A temporary article no. 13 (“Temporary Article”) has been added into the Turkish Commercial Code through the Law on Mitigation of the Effects of Covid-19 No. 7244 and dated 16 April 2020 (“Law 7244”):
- joint stock companies and limited liability companies can only distribute / resolve on distribution of up to 25 % of the profit of the financial year of 2019 until 30 September 2020 (“Deadline”);
- no dividend distribution can be made from the previous years’ (years before 2019) profits and no resolution can be adopted on advance dividends;
- in the event that a resolution has already been passed to distribute (i) dividends from the profit of the financial year of 2019 exceeding 25%, or (ii) the previous years’ profits’, or (iii) advance dividends before the enforcement date of the Law 7244 (i.e. 17 April 2020), then the distribution of the portion exceeding 25% to the shareholders should be postponed until the Deadline; and
- The Minister of the Republic of Turkey is entitled to extend the Deadline for an additional 3 (three) months.
The Trade Registries have been instructed not to register any dividend distribution resolution which is not in compliance with the Temporary Article.
The Trade Ministry has announced the implementation procedures and certain exceptions to the dividend distribution restrictions via the Communiqué on the Procedures and Principles Regarding Implementation of Provisional Article 13 of the Turkish Commercial Code No. 6102 (“Communiqué”), which was published at the Official Gazette No. 31130 and dated 17 May 2020.
Scope of Restrictions pursuant to the Communiqué
According to the Communiqué, the following principles regarding dividend and dividend advances shall apply:
- capital companies cannot distribute dividends exceeding 25% of the net distributable profit for the 2019 financial year and the previous year’s profit and free reserve funds cannot be subject to distribution. Such restriction is not applied to the capital increases to be made from internal resources;
- the general assemblies of the aforesaid companies cannot authorise the management body for advance profit distribution until the Deadline;
- in the event that, prior to the enforcement date of the Provisional Article 13 of the Turkish Commercial Code, the general assembly has decided to distribute dividends out of the profits for 2019, however the payment to the shareholders has not yet occurred, or only partial payment was made, such portions of payments exceeding 25% of the net profit for 2019 will be postponed until the Deadline. No interest can accrue on the postponed payments; and
- in case the management body has already been authorised by the general assembly, prior to the enforcement date, for the distribution of dividend advances, such advance payments shall be postponed until the Deadline.
Such provisions shall not apply to companies in which the state, special provincial administration, municipality, village or other public legal entity holds more than 50% of the shares or companies in which a public fund owns 50% of the shares and the state owns 50% of the aforesaid public fund.
Below mentioned financial statements shall be taken into consideration with respect to calculation of dividend amounts:
- financial statements prepared in accordance with Turkish Accounting Standards determined by the Public Oversight Accounting and Auditing Standards Authority (only for the companies subject to the corresponding standards); and
- financial statements prepared in accordance with Tax Procedure Law No. 213.
The dividend amount to be distributed cannot exceed the total amount of the funds subject to profit distribution under the records kept in accordance with the Tax Procedure Law No. 213.
Exceptions to the Restriction as per the Communiqué
The following companies shall be exempted from the restrictions under Law 7244 and the Communique:
- companies which will distribute dividends with a maximum amount of TRY 120,000.
However, those who benefit from a short-term working allowances and/or took unpaid leave as per the Law No. 4447 due to force majeure caused by COVID-19, and those who benefitted from the credit guarantees supported by the Treasury and have unpaid debt balance are excluded;
- companies which will perform their capital subscription undertakings (in cash) in another capital company provided that such capital commitment represents more than 50% of the dividend amount to be distributed; and
- companies whose shareholders will use the dividend for repayment of loan payments and/or project finance agreements (which will become due by the Deadline) under the loan agreements and project financing facility agreements. However, the payment of dividend amounts under this paragraph that exceeds the shareholders’ payment obligations are postponed until the Deadline.
The Companies which fall under these exceptions and want to benefit from such exceptions are required to submit the relevant documents (proving the above circumstances) to the provincial directorates of the Ministry of Trade and to obtain the approval of the Ministry prior to the general assembly meetings to be held.