PRACTICAL GUIDANCE ON ESTABLISHMENT OF ASSET MANAGEMENT COMPANIES AND OBTAINING FINAL ACTIVITY PERMIT IN REPUBLIC OF TURKEY
Asset Management Companies, which are established pursuant to Article 143 of Banking Code No: 5411 of Republic of Turkey, are authorized to manage the collection process of the receivables which are due and payable, but have not been paid on due date. In exchange for assignment of the receivables of Banks, Factoring Companies and other financial institutions, the asset management companies simply make the payment and provide fund to the foregoing institutions to ensure their cash flow. The other practical outcome for the banks and factoring companies is that, through assignment of the due and payable receivables to asset management companies which could not have been collected in due date, the banks and factoring companies can avoid initiating unproductive debt collection proceedings and focus on their main operation areas in an efficient manner. The take for the asset management companies is that after the purchase of the distressed and troublesome debt, with their team of professionals, they can collect the debt in an expedited manner without incurring unnecessary expense and restructure the debt if deemed necessary.
The activities of Asset Management Companies are regulated by Banking Regulation and Supervision Authority of Turkey (hereinafter as “Banking Authority”) and the condition and principles on the management and establishment of such companies have been regulated by the secondary Regulation on Establishment and Activities of Asset Management Companies (“Regulation”) dated November 2, 2006 No:2633. In addition to the said Regulation, the Banking Code No: 5411 and Turkish Commercial Code No: 6102 are also applicable, in so far is it is proper.
There are special conditions foreseen at the Regulation for the establishment of the Asset Management Companies, which should be met before the registration at the trade registry office and afterwards incorporation of the Company. In this Practical Guidance, conditions and principles that require utmost attention will be analysed in the light of the applicable legislation. In general, the asset management company should meet the following condition precedents to be established and operate pursuant to law;
• The company to be established shall be in the form of Joint Stock Company within the meaning of Turkish Commercial Code,
• The minimum capital requirement for the Asset Management Companies is 20.000.000 TRY,
• All the capital shall be paid in full at the registration phase of incorporation,
• All the issued shares shall be in the name of the holder,
• The term “asset management company” shall appear at the trade name of the Company,
• The founders, shareholders and the Board of Directors’ members should not have applied for any financial protection within the meaning of Enforcement and Bankruptcy Law or declared as bankrupt, or a judicial decision to postpone the bankruptcy has been rendered for them,
• There should not be a verdict delivered for the founders, shareholders and the Board of Directors’ members, the stipulated sentence for which is at least three years of imprisonment within the meaning of Turkish Criminal Code No:5237.
1. Preliminary Permission to be Granted by “Banking Authority” Before the Incorporation Stage
First and foremost, a preliminary permit from “Banking Authority” shall be sought before the incorporation process, and to do that the following documents set out at the secondary legislation shall compiled and submitted to “Banking Authority” along with the application petition.
• Articles of Association of the Company which should be drafted in line with Banking Law No: 5411, Turkish Commercial Law No:6102 and the Regulation on Asset Management Companies, respectively. In this regard, while drafting the text of the Articles of Association, utmost thought must be given to the subject matter of the Company and principle areas of the activity, the capital requirement, the division of labour among BoD members and the selection of BoD members.
• A balance sheet which sets forth estimated figures covering the upcoming three years starting from incorporation and the profit loss sheet should be prepared meticulously by the certified public accountants.
• A detailed feasibility report explaining the type of the transactions to be concluded and expected benefit from the incorporation of the company.
• A written Statement by the founders indicating that they have met the preconditions set forth at the Regulation, the details of which have also been provided, supra.
• Official letter received from the judicial authorities located at the domicile of the Founders purports to indicate that no judicial decree has been entered declaring the founders as bankrupt.
• Criminal records of the founders, issued no later than 6 months before the application to Banking Authority.
• A document to be obtained from tax authorities purports to indicate that the founders do not have any due and unpaid tax which had been already incurred.
• A document to be issued by Social Security Institutions indicating that there is not any due and unpaid premium payment.
• Covenants which are Annex 6 and 7 of the Regulation shall be filled in and preferably executed before the notary public to avoid any legal hassle.
• Income tax statement of the founders covering the last three financial years approved by the tax authorities.
• Resumes of the Founders; to check whether the founders have met the conditions; the Banking Authority is asking the founders to provide their Resumes in the requested format.
• Notarized copy of IDs and residency documents of the founders.
Documents stated above are required in the preliminary permit application to Banking Authority. If based on the submitted documents Banking Authority deems the provided documents are in line with Regulation, then a written preliminary permit is granted and the same is published at the Official Gazette of Republic of Turkey.
2. Permission to be Granted by Ministry of Commerce for Incorporation
After obtaining the preliminary permit from Banking Authority, the next step towards incorporation is getting the permission of Ministry of Commerce for incorporation. For that purpose, i) the letter of Banking Authority indicating issuance of preliminary permit and the ii) notarized copy of Articles of Association of the Company which was created at MERSIS system and signed before the notary public shall be provided in application. In practise, the officers of notary public are sometimes hesitant to provide notarized copy and seek additional documents like a letter from trade registry before sign off. To avoid any undue delay, alternatively, approval of the Articles of Association can be done at the trade registry office level by the founders or a person acting with a duly notarized power of attorney on their behalf.
The application shall be made DG Responsible for Internal Commerce at Ministry of Commerce located in Ankara. The review period might take up to 10 days and experts of Ministry of Commerce basically checks whether the provisions of the Articles of Association is indeed in line with the regulations and directives. If the Articles of Association withstands the scrutiny of the Ministry of Commerce, a written permission along with the approved and stamped Articles of Association is returned to the Founders.
Pursuant to Turkish Commercial Code No:6102, registration of Asset Management Company shall be concluded, and an application shall be made within 30 days starting from issuance of permission from Ministry of Commerce.
3. Registration and Announcement at the Pertinent Trade Registry Office
The ensuing step after preliminary permit of Banking Authority and the permit to be granted by Ministry of Commerce is to get the Company registered at the pertinent trade registry office and announcement of the registration at the Turkish Trade Registry Gazette. Given the fact that the new Company shall be incorporated in the form of a joint stock company, the documents required in the establishment of a joint stock company shall be compiled and submitted to the trade registry office. The application shall be made first through the MERSIS online application system. Appointment date is assigned at MERSIS system enabling the applicant to provide hard copy material to trade registry office. In nutshell, in registration process, trade registry office seeks the following documents;
• Application petition addressed to trade registry, the boiler plate text of such petition can ben procured and downloaded from the web page of the trade registry, and the applicant is simply expected to fill in the pertinent part,
• The preliminary permit of Banking Authority and the permit of Ministry of Commerce along with their appendixes. In application for registration at the trade registry, the Articles of Association which is appendix of Ministry of Commerce permit and also stamped by the Ministry of Commerce shall be submitted. Please note that, during the whole permit process, the draft Articles of Association had been created by the founders at the MERSIS online system first, and afterwards the same draft Articles of Association was submitted to Ministry of Commerce to get their blessing and approval on the text. Finally, at the registration at the trade registry, the original Articles of Association which was already approved and stamped by the Ministry of Commerce shall be submitted,
• If there exists a foreign shareholder in the company, an incorporation notification form which is readily available at the trade registry web site shall be filled in and submitted. Besides, notarized and translated copy of the passport of foreign citizens, foreign tax number to be obtained from tax office and copy of residency permit if the foreigner resides in Turkey shall be provided,
• Bank Receipt purports to indicate that 4:10.000 of the stated capital has been paid as the fee of Turkish Competition Authority. After computation, the amount to be paid as competition fee shall be minimum 8.000TRY given the fact that the minimum capital requirement is 20000000 TRY for the asset management companies,
• A Letter from the Bank where the asset management company maintains its accounts, which basically indicates the details of the shareholders, the respective share owned and total figure of the deposited amount for capital payment purposes. Starting from issuance of bank letter addressed to trade registry until after trade registry letter addressed to the bank stating the registration has been completed; the shareholders are banned from withdrawing any amount and consummate any transaction that would diminish the deposited amount. In practise such letter is called as unblocking the account letter,
• Acceptance letters of the BoD members which should be produced before the notary public. In that letter, it should be clearly set forth that the incoming BoD member accepts the appointment, and the translation of the substantiating documents such as passport, foreign tax number, and residency permit if exits should also be included in the acceptance letter,
• If a legal entity is elected as the BoD member of the asset management company, then a resolution from the competent organs of the legal entity allowing such appointment shall be procured. Besides, the details of the person who would bind and represent the legal entity at the BoD activities shall be provided. If the elected BoD member is a foreign entity, the documents indicating that the company is a registered and an active company shall be procured from the pertinent authorities of the country of origin. Such documents shall be notarized and apostilled before submission to the trade registry.
The whole registration and afterwards announcement at the Turkish Trade Gazette process might take up to 10 days provided that there is not any deficiency at the application package or any missing document.
4. Final Activity Permit to be Obtained from Banking Authority
To start operation, right after the registration at the trade registry, the asset management company should obtain a final activity permit from the Banking Authority. The documents that are required for final activity permit have been set out at the Regulation. The matter is that before compiling all the required documents and making the application to obtain a final activity permit, necessary units within the asset management company should be established, the administrative capacity should be enforced and personnel in the required number shall be recruited. As a caveat please note that the Final Activity Permit of Banking Authority should be obtained no later than 180 days starting from the preliminary permit issued by the same Banking Authority at the very outset, otherwise all the permits obtained so far might declared as null and void. Therefore, the process of establishment of necessary units and enforcement of the administrative capacity shall be concluded within set deadline. Among others, internal control, accounting, information process and reporting capacity system shall have been established by the time an application to the Authority is made to obtain Final Activity Permit. Before granting such permit, the Banking Authority will check whether the Asset Management Company is capable of doing its intended line of work.
In addition to foregoing administrative capacity and with regard to paper work, briefly the following documents shall be provided in the application;
• Covenants which have been provided by the founders during the preliminary permit, should be provided by BoD members and the CEO now, in final activity permit application,
• Resumes: The resumes of the BoD members and the CEO shall be provided to Banking Authority enabling them to check whether BoD members and the CEO have necessary qualification, the details of which have been set forth at the Regulation. Likewise, the diplomas of the said people should be provided to Banking Authority for the same reason,
• Official letter received from the judicial authorities located at the domicile of the shareholders and the CEO purport to indicate that no judicial decree has been entered declaring the founders as bankrupt,
• Criminal records of the shareholders and the CEO, issued no later than 6 months before the application to Banking Authority to obtain final activity permit.
• Notarized copy of the trade registry gazette purports to indicate that the asset management company has already been established pursuant to Turkish Commercial Code.
• The signature circular of the Company prepared before the notary public indicating the persons who can bind and represent the Company vis a vis third parties.
After issuance of the final activity permit by Banking Authority, Asset Management Company can officially start conducting business allowed by the law. Even during the operation period, asset management companies are under constant scrutiny of Banking Authority. For instance, in each general assembly meeting of the asset management company to be held, it is imperative to invite auditor from the Ministry of Commerce, whereas for other Joint Stock Companies only in extra ordinary circumstance such as capital increase or merger or changing the type of Company the auditor should attend to such meeting.
Likewise, major changes in the corporate governance of the asset management companies or change in the shareholder structure are subject prior approval of the Banking Authority, which is not the case for a standard joint stock company.
Please contact us to arrange a meeting with a legal representive.
Written by Partner Associate, Tarık Şahin & Associate Yalçın Çelebi for YellAli
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