Shareholding Structure Changes In Port Operations And Regulatory Clearance In Mergers And Acquisitions

Introduction

In mergers and acquisitions (“M&A”) transactions, obtaining clearance from the relevant sectoral regulatory authority is required depending on the nature of the target company’s operations. In the port operations sector, whether the target company provides pilotage and/or towage services is the critical distinction that directly determines whether clearance from the Ministry of Transport and Infrastructure (the “Ministry”) is required for shareholding structure changes.

The Regulation on Pilotage and Towage Services (the “Regulation”) subjects changes in the shareholding structures of operators providing pilotage and towage services and port facility operators to a regulatory oversight mechanism. The Regulation was enacted pursuant to Supplementary Article 1 of Law No. 618 on Ports (the “Law”), the Cabotage Act (Law No. 815), Law No. 4046 on Privatisation Applications and Presidential Decree No. 1.

This newlsetter examines whether shareholding structure changes in M&A transactions where the target company is a port facility operator are subject to clearance under the Regulation, the applicable approval procedures and required documentation in cases where clearance is required, the sanctions that may arise in the event of non-compliance, and the manner in which this clearance requirement should be addressed in the share purchase agreement (the “SPA”).

Legal Framework

Primary Legislation

The Regulation governs the technical requirements, service standards, conditions applicable to natural and legal persons providing pilotage, towage and mooring services, as well as prohibitions and obligations in Turkiye’s maritime jurisdiction areas, waterways and internal waters. The Directorate General for Maritime Affairs of the Ministry (the “Administration”) is the competent authority responsible for the implementation and enforcement of the Regulation.

The Regulation structures the provision of pilotage and towage services through two principal frameworks: (i) operators granted operating rights through tenders in regional service areas; and (ii) services provided directly by port facility operators or through service procurement. Shareholding structure changes are subject to clearance under both frameworks.

Turkish Vessel Requirements and Cabotage Obligations

Pursuant to Article 18/1 of the Regulation, the operator is required to maintain, throughout the period of service provision, the conditions prescribed in Article 940 of the Turkish Commercial Code No. 6102 (“TCC”) and the Cabotage Act (Law No. 815). Article 940 of the TCC prescribes specific requirements pertaining to the company’s shareholding structure for the right to fly the Turkish Flag. The loss of these conditions as a result of a shareholding structure change constitutes an impediment to the provision of pilotage and towage services.

Ministerial Approval for Shareholding Structure Changes in Regional Service Areas

Pursuant to Article 18/2 of the Regulation, changes in the shareholding structure, share structure and persons authorised to manage the operator granted operating rights through tenders in regional service areas require the approval of the Ministry. Where changes are effected without such approval, the contractual penalty provisions shall apply.

Where the said changes result in the loss of the conditions prescribed in Article 940 of the TCC and the Cabotage Act, the operator shall not be permitted to provide pilotage or towage services. Where compliance is not achieved within a maximum period of six months granted by the Ministry, the contract shall be terminated.

Administrative Approval for Shareholding Structure Changes in Port Facility Operators

From an M&A perspective, the most critical provision is contained in Article 23/2 of the Regulation. Pursuant to this provision, where the port facility operator provides pilotage and/or towage services directly and/or through service procurement, changes in the shareholding structure, share structure and persons authorised to manage the operator and the entities providing services on behalf of the facility require the prior approval of the Administration.

Where such changes result in the loss of the conditions prescribed in Article 940 of the TCC, these operators shall not be permitted to provide pilotage and/or towage services, and a period of three months shall be granted by the Administration for the reinstatement of the said conditions.

The rights transferred under the Operating Rights Transfer Agreements (“ORTA”) (also known as concession agreements) to port facility operators privatised by way of transfer of operating rights under Law No. 4046 are expressly reserved, provided that the relevant provisions exist in their contracts and that the conditions prescribed in the legislation are satisfied.

Port Facility Operators Not Providing Pilotage and Towage Services

Article 23/2 of the Regulation applies solely to port facility operators that provide pilotage and/or towage services (whether directly or through service procurement). Where the port facility operator does not provide these services—i.e. where pilotage and towage services are provided by an independent operator in the regional service area and the port facility operator is not a party to these services—there is no clearance requirement for shareholding structure changes under the Regulation.

Even in such cases, contractual restrictions arising from the ORTA provisions in respect of privatised ports, as well as general regulatory obligations such as Competition Board clearance, must be separately assessed.

Transfer of Port Facility Operating Rights

Pursuant to Article 23/3 of the Regulation, where port facility operating rights are transferred, the new operator must submit a pilotage and/or towage service permit application to the Administration within six months of the transfer.

Clearance Procedure and Required Documentation

Filing Procedure

Whilst the Regulation does not prescribe the application procedure for shareholding structure changes in detail, Article 18/2 requires Ministerial approval (for regional service areas) and Article 23/2 requires prior approval of the Administration (for port facilities). In both cases, approval must be obtained before the change is effected. In the case of a transfer of port facility operating rights, the service permit application must be filed with the Administration within six months of the transfer.

Required Documentation

Although the Regulation does not expressly enumerate the documents to be submitted in connection with a shareholding structure change application, it would be prudent, in light of the general provisions of the Regulation and prevailing practice, to submit the following documentation:

• Current extract from the Turkish Trade Registry Gazette evidencing the legal entity’s existing shareholding structure, together with the company’s articles of association;
• Information and documentation pertaining to the post-transfer shareholding structure;
• Declaration and supporting documentation confirming that the Turkish vessel conditions prescribed in Article 940 of the TCC will be maintained following the transfer;
• Declaration confirming continued compliance with the provisions of the Cabotage Act (Law No. 815);
• Notarised copy of the share transfer agreement;
• Financial adequacy documentation of the transferee;
• Trade Registry Gazette evidencing the board members of the transferee;
• Notarised signature circulars of the parties;
• Criminal record certificates for individual shareholders;
• For privatised ports: prior written approval from the Privatisation Authority obtained under the ORTA.

Review Process

Applications are reviewed by the Ministry in respect of regional service areas, and by the Administration in respect of port facilities. The principal assessment criteria include whether the conditions prescribed in Article 940 of the TCC and the Cabotage Act are maintained following the shareholding structure change, whether the financial adequacy requirements are met, and whether service standards will be sustained.

Sanctions for Non-Compliance

The Regulation prescribes graduated sanctions for shareholding structure changes effected without the requisite approval:

Operators in Regional Service Areas

• Where changes are effected without approval, the contractual penalty provisions shall apply;
• Where the TCC Article 940 and Cabotage Act conditions are lost, provision of pilotage or towage services shall not be permitted;
• A maximum compliance period of six months shall be granted by the Ministry; where compliance is not achieved within this period, the contract shall be terminated;
• Performance bonds shall be forfeited to the Treasury.

Port Facility Operators

• Where the TCC Article 940 and Cabotage Law conditions are lost, provision of pilotage and/or towage services shall not be permitted;
• A period of three months shall be granted by the Administration for reinstatement of the requisite conditions;
• Where the requisite conditions are not met within the prescribed period, the service permit shall be revoked;
• Where the service permit is revoked, performance bonds shall not be returned and shall be forfeited to the Treasury.

Addressing Shareholding Structure Changes in M&A Transactions

Significance in the Due Diligence Process

In transactions where the target company is a port facility operator, the following matters should be examined during the due diligence process as a matter of priority:

• Whether the target company provides pilotage and/or towage services (whether directly or through service procurement) — this determination is decisive as to whether a clearance obligation arises under the Regulation;
• Where services are provided, the validity and terms of the service permit;
• Under which category of Article 19 of the Regulation the services are provided (public entity, privatised port, stand-alone port facility);
• Whether the Turkish vessel conditions prescribed in Article 940 of the TCC are satisfied under the existing shareholding structure and whether they will be maintained following the transfer;
• In respect of privatised ports: the provisions of the ORTA, share transfer restrictions and change of control prohibitions;
• The existence and terms of agreements with parties providing/receiving pilotage and towage services;
• Any liens, pledges, mortgages or injunctive orders registered against the port facility;
• The currency and amount of performance bonds.

Administrative/Ministerial Clearance as a Condition Precedent in Share Purchase Agreements

In M&A transactions where the target company provides pilotage and/or towage services, the obtaining of Administrative/Ministerial clearance under the Regulation should be structured as a condition precedent within the SPA, and closing should not be effected unless and until such clearance has been obtained. In respect of privatised ports, Privitization Authority clearance should also be designated as a separate condition precedent, and in transactions where other regulatory approvals—such as Competition Board clearance—are also required, the obtaining of all requisite clearances should be collectively stipulated as conditions to closing.

Where the target company does not provide pilotage and towage services, there is no requirement to structure a condition precedent under the Regulation. Nevertheless, in respect of privatised port operations, contractual restrictions under the ORTA should be separately addressed in the SPA.

The Interim Period Between Signing and Closing

The SPA should expressly set out the seller’s obligation to manage the target company and the port facility in the ordinary course of business during the interim period between signing and closing. In respect of port operators providing pilotage and towage services, the seller should undertake, without the prior written consent of the buyer, not to take any action that would jeopardise the service permit, to maintain the TCC Article 940 and Cabotage Act conditions, not to reduce the number of pilot captains and tugboats below the minimum requirements, and to discharge all legal obligations in a timely manner.

Efforts Clauses and Risk Allocation

The obligations to be assumed by the parties in connection with obtaining Administrative/Ministerial clearance are defined through the efforts clauses contained in the SPA. The clearance process under the Regulation is principally focused on the maintenance of the TCC Article 940 and Cabotage Act conditions. Accordingly, the prospects of obtaining clearance are largely contingent upon the compliance of the transferee’s shareholding structure with these conditions.

In practice, the buyer typically undertakes to submit a timely and complete application for clearance, to respond to requests for additional information and documentation within the prescribed time limits, and to conduct the process in good faith. The seller, for its part, typically represents and warrants that the service permit is valid and active, that the TCC Article 940 and Cabotage Act conditions are satisfied, that all legal obligations have been fully discharged, and that there are no pending administrative investigations or sanction proceedings.

Seller’s Representations and Warranties

The seller’s representations and warranties in the SPA should, in particular, address the following matters:

• that the service permit is valid and subsisting;
• that the conditions prescribed in Article 940 of the TCC and the Cabotage Act are fully satisfied;
• that pilotage and towage services have been conducted in compliance with the Regulation and the applicable legislation;
• that the minimum pilot captain numbers and tugboat number/bollard pull requirements are met;
• that performance bonds are valid and current;
• that there are no pending or threatened investigations or sanction proceedings under the maritime legislation;
• in respect of privatised ports: that full compliance with the ORTA has been maintained and that there are no breaches thereunder.

Long-Stop Date and Termination Rights

The SPA should prescribe a reasonable long-stop date for the obtaining of Administrative/Ministerial clearance, and should confer upon either party the right to terminate the agreement in the event that clearance has not been obtained by such date. When determining the long-stop date, it may be provided in the SPA that the Administrative/Ministerial clearance, Privitization Authority clearance (if applicable) and Competition Board approval processes may be conducted in parallel.

In addition, Material Adverse Change (“MAC”) clauses should be incorporated into the transaction documents in order to address the possibility of a collapse in macroeconomic conditions, a loss of the target company’s market position, or the occurrence of an unforeseen crisis during the review period.

Summary

In M&A transactions where the target company is a port facility operator, whether a shareholding structure change is subject to clearance under the Regulation depends on whether the target company provides pilotage and/or towage services.

For port operators providing pilotage and/or towage services,pursuant to Article 23/2 of the Regulation, changes in the shareholding structure, share structure and persons authorised to manage the operator require the prior approval of the Administration. The maintenance of the conditions prescribed in Article 940 of the TCC and the Cabotage Act constitutes the principal assessment criterion. Changes effected without the requisite approval may attract severe sanctions, including the revocation of the service permit and forfeiture of performance bonds.

For port operators not providing pilotage and towage services,there is no clearance requirement for shareholding structure changes under the Regulation. However, contractual restrictions under the ORTA in respect of privatised ports and general regulatory obligations such as Competition Board clearance must be separately assessed.

In M&A practice, for port operators providing pilotage and towage services, Administrative/Ministerial clearance constitutes one of the fundamental regulatory conditions precedent that must be addressed in the SPA alongside Competition Board clearance and, in respect of privatised ports, Privitization Authority clearance. The clear and comprehensive treatment of these clearance requirements within the SPA’s risk allocation mechanisms—including efforts clauses, representations and warranties, and long-stop date provisions—is of critical importance for the legal certainty and commercial success of the transaction.