I. Introduction
The Turkish Commercial Code No. 6102 ("TCC") introduced the concept of "squeeze-out right in group of companies" to the Turkish legal landscape. Article 208 of the TCC stipulates (and enables) the removal of the minority shareholders of a group of companies from the joint-stock company by the majority shareholders in certain circumstances.
There are three specific circumstances under the TCC that enable the "squeeze-out" of the minority shareholders: (i) in case of merger transactions (Article 141), or (ii) the right of shareholders to request dissolution of the company due to just cause (Article 531), or (iii) in group companies (Article 208). However, this Section will only analyse the squeeze-out right from the perspective of Article 208, which allows the parent company in a group company to eliminate the minority shareholders. This article aims to explain the legal concept of the squeeze-out right by analysing the mandatory conditions for eliminating the minority shareholders from the company.
II. Requirements for the Implementation of the Squeeze-Out Right
The first condition for the use of the squeeze- out right regulated under Article 208 of the TCC is the existence of a parent company (i.e., majority shareholder) and an affiliate company (i.e., minority shareholder). Moreover, the parent company must hold, directly or indirectly, at least 90% of both the shares and the voting rights of the affiliate company. In other words, it is not sufficient for the parent company to reach 90% only in shares or in voting rights. Furthermore, since the squeeze-out right can only be executed through a court order, the 90% threshold must be maintained at least until the date of the court decision.
The second condition stipulates that, if the minority shareholders (i) act recklessly, (ii) act in bad faith, (iii) act in a manner so as to obstruct the company's operations, or (iv) create a perceptible disruption in the company, then the shareholders holding (directly or indirectly) at least 90% of the share capital and voting rights of the company can squeeze out the minority shareholders. Accordingly, the minority shareholders whose actions are hindering the company's development or impeding its progress may be removed from the company in order to terminate their disruptive actions and secure a peaceful environment within the company.
Lastly, the third condition for the use of the squeeze-out right requires that the price of the minority shareholders' shares must be paid; in fact, the courts are authorized to determine the applicable share price. Within this scope, the parent company should pay at least the stock-exchange value of the minority shareholders' shares. If the stock-exchange value of the shares cannot be determined (i.e., does not exist) or if such a value is deemed not to be equitable, then the actual value of the shares or a value determined by employing a generally accepted rule must be paid as compensation in order to eliminate the minority shareholders from the company. We conclude that the courts should determine the share prices by considering the value of the company on the date that is closest to the date of the court's judgement, for the purpose of protecting the interests of the minority shareholders.
III. Conclusion
In a group of companies, the squeeze-out right that allows the majority shareholders to remove the minority shareholders from the company is regulated under Article 208 of the TCC. Thus, the minority shareholders who are protected under several provisions of the law will not be allowed to impede the rights of the majority shareholders who possess at least 90% of the shares and voting rights through their malicious actions. In simple terms, the squeeze-out right balances the interests of both the minority shareholders and the majority shareholders.
This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2019. A link to the full Legal Insight Quarterly may be found here
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