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Practical Guidance on Establishment of Asset Management Companies and Obtaining Final Activity Permit in The Republic of Turkey
Asset management companies, which are established pursuant to Article 143 of Banking Code No: 5411 of the Republic of Turkey, are authorised to manage the collection process of the receivables which are due and payable but have not been paid on the due date.
In exchange for the assignment of the receivables of Banks, Factoring Companies and other financial institutions, the asset management companies make the payment and provide funds to the foregoing institutions to ensure their cash flow.
The other practical outcome for the banks and factoring companies is that, through the 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 Turkey’s Banking Regulation and Supervision Authority (hereinafter as “Banking Authority”). The secondary regulation has regulated the conditions and principles of managing and establishing such companies 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, it is proper.
There are special conditions foreseen at the regulation for establishing the asset management companies, which should be met before the registration at the trade registry office and afterwards incorporation of the company.
This practical guide will analyse conditions and principles that require the utmost attention regarding the applicable legislation. In general, the asset management company should meet the following condition precedents to be established and operate according to law;
- The company to be established shall be in the form of a joint-stock company (JSC) within the meaning of the Turkish Commercial Code,
- The minimum capital requirement for the asset management companies is ₺20.000.000,
- 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 (BoD) members. The stipulated sentence for at least three years of imprisonment within the meaning of Turkish Criminal Code No: 5237.
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. The following documents set out at the secondary legislation shall be compiled and submitted to the “Banking Authority” along with the application petition to achieve that.
- Articles of Association of the company 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 company’s subject matter and principal areas of the activity, the capital requirement, the division of labour among BoD members, and the selection BoD members.
- A balance sheet that 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 the expected benefit from the company’s incorporation.
- 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 should be issued no later than six 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 already incurred.
- A document to be issued by social security institutions indicates that there is no due and unpaid premium payment.
- Covenants which are Annex six and seven 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, and the Banking Authority is asking the founders to provide their resumes in the requested format.
- Notarised copies 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 The Republic of Turkey.
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 the Ministry of Commerce for incorporation.
For that purpose, i) the letter of Banking Authority indicating issuance of the 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 the application.
In practice, the officers of the notary public are sometimes hesitant to provide notarized copies and seek additional documents like a letter from the trade registry before signing 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 the Ministry of Commerce located in Ankara. The review period might take up to ten days, and experts of the Ministry of Commerce 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, written permission along with the approved and stamped Articles of Association is returned to the founders.
Under Turkish Commercial Code No: 6102, registration of asset management company shall be concluded, and an application shall be made within 30 days starting from the issuance of permission from the Ministry of Commerce.
Registration and Announcement at The Pertinent Trade Registry Office
The ensuing step after the preliminary permit of the Banking Authority and the permit to be granted by the Ministry of Commerce is to get the company registered at the appropriate trade registry office and announce the registration at the Turkish Trade Registry Gazette.
Given that the new company shall be incorporated in the form of a joint-stock company, the documents required to establish 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.
The appointment date is assigned at MERSIS system enabling the applicant to provide hard copy material to the trade registry office. In a nutshell, in the registration process, the trade registry office seeks the following documents;
- Application petition addressed to trade registry, the boilerplate text of such petition can ben procured and downloaded from the web page of the trade registry, and the applicant is expected to fill in the pertinent part,
- The preliminary permit of the Banking Authority and the permit of the Ministry of Commerce along with their appendixes. In the application for registration at the trade registry, the Articles of Association, an appendix of the Ministry of Commerce permit 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. Afterwards, the same draft Articles of Association was submitted to the 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 is a foreign shareholder in the company, an incorporation notification form readily available at the trade registry website shall be filled in and submitted. Besides, notarised and translated copy of the passport of foreign citizens, foreign tax number to be obtained from the tax office and copy of residency permit if the foreigner resides in Turkey shall be provided,
- The bank receipt purports to indicate that 4:10.000 of the stated capital has been paid as the fee of the Turkish Competition Authority. After computation, the amount to be paid as a competition fee shall be a minimum of ₺8.000 given the fact that the minimum capital requirement is ₺20.000.000 for the asset management companies,
- A letter from the bank where the asset management company maintains its accounts indicates the details of the shareholders, the respective share owned, and the 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 practice, such a letter is called unblocking the account letter,
- Acceptance letters of the BoD members should be produced before the notary public. In that letter, it should be 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. Suppose the elected BoD member is a foreign entity. The documents indicating that the company is registered and an active company shall be procured from the pertinent authorities of the country of origin. Such documents shall be notarised and apostilled before submission to the trade registry.
The whole registration and afterwards announcement at the Turkish Trade Gazette process might take up to ten days provided that there is not any deficiency in the application package or any missing document.
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 required for the final activity permit have been set out in 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 the 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 declare as null and void.
Therefore, the process of establishment of necessary units and enforcement of the administrative capacity shall be concluded within the set deadline. Internal control, accounting, information process and reporting capacity system shall have been established when an application to the Authority is made to obtain the final activity permit. Before granting such a permit, the Banking Authority will check whether the asset management company can do its intended line of work.
In addition to previous administrative capacity and with regard to paperwork, briefly, the following documents shall be provided in the application;
- Covenants that the founders have provided during the preliminary permit should be provided by BoD members and the CEO now, in the final activity permit application,
- 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 the necessary qualifications, the details of which have been outlined in 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 should be issued no later than six months before applying to Banking Authority to obtain the final activity permit.
- A notarized copy of the trade registry gazette indicates that the asset management company has already been established pursuant to the Turkish Commercial Code. The company’s signature circular shall be prepared before the notary public, indicating the persons who can bind and represent the company vis a vis third parties.
After issuing the final activity permit by the Banking Authority, asset management companies can officially start conducting business allowed by the law. Even during the operation period, asset management companies are under the constant scrutiny of the Banking Authority.
For instance, in each general assembly meeting of the asset management company to be held, it is imperative to invite an auditor from the Ministry of Commerce, whereas for other joint-stock companies only in extraordinary circumstances 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 changes in the shareholder structure are subject to prior approval of the Banking Authority, which is not the case for a standard joint-stock company.
Related Article: Information Note on The Pending Amendment Proposal in Banking Law.