COVID-19 has swiftly become a global outbreak, affecting not only people’s lives but also the global economic conjuncture. Like most countries, the Republic of Turkey, has adopted several measures to eliminate or lessen impacts of COVID-19 on the economy. With this article, we will provide an overview of the Turkish legal market and key legislation enacted during the COVID-19 outbreak.
Overview of Legislative Amendments
Knowing that corporations are the wheels spinning the economy, the Turkish Government has made several amendments to secure the stability and sustainability of the economy that directly affect corporations. Some of the important changes were introduced by the Law on Reducing the Impact of the COVID-19 Pandemic on Economic and Social Life and the Law on the Amendment of Certain Laws No. 7244 (the “Omnibus Law”). The Omnibus Law added an additional article to the Turkish Commercial Code that prohibited: the distribution of dividends by corporations before September 30, 2020 that exceed twenty-five percent of the company’s net profit generated in the 2019 fiscal year; the distribution of previous years’ profits and free reserves; and authorizations by the general assembly to the board of directors to distribute advance dividends. However, these restrictions do not apply where fifty percent or more of a company’s shares are held, either directly or indirectly, by: (i) the state, special provincial administrations, municipalities, villages, and other public entities, or (ii) funds with state ownership of fifty percent or more. This period may be prolonged by the President for a term of three months, until December 31, 2020.
The Omnibus Law also introduced amendments to the Law on the Regulation of Retail Trade No. 6585 (the “Retail Law”) that will have important effects on the retail sector by prohibiting exorbitant price increases made by manufacturers, suppliers, and retail businesses, activities that prevent consumers from accessing goods, and activities that narrow the market or disrupt market equilibrium and free competition. These prohibitions will be monitored by the Unfair Price Evolution Board to be established in accordance with the Retail Law.
Affects on Deals and Business
Needless to say, the COVID-19 outbreak made it difficult for parties to a transaction to arrange physical meetings for due diligence exercises, negotiations, or signing or closing phases. Some deals have been postponed to a later date since signing or closing of transaction documents cannot not be done without the physical attendance of foreign investors affected by COVID-19 travel restrictions. However, most transactions are still being conducted, online. From a drafting perspective, COVID-19 has impacted valuations, purchase prices, and payment mechanisms. From a representations & warranties point of view, sellers are preferring additional provisions to cover COVID-19-related aspects, in particular on employment law and compliance-related matters.
In terms of retainer matters, companies have sought answers regarding the potential application of force majeure provisions under various types of agreements during the COVID-19 period. Another hot topic was related to renewal, adjustment, and termination of shopping mall and workplace lease agreements, since many companies have been unable to afford the rent or the workplace was determined to be unfit for employees. Last but not least, as the Ministry of Health has published regular guidelines and recommendations about COVID-19 process, many companies have sought advice on how best to comply with them.
In conclusion, the Turkish Government is aiming to minimize the impacts of COVID-19 by adopting new regulations and thanks to the agile adaptation to an online working environment, companies were quick to act and able to sustain the ongoing business.
By Ersin Nazali, Managing Partner, and Nilay Goker Duran, Partner, Nazali