The Communiqué on the Notification and Registration of Bearer Share Certificates to the Central Securities Depository (“Communiqué”) has been published in the Official Gazette dated 6 April 2021 and numbered 31446. The Communiqué regulates (i) the procedures and principles regarding the notification and registration of bearer share certificates to the Central Securities Depository (“CSD”) and the associated fees to be collected and (ii) the procedures and principles on obtaining the shareholders’ chart from the CSD.

Legal Background

The Law Numbered 7262 on Preventing the Financing of Proliferation of Weapons of Mass Destruction (“Law No. 7262”), which was published in the Official Gazette dated 31 December 2020 and numbered 31351 (Repeated 5th Version), has introduced amendments with respect to the provisions on bearer share certificates regulated under the Turkish Commercial Code numbered 6102 (“Turkish Commercial Code”).

Relevant amendments in this context are as follows:

• The bearer share certificates that are issued as per article 486 of the Turkish Commercial Code shall be notified and registered to the CSD.
• The transfer of the bearer share certificates pursuant to article 489 of the Turkish Commercial Code shall be notified to the CSD by the transferee acquiring the possession of the certificates in order for the transfer to be effective against the company and third parties.
• The board of directors shall prepare the list of attendees in accordance with article 417 of the Turkish Commercial Code based on the “shareholders’ chart” which shall be obtained from the CSD provided that (i) the company has issued bearer share certificates and (ii) necessary notifications regarding such certificates has been duly made to the CSD.
• The current owners of the bearer share certificates shall be obliged to apply to the joint stock company with their share certificates until 31 December 2021 for the purpose of notifying the CSD of the bearer share certificates.

Amendments introduced by the Law No. 7262 has entered into force on 1 April 2021. In addition, the procedures and principles regarding (i) the notification and registration to the CSD and (ii) the transfer of the bearer share certificates are determined by the Communiqué issued by the Ministry of Trade of the Republic of Turkey as stipulated under the Law No. 7262.

The procedures and principles introduced by the Communiqué are summarized below: 

Issuance and Distribution of the Bearer Shares Certificates

The basic principles on issuance of bearer share certificates pursuant to article 486 of the Turkish Commercial Code are preserved. With that said, bearer share certificates will be issued, upon full payment of the share prices, by a board of directors’ resolution stating, at minimum, the bearer share certificates’ (i) number, (ii) order, (iii) nominal value, (iv) number, value, group of shares that they represent, (v) sequence number and (vi) total number of shares and (vii) total value of shares corresponding to the respective shares. 

Persons authorized to represent the company will submit the relevant board of directors’ resolution to the CSD and notify the CSD of the information regarding the owner of the bearer share certificate stated under article 4 of the Communiqué. The CSD will register such information to its own system and notify the company of the unique number allocated for each share certificate and such share certificates will be issued in the form containing such unique number. 

The said board of directors’ resolution must be registered and announced by the relevant trade registry office. The trade registry office will verify whether the share certificate, which is stated in the board of directors’ resolution that is requested for registration, has been registered with the CSD in order to complete such registration. 

The process of issuance, notification to the CSD and distribution to the shareholders of the share certificates must be completed within three months upon the full payment of the share values. 

Notification of the Current Bearer Share Certificates to the CSD

Further to Provisional Article 14 introduced to the Turkish Commercial Code with the Law No. 7262, owners of bearer share certificates must apply to the joint stock company with their share certificates until 31 December 2021 for the purpose of notifying the CSD. It is stipulated that the board of directors must complete necessary notifications to the CSD upon submission of such application.

Additionally, administrative fines will be imposed in accordance with article 562/13 of the Turkish Commercial Code on those who fail to make necessary application or notification within the scope of the Provisional Article 14.

In line with the above, this matter is regulated under Provisional Article 1 of the Communiqué. As stipulated under the said article, persons that already own bearer share certificates as of the effective date of the Communiqué must apply to the company with the share certificates and the form given under Schedule-2 of the Communiqué so that the CSD is duly notified. The board of directors will check the authenticity and validity of the share certificate. The form must be signed by the board of directors’ member who is authorized to represent the company.

Authorized representatives of the company will notify the CSD of the information regarding the share certificate and the shareholder as listed under paragraph 2 of article 4 of the Communiqué and have them registered to the relevant system.

Pursuant to the said article of the Communiqué, in the event that shareholders do not apply to the company, they will not be entitled to exercise their shareholding rights granted to them with the Turkish Commercial Code until the relevant application is duly made.

The Communiqué does not question the validity of existing bearer share certificates if the necessary notification is not made to the CSD. But since the shareholding rights attached to bearer shares freeze until the relevant notification is duly made, the question is whether also so-called economic rights (such as dividend rights, rights to claim liquidation proceeds, and pre-emption rights for newly issued shares) are affected.  The wording of the Communiqué seems to support this view, however we believe this interpretation is very likely to be challenged. Especially the freeze of the right to receive free shares following capital increases funded from the company’s own sources could cause significant disruptions to the existing shareholding structures.

Provisions Regarding the Transfer of Bearer Share Certificates

In line with the amendment introduced by the Law No. 7262, the transfer of the bearer share certificates must be notified to the CSD in order for such transfer to be effective against the company and third parties. 

Notification of transfer may be made by the transferee acquiring the possession of the certificates or by the company upon the transferee’s application. Information that must be included in this notification are stipulated under article 5 of the Communiqué. 

Notification Procedure

Registrations and notifications to be made pursuant to the Communiqué will be completed (i) by accessing the CSD’s system through e-Government Gateway with e-signature, e-government password or the Turkish I.D. Card or (ii) by directly logging in the CSD’s application named “e-Investor: Investor Information Center”. 

Amendments Regarding the List of Attendees to be Prepared for General Assembly Meetings

As per article 6 of the Communiqué, those who call the general assembly to the meeting will take the shareholders’ chart which is provided by the CSD into consideration for the determination of the bearer share certificate owners whilst preparing the list of attendees of general assembly.

Persons authorized to represent the company will submit an application through the CSD’s system at least two days before the general assembly date in order to obtain this chart. This chart will be provided by those who call the general assembly to the meeting via the CSD’s system at the date of general assembly. 

As stipulated under article 8 of the Communiqué, the records of the CSD are confidential and can only be obtained by those who are authorized by the applicable laws. Therefore, it may be said that the CSD records will not be publicly available.

In the event that the general assembly is held electronically pursuant to article 1527 of the Turkish Commercial Code, there will be no requirement to request for obtaining the shareholders’ chart in advance and such chart may be obtained from the Electronic General Assembly System. 

Further to Provisional Article 2, until 31 December 2021, the bearer share certificate owners who applied to the company but are not notified to the CSD by the company will be included in the list of attendees of the general assembly which will be prepared by those who call the general assembly to convene.

Cancellation of the Share Certificate

In the event that the bearer share certificate is cancelled due to capital decrease or reissuance of the share certificate, the record of such share certificate will be removed from the CSD system. In order for the record to be removed, the authorized representatives of the company must submit the relevant resolution regarding the cancellation of the share certificate to the CSD. 

If the company is de-registered from the trade registry, the CSD will directly remove the record regarding the bearer share certificate from the CSD’s system, upon notification or ex-officio. 

Shares Subject to Seizure and Measure

In the event that a bearer share certificate becomes subject to a seizure by execution offices or collection departments or to a measure by virtue of a court decision, the relevant authority will notify the company of such sanction by specifying the unique number allocated to such share certificate by the CSD. Upon this notification, the company will notify the CSD of the same; so that the relevant record can be duly registered with the CSD’s system. Upon termination of such circumstance, the records in the CSD system will be removed by following the same procedure. 

The CSD will not register any transfer of the bearer share certificate which is subject to a seizure or measure without being provided with the decision of the relevant authority.

The Communiqué does not address pledges over bearer shares and existing pledge rights do not seem to be affected. But the owners of pledged shares will need to make the notification to the CSD to avoid facing the above explained adverse consequences and thus need to take possession of the bearer certificates even if briefly. Pledgees will have a strong interest in cooperating, but some technicalities and logistics will need to be sorted out.

Effect of the Record in the CSD

Pursuant to article 10 of the Communiqué, there are two essential matters with respect to the registration to the CSD: 

• In case of a failure to duly notify to the CSD, bearer share certificate owners will not be entitled to exercise their shareholding rights granted to them with the Turkish Commercial Code until the relevant notification is duly made to the CSD.

• The date of notification made to the CSD will be the basis for exercising the rights arising from the bearer share certificate towards the company and third parties.

In addition to the foregoing, there are certain fines stipulated under the Law No. 7262 for the failure to notify the CSD:

• Pursuant to article 562/13(a) of the Turkish Commercial Code, an administrative fine of TRY 20,000 (twenty thousand) will be imposed on those who fail to notify pursuant to article 486 (Issuance of Share Certificates), and

• Pursuant to article 562/13(b) of the Turkish Commercial Code, an administrative fine of TRY 5,000 (five thousand) will be imposed on those who fail to notify pursuant to article 489 (Transfer of Bearer Share Certificates).