Legal Newsletter 1/2018

Read below the latest legal developments in Turkey. This latest roundup provides insight on the latest amended and repealed laws and regulations affecting different sectors.

To discuss how these developments affect your business interests please contact Fethi Pekin, Managing Partner. Email: fpekin@pekin-pekin.com

BANKING & FINANCE

Q1/2018 Turkish Foreign Exchange Legislation Is To Restrict Foreign Currency Borrowings of Turkish Residents

  • The foreign exchange regulations of Turkey are substantially amended in a restrictive manner by the amendments to the Decree No. 32 on Protection of the Value of Turkish Currency (published in the Official Gazette dated August 11, 1989, No. 20249) (the “Decree No. 32”) issued by the Council of Ministers and published in the Official Gazette dated January 25, 2018, to take effect as of May 2, 2018.

    The amendments aim to prevent the FX risks imposed on Turkish residents due to the weakening of Turkish Lira against other currencies. For this purpose, all Turkish individuals (real persons) and Turkish legal entities which do not have any FX revenues are prohibited to utilize FX loans from foreign or domestic financial institutions. As per the amendments, FX indexed loans will cease to exist as of May 2, 2018.

    Although the amendments provide for exceptions to the abovementioned restriction, these are strictly limited to the borrowings in certain sectors; such as financings to be provided to financial institutions, exporters or Turkish residents awarded with an internationally announced domestic tender, or in relation to PPP projects, defense industry projects or within the scope of an investment incentive certificate. The amendments also set forth a general exception for legal entities whose credit balance at the time of the new utilization is above USD 15 million.

    Note that the abovementioned restrictions with respect to FX and FX indexed loans do not extend to bills and bonds.The following link which will direct to our Legal Alert may be referred to, for further elaboration on the respective restriction and exemptions.

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Q1/2018 A new classification for ‘Authorized Institutions’

  • With efforts to regulate incorporation, operation and supervision of the entities permitted to conduct foreign currency transactions and transactions related to precious metals, stones and goods (defined as ‘authorized institutions’ under the Decree No. 32) (“Authorized Institutions”), the Undersecretariat of Treasury (the “Treasury”) has introduced the Communiqué regarding Decree No. 32 on Protection of the Value of Turkish Currency (published in the Official Gazette dated January 30, 2018 and numbered 30317) (the “Communiqué No. 2018-32/45”) and abolished the previous communiqué with immediate effect.

    The major change introduced by the Communiqué No. 2018-32/45 is the classification of two types of Authorized Institutions as Group A and Group B, and licenses to be issued by the Treasury accordingly, based on the scope of the operations to be conducted by the same. The main difference is the scope of operations between Group A and Group B Authorized Institutions; in particular, Group A institutions’ scope of activities are broader than of Group B institutions’ activities. In addition to the general activities that can be conducted by Group B institutions, Group A institutions can conduct; (i) import and export of, and Stock Exchange transactions related to, precious metals and stones and (ii) purchase and sale of foreign currency money via money machines or through bank cards and prepaid cards with certain restrictions.

    Note that the existing Authorized Institutions licensed as per the abolished communiqué are required to make a license application as a Group A or Group B institution until July 1, 2019.

Q1/2018 Turkish Residents to Notify their FX Positions to CBRT

  • In line with the recent amendments to the Decree No.32, the Central Bank of Republic of Turkey (the “CBRT”) has enacted the Regulation on the Principles and Procedures regarding the Monitoring of Transactions Affecting Foreign Exchange Position (published in the Official Gazette dated February 17, 2018 and numbered 30335) (the “Monitoring Regulation”) with immediate effect, with a view to enable the CBRT to monitor the foreign exchange positions (the “FX Positions”) of certain Turkish resident individuals and legal entities.

    As per the Monitoring Regulation, Turkish residents, whose credit balance is equal to or exceeds USD 15 million (the “Declarant Residents”) shall notify the CBRT of their FX Positions, which would certify their ability to borrow FX loans as per the amended Decree No. 32. Such declarations shall be made by uploading a data form to the Systemic Risk Data Monitoring System, to be established by the CBRT, within the month following the interim accounting periods; and within 3 months following the annual accounting period. The Declarant Residents are required to appoint an auditor for the purposes of the abovementioned declaration within 60 days following the date on which a notification obligation arises for such resident. All data submitted by a Declarant Resident (and approved by its appointed auditor) to the System shall be subject to the CBRT’s supervision.

    The following link which will direct you to our Legal Alert may be referred to, for further elaboration on the respective notification requirement

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Q1/2018 Amendments to the Pledge Law to Overcome Practical Issues

  • In a bid to introduce certain clarifications and overcome the challenges encountered in practice, the Law on Pledge over Moveable Assets in Commercial Transactions (Law No. 6750) (published in the Official Gazette dated October 28, 2016 and numbered 29871) (the “Pledge Law”) has been recently amended by an amending law published in the Official Gazette dated March 10, 2018. The amendments mainly concern the types of moveable assets that can be pledged as per the Pledge Law, the scope of the pledge and de-registration and foreclosure procedures.

    As such, list of moveable assets eligible to be pledged as per the Pledge Law, are no longer of exhaustive nature. Furthermore, the concept of merger and amalgamation has been entirely abolished; and a new approach is adopted with particular focus on the legal proceeds and substitute goods of pledged assets.

    Moreover, with the aim to resolve the confusion as to the foreclosure of pledges subject to the Pledge Law, the amendments provide clarification on pledgees options to initiate general enforcement proceedings upon occurrence of an event of default; without being required to exhaust the special remedies provided by the Pledge Law. Also, in efforts to provide relief to the pledgees, particularly foreign pledgees, the period within which the pledgee is required to request the de-registration of a pledge has been extended.

    The amendments are expected to provide clarification, convenience and practical unity on the implementation of the Pledge Law, which has, in the first place, been enacted to enhance Turkish residents’ access to foreign and domestic financings by facilitating the pledge transactions.

Q1/2018 The Secondary Legislation on ‘Expected Credit Loss Approach’ and ‘Re-structuring of Loans’ Entered into Force

  • With the entry into force of the Regulation on Procedures and Principles for Qualification of Loans and Reserves to be Set Aside Therefor (published in the Official Gazette dated June 22, 2016 and numbered 29750) (the “Regulation on Reserves”) on January 1, 2018, Turkish banks will now adopt the ‘expected credit loss approach’ set forth under the “Turkey Financial Reporting Standard 9 – Financial Instruments” (the “TFRS 9”) in the determination of reserve amounts. With efforts to mainly regulate the transitional issues in the application of TFRS 9 by Turkish banks, the Banking Regulation and Supervision Agency (the “BRSA”) has made certain technical amendments to secondary legislation on capital adequacy and credit risk of banks.

    Furthermore, as one of the hottest and most controversial topics in Turkish financial sector nowadays, with the entry into force of the Regulation on Reserves, provisions governing the re-structuring of loans and the classification of re-structured loans by Turkish banks also entered into force as of January 1, 2018. Concordantly, the BRSA issued the Circular No. 2018/1 on March 2, 2018 on re-structuring transactions and stipulated that in order for a transaction to be qualified as re-structuring of loans, the relevant borrower benefitting from such re-structuring shall be in financial difficulty and be granted with a privilege (e.g. extension of loan term) with regards to the loan to be re-structured. Finally, it is explicitly concluded that amendments to loan agreements or re-financings provided to borrowers which are not in financial difficulty, will not be considered as ‘re-structuring’ in the sense of Regulation on Reserves.

CORPORATE / M&A

Q1/2018 Improvements to Investment Environment

  • For improvement of investment environment certain procedural conveniences with an attempt to reduce the cost in relation to establishment of a new company in Turkey have been brought by the Law on Making Amendments on Specific Law for Improvement of Investment Environment published in the Official Gazette dated March 10, 2018 and numbered 30356 (“Amendment Law”) and amendments to the Communiqué on Commercial Books published in the Official Gazette dated March 22, 2018 and numbered 30368. Based on those amendment regulations, for establishment of a limited company, the requirement for payment of one fourth of the share capital before the incorporation is now abolished. As per the same amendment regulations, the articles of association of a company and the signature declarations of board of directors/managers or authorized representatives of a company shall be certified before the relevant trade registry instead of notary publics. Furthermore, the trade registries now have the sole authority for the opening of commercial books such as board of directors resolution book, shareholders general assembly resolution book, share ledger, etc.

Q18/1 Material Decisions of the Personal Data Protection Board and Secondary Regulation Regarding the Application of the Data Protection Law

  • Since early 2017, based on the powers and authorities provided under Article 15 of the Personal Data Protection Law (Law No. 6698) (the “Data Protection Law”) the Personal Data Protection Board (the “Data Protection Board”) started to rule decisions regarding breaches of the Data Protection Law. In the first quarter of the 2018, the Data Protection Board ruled its first decision in 2018 (numbered 2017/61 and dated December 21, 2017) on unauthorized data processing activities by websites and applications providing address book services according to which potential sanctions that may be imposed on those who do not comply with the Data Protection Law are cease of the activities, closure of the business and commencement of a public prosecution.

    The Data Protection Board’s second decision (numbered 2017/62 and dated December 21, 2018) published in the first quarter relates to various sectors primarily health, banking, tourism agencies and department stores where counters, ticket desks and adjoining desks are used for assisting customers. Pursuant to the decision at the counters, ticket desks and adjoining desks that are used for assisting the customers the data controllers should adopt technical and administrative measures in order to prevent others to hear personal data of the data subject and should not place unauthorized officers to work in such counters, ticket desks and adjoining desks. This decision should be taken into account as a warning to the companies especially in the listed sectors since the Data Protection Board may impose sanctions in near future if relevant technical and administrative measures are not obtained.

    Pursuant to the third decision dated January 31, 2018 numbered 2018/10, the Data Protection Board specified the adequate measures to be adopted by the data controllers pursuant to Article 6/4 and Article 22/1 of the Data Protection Law who are processing sensitive personal data. According to this decision, for the purposes of providing adequate measures when processing sensitive personal data, the data controllers should issue a sensitive data processing policy, train its employees based on the internal regulations, execute confidentiality agreements with its employees, determine the scope and duration of the authorization of the persons who have access to such sensitive data, make periodical controls and should revoke the authorization if such authorized persons’ employment is terminated. Furthermore, in the decision special conditions have been specified for storing, keeping, accessing or transferring the sensitive personal data based on the means of processing (i.e. electronic or physical).

    The data controllers should issue a new information notice if the objective/purposes of data processing is changed, as per the Communique on Principles and Procedures of to be Applied to the Information Notice (published in the Official Gazette dated March 10, 2018 and numbered 30356) the failure of which will result in application of an administrative penalty in a range between TRY 5,000 and TRY 1,000,000.

Q1/2018 Amendments in Transportation, Logistics & Defense Sector

  • The principles and procedures regarding obtainment of the workplace opening and operating licenses for the sanitary enterprises and terminals in civil airports have been amended and certain new concepts have been introduced to the civil aviation sector as per the Regulation on Workplace Opening and Operating Licenses for Terminals and Sanitary Enterprises Located in Civil Airports (published in the Official Gazette dated March 3, 2018 and numbered 30349) (“Civil Airports Regulation”) which abolished the former regulation (published in the Official Gazette dated September 10, 2008 and 26993) (“Abolished Regulation”). In this respect, with more simple the language compared to Abolished Regulation, a selection of novelties brought by the Civil Airports Regulation is as follows: workplace opening and operating licenses for sanitary enterprises are for indefinite period and will be valid unless it is cancelled by General Directorate of Civil Aviation whereas according to the Abolished Regulation, licenses were required to be renewed in every two years period as of the date of issuance date of the license. Security measures in airports, which are open to civil aviation, are now required to be in compliance with standards set forth under specific regulations issued domestically or internationally by the civil aviation authorities whereas in the Abolished Regulation a general reference was made. Pursuant to the Civil Airports Regulation group A and group B terminal licenses are required to be issued separately for domestic and international terminals whereas no corresponding provision was indicated in the Abolished Regulation. Furthermore, grant of sanitary workplace license for temporary bonded storage area and warehouse services at the air side or with passageway to air side are subject to following conditions: (i) majority of those who are authorized to manage and represent the company are required to be Turkish citizens; (ii) majority of the voting rights are required to be Turkish citizens; and (iii) at least 51% of the shares are required to be registered share certificates. Lastly, terminal and sanitary enterprises operators are required to be in compliance with this Regulation within one year as of the date of publish of the Civil Airports Regulation.

Q1/2018 Amendments in Pharmaceuticals, Healthcare & Biotechnology Sector

  • Council of Ministers’ Decree on Pricing of Human Medicinal Products (published in the Official Gazette dated February 24, 2017 and numbered 29989) has been amended by a Council of Ministers’ Decree published in the Official Gazette dated February 10, 2018 and numbered 30328 according to which Turkish Lira to be calculated for the year 2018 in accordance with the current value of EUR 1 for pricing of human medicinal products based on paragraph 2 of Article 2 Council of Ministers’ Decree on Pricing of Human Medicinal Products shall not exceed 15% more than the Turkish Lira equivalent of EUR 1 used in the previous term.

Q1/2018 Amendments in Energy & Natural Resources Sector

  • Regulation on Electricity Generation Without License (published in the Official Gazette dated October 2, 2013 and numbered 28783) have been amended based on the regulation published in the Official Gazette dated January 17, 2018 and numbered 30304. Prior to the amendment the requirement for the distance between generation facility and current electric grid which shall not exceed (i) 5 km (air distance) and 6 km (project-based distance) for facilities with minimum 0,499 MW installed power and (ii) 10 km (air distance) and 12 km (project-based distance) for facilities with 0.5 MW to 1 MW installed power was applied to all persons without any exceptions to the local authorities and legal entities. Currently, local authorities and legal entities which are being controlled by local authorities are excluded from compliance to the distance requirement.

    Furthermore, based on the amendments to the regulation, those who are entitled to take grants provided by the European Union Instrument for Pre-Accession Assistance have a longer period of time for submitting the relevant agreement to the relevant authority. Accordingly, they can submit the relevant agreement to the authority within seven months instead of three months as of execution of the connection agreement.

    Communiqué on Examination and Audit of Activities of Electricity Distribution Companies (published in the Official Gazette dated April 13, 2013 and numbered 28617) has been abolished with the Communiqué published in the Official Gazette dated January 9, 2018 and numbered 30296.

Q1/2018 Amendments in Industrial Manufacturing & Service Industries

  • Regulation on Industrial Zone regarding establishment, management and operation of industrial zones has been published in the Official Gazette dated February 9, 2018 and numbered 30327 (“Industrial Zones Regulation”) and it abolished former regulation on the same subject with an aim to shorten the period of length for establishment of industrial zones that can be established upon request of institutions, establishments or companies that are in charge of management of the industrial zones. In comparison to the former regulation, this Industrial Zones Regulation requires less paperwork for application for industrial zone establishment. Furthermore, the new regulation details and simplifies the stages after application for establishment of an Industrial Zone and by removing the pre-requisites for consultation to the other ministries it leaves the assessment of need to consult to other ministries regarding industrial zone establishment to the Ministry of Science, Industry and Technology.

    The compliance period granted to waste water infrastructure management companies and domestic solid waste managements has been extended until December 31, 2018 as per the Regulation on Procedure and Principles to Determination of Tariffs of Waste Water Infrastructure and Domestic Solid Waste Disposal Facilities (published in the Official Gazette dated October 27, 2010 and numbered 27742) which has been amended by an amendment regulation issued in the Official Gazette dated January 25, 2018 and numbered 30312.

CAPITAL MARKETS

Q1/2018 Central Registry Agency will be Liable for Disclosures

  • The CMB published an amendment of Communiqué Regarding Material Events and Central Registry Agency (“CRA”) became liable for the fulfillment of the disclosure on the Public Disclosure Platform under Article 12 of the Communiqué, together with the respective individual.According to Article 12 of the Communiqué, if a person directly or indirectly owns the legal title of the shares or voting rights of a Turkish listed company representing the relevant percentages stated in the Communiqué, such person is required to make a disclosure on Public Disclosure Platform.Shareholders and investor relation teams of companies listed in Borsa Istanbul are recommended to take the above into account.

Q1/2018 Introduction of Management of Information Systems and Independent Audit of Information Systems

  • The Capital Markets Board introduced two new communiqués on January 5, 2018;i. Communiqué on Management of Information Systems (Serial No. VII-128.9) which sets forth the rules, principles and procedures regarding the establishment and management of the information systems of entities which fall under the scope of such Communiqué; andii. Communiqué on Independent Audit of Information Systems (Serial No. III-62.2) which regulates the inspection and audit of such systems by independent auditors.Entities (among others, Borsa İstanbul A.Ş., operators of stock markets and other regulated markets, private pension funds, Istanbul Clearing, Settlement and Custody Bank, the Central Registration Agency, custodians, all capital markets institutions and publicly traded companies) are now subject to the above stated Communiqués and therefore to detailed rules and provisions regarding information systems.

DISPUTE RESOLUTION

Q1/2018 An Alternative to Bankruptcy: Concordat

  • The Law Amending the Enforcement and Bankruptcy Law and Numerous Laws (“Law No. 7101”) was published in the Official Gazette dated March 15, 2018 and numbered 3036.

    The major amendment introduced by Law No. 7101 is abolition of the bankruptcy postponement procedure. The reason beyond this amendment can be explained as the dysfunction of the postponement of bankruptcy procedure and the lack of proper participation of the creditors in the process.

    As per Article 13 of Law No. 7101, companies can no longer request bankruptcy postponement from courts. Instead, the concordat procedure stipulated in Enforcement and Bankruptcy Law (“EBL”) has been amended as an alternative for companies to avoid bankruptcy.As per the amended provisions of the EBL, a debtor who cannot pay its due debts or is under the threat of not being able to pay them on due dates will be entitled to request a concordat. In addition to the debtor, creditors who can request bankruptcy under the EBL can also request concordat.

    Pursuant to Article 5 of Law No. 7101, creditors who have a receivable secured by a pledge have priority over the money obtained from the sale of the pledged assets during the bankruptcy proceedings. As per the amendment introduced by the Law No. 7101, this right of the creditors has now been prioritized over the public receivables such as custom receivables.

    As per Article 24 of the Law No. 7101, in case there is a contractual provision stating that the request of concordat by a party shall be considered as a breach of contract, a cause for just termination or an event for the debts to become due, such provision shall not be applicable if the contract is considered important for continuation of the operations of the debtor’s enterprise. If such contract creates continuous obligations between the parties that prevent the concordat from achieving its purpose, the contract may be terminated upon request of the debtor, opinion of appropriateness of the concordat commissary and approval of the court.

COMPETITION

Q1/2018 Guidelines on Vertical Agreements Have Been Updated

  • The Turkish Competition Authority issued on March 30, 2018 the updates to the Guidelines on Vertical Agreements. The updates are related to internet sales, a new channel of distribution, and Most Favored Nation (MFN) clauses in contracts. The Turkish version of the updated guidelines can be accessed through the website of the Turkish Competition Authority. The English version of the updated guidelines is yet to be published by the Turkish Competition Authority.
This legal newsletter has been prepared for informational purposes only; it has not been prepared for advertising purposes or with the intention of creating an attorney-client relationship. It does not seek to provide information on all legal developments in Turkey with the quarter specified. None of the information contained in this legal newsletter shall constitute legal advice or anything akin thereto. To unsubscribe email the Editor: newsletter@pekin-pekin.com

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