New Regulations for Squeeze-Out Rights in Corporate Governance
Rights to squeeze out and rights to sell-out are subject to different legislations regarding the types of the company as in non-public company or publicly held company in Turkey. Accordingly, for a non-public company, those rights are regulated by the Turkish Commercial Code. On the other hand, for publicly held companies, which are in fact the essential topic of this article, shall be subject to the Capital Market Law provisions. With the new regulation press released by the Capital Market Board regarding rights to squeeze out and sell out principles has been slightly changed and shall be effective from 1 July 2014.
According to the terms of the Turkish Capital Market Law; in the event that shares acquired, as a result of takeover bid or in a different way including acting together, reach the voting right of the publicly held company at the minimum rate determined by the Capital Market Board, the person who is holding that shares shall gain the right to squeeze out the other shareholders who have become minority. Under the terms of the new regulation, the ratio of the shares is determined as 95% of voting rights of publicly held company, which should be acquired by shareholder who would like to use the right to squeeze out minority shareholders. The significant importance of this provision is that the ratio determined by the Capital Market Board must be voting rights of the shareholder. Therefore, the shareholding ratio has no importance regarding squeeze out rights. In order to determine the 95% ratio for squeeze out rights, shares that held directly or indirectly by shareholders or people acting in concert and their privileges regarding vote rights shall be taken into consideration. Those rights should be used for every kind of voting at general meetings.
The shareholders that became the majority may request within the time period determined by the Capital Market Board, the cancellation of the shares of shareholders who became minority and the sale of the new shares to be issued as substitute to those who cancelled.
In cases where squeeze out right arise for the majority under the circumstances mentioned above, sell-out rights arise for shareholder who became minority accordingly. In this way, the minority shareholders may request their shares to be purchased at a fair price within the period to be determined by the Capital Market Board from real person or legal entities that hold the share ratio determined by the Capital Market Board. The share price is generally determined based on the average stock exchange price over the previous 30 days before the declaration of squeezing out is made to public.
In order to use the right to squeeze out, shareholders who would like to use that right should apply to the company in three months starting from the time they obtain 95% or more of voting rights from publicly held company. In addition, the right to squeeze out or rights of sell-out cannot be used within two years following the date that shares started to be traded at the stock exchange.
Following the application, board of directors of the company should investigate whether the applicant has obtained the ratio of voting rights and evaluate the price to be paid to minority shareholders. In addition, a board decision is required for the cancellation of the shares of shareholders who became minority and the issuance of new shares substitute to those who cancelled.
As it is mentioned earlier, the squeeze out procedure is available for both publicly held companies and non-public companies in terms of Turkish jurisdiction. With those regulations, the majority shareholders are enabled to acquire the shares forcibly which held by the minority shareholders. One should not miss the conflict caused by law and interestingly enough that, within the principles of the regulations, the controlling shareholders need to apply to the company itself which they are already dominating, in order to squeeze out and gain other shareholders’ shares.