SUSPENSION OF RIGHTS IN SUBSIDIARY COMPANIES (JANUARY 2016)

The “Cross Shareholding” concept has been prescribed in Article 197 of Turkish Commercial Code no. 6102 (“TCC”). Pursuant to this Article, capital companies holding at least twenty five percent of shares of each other are defined as “Cross Shareholdings” and also the concepts of “dominant - subsidiary company” has been prescribed herein. If one company is dominant to the other, the latter company will be named as “subsidiary” and if both companies have dominance over each other, both of them will be named as “dominant and subsidiary company”. The consequences of cross shareholding have also been specified in Article 201 of TCC.

Pursuant to the Article 201 of TCC, a capital company which intentionally becomes a cross shareholding by acquiring the shares of another capital company can only use one quarter of the total votes and other rights deriving from share ownership. All other rights of shareholding shall be suspended, “freezed” except acquisition of share without charge.

Consequently, in practice of this provision, the subsidiary shall only be able to use twenty-five percent of its shares in the dominant company. The subsidiary cannot use the right of votes and other rights deriving from the remaining shares. These restricted rights are not forfeited, they became “practicable” again when transferred to a third person. For this reason, this situation is described with the term “freeze” in TCC.

On the other hand, it is specifically mentioned that this limitation shall also be applied to meeting and decision quorum. In this Article, articles 389 and 612 of the TCC are reserved. Thus, according to the preamble, it is aimed to prevent minority shareholders, which do not hold the majority of votes or shares of the dominant company but manage the group of companies, to benefit from an undeserved advantage.

However this limitation shall not be applied if the subsidiary company acquires the shares of dominant company or if both companies have control over each other. In such cases as both companies shall be both subsidiary and dominant company, the Law maker is unwilling to aggravate this situation.