the principles set out under the Turkish Commercial Code No. 6102 and the relevant ancillary legislation.

Further, a draft omnibus bill (torba yasa) (including seventy-five (75) articles) was presented to the Grand National Assembly of Turkey on April 8, 2020, article 47 of which introduces a temporary article to the Turkish Commercial Code No. 6102, and regulates the principles set out above. Please kindly note that the bill has not yet been accepted by the Grand National Assembly of Turkey and is therefore not currently in effect.

For more information about the announcement, contact your regular CMS advisor or local CMS experts: Dr. Döne Yalçın or Alaz Eker Ündar.