COVID -19 Measure on Capital Companies' Dividend Distribution

By the letter sent by Ministry of Trade dated March 31, 2020 to the Union of Chambers and Commodity Exchanges of Turkey(“TOBB”), one of the measures taken for COVID-19 was ascertained as follows for dividend distribution of capital companies.

In the letter sent to the TOBB by the Ministry of Trade, the following statements were made:

The importance of protecting capital companies' equity due to the Covid-19 virus is pointed out and based on Article 13/5 of the "Regulation on the Procedures and Principles of General Assembly Meetings of Joint Stock Companies and the Ministry of Trade Representatives to be Held in These Meetings" published in the Official Gazette dated 28.11.2012 and numbered 28481;

"Except public affiliate companies,  at the general assembly meetings to be held this year regarding the accounting period of the capital companies for 2019, in the cash dividend distribution resolutions to be included in the agenda, previous years’ profits are not to be subject to distribution and the distribution amount cannot exceed 25% of the net profit of 2019, and the board of directors shall not be authorized to distribute dividend advances... "

As seen above, based on the Article 13/5ⁱ of the Regulation on the Procedures and Principles of General Assembly Meetings of Joint Stock Companies and the Ministry of Trade Representatives to be Held in These Meetings (“Regulation”) a limitation is put in force regarding the amount of dividend that the capital companies will decide to distribute at their general assembly meetings. According to this, except public affiliate companies, capital companies will not be able to decide on the distribution of previous years' dividends at the ordinary general assembly meetings regarding the 2019 financial year and they will be able to decide to distribute only up to 25% of the net profit of 2019. It is also stated in the said letter that the board of directors shall not be authorized for advance dividend distirbutions.

What is the Legal Ground of the Measure for Dividend Distribution?

Article 13/5 of the Regulation is shown as the legal ground for the restrictions imposed on the distribution of dividend of capital companies. In the said article, “As a result of the audit or for any reason by the Ministry, it is obligatory to put the issues to be discussed in the general assembly of the company on the agenda.” is stated. As it is understood, the article in question is originally about determining the agenda of the general assembly and is not in a nature that will allow intervention in the content of the decision to be taken at the general assembly. At this point, although the issues such as how the dividend distribution item that companies will take to the agenda of the company should be handled, whether it is sufficient to open the issue to discussion only at the meeting and whether the dividend distribution decision should be limited in terms of content is not clear and appearing debatable and It should also be noted that the body that will decide on dividend distribution is the general assembly.

However, as it is known, even though it is at the general assembly's authority to decide on dividend distribution, it is the board of directors that will prepare the general assembly agenda. For this reason, the board of directors is required to take this issue into account when considering the general assembly agenda. Otherwise, the responsibility of the board of directors will arise.

Conclusion

In the light of the explanations given above, although the decision-making authority belongs to the general assembly, It is the responsibility of the board of directors to establish the general assembly agenda and It is recommended that capital companies planning to make decisions regarding dividend distribution should take these limitations into consideration and obtain legal support on the subject.

^{[i] Agenda}

^{ARTICLE 13 – (1) The agenda of the ordinary general assembly meeting includes the following issues:}

^{a) Opening and establishment of meeting chair.}

^{b) Reading and discussion of the annual report prepared by the board of directors.}

^{c) Reading the auditor's reports.}

^{ç) Reading, discussion and approval of financial statements.}

^{d) Release of the members of the board of directors.}

^{e) Determining the usage of profit, the rates of dividend and profit shares to be distributed.}

^{f) Determination of the wages of the members of the board of directors and the rights such as pension, bonuses and premiums.}

^{g) If there has been a decrease in the number of memberships of the board of directors during the activity year and an appointment has been made by the board of directors, the approval of the appointment by the general assembly.}

^{ğ) Election of the members of the board of directors whose term of office has expired, determination of their term of office if their term of office is not specified in the articles of association.}

^{h) The election of the auditor.}

^{ı) Other items to be discussed.}

^{(2) Other items to be discussed are to be stated explicitly on the agenda. Before the subject to be discussed is determined and written on the agenda, an agenda item is not to be issued as “Other items to be discussed”}

^{(3) As required by law and articles of association, any subject that is under the authority of the general assembly and constitutes the extraordinary general assembly agenda can be written on the ordinary general assembly meeting agenda.}

^{(4) In case the minority applies within the period of time, the issues that are desired to be discussed by the request of minority are put on the agenda by the board of directors.}

^{(5) As a result of the audit or for any reason by the Ministry, it is obligatory to put the issues to be discussed in the general assembly of the company on the agenda.}

^{(6) The agenda is determined by the partycalling the general assembly to the meeting.}