Recent developments in capital markets legislation
In December 1999, a new piece of legislation (Law No 4487) brought a set of amendments to the Capital Market Law, in order to comply with international standards and practice and meet the needs of markets. The new law provides a more secure environment for investors by foreseeing the establishment of an Investors' Protection Fund, which will provide limited protection to the clients of insolvent brokerage firms, and carry out the progressive liquidation procedure, which is an accelerated process for terminating the activities of an intermediary institution, when ordered by the Capital Markets Board (CMB). Law No 4487 has also expanded the duties and the scope of authority of the CMB for creating an effective control mechanism over the activities of public companies and for taking necessary measures. Accordingly, the attendance of an official of the CMB at general assemblies of public corporations and the approval of amendments to the articles of associations of public corporations by the CMB is now compulsory.
Law No 4487 also regulates the establishment of the Central Registry Institution under the supervision of the CMB, which is a very important step in the development of Turkish capital markets. The Central Registry Institution will be empowered to keep the records of capital markets instruments and rights arising from under the name of each issuer, intermediary institution and owner in an electronic environment. This new system will mainly result in reduction of issuing costs, in enabling public companies to have access to information about their shareholders and in simplifying dividend payments.
New provisions allow public corporations to distribute advance interim dividends to their shareholders based on their quarterly financial statements. Such payments may not be more than 50% of the balance sheet profit of the previous financial year. With the recent amendments, minority rights (such as the filing of lawsuits against directors and auditors, requesting the board to invite the shareholders to an extraordinary meeting etc) granted to shareholders having at least 10% of the total shares of a corporation is reduced to 5% for public corporations.
Very recently, the CMB has taken a decision regarding distribution of dividends in public companies. Accordingly, in the event the shareholders of a corporation decide not to distribute the first dividend, which is equal to 5% of the paid-up capital of a corporation, this amount should be set aside and added to the extraordinary statutory reserves. The fact that the first dividend is set aside does not necessitate its distribution; the essential point is to set aside this amount. In order for corporations to distribute profit to board members, employees, privileged shareholders etc, initially, dividends equivalent to 50% of the minimum distributable profit should be set aside and distributed.
Hergüner Bilgen & Özeke
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