Demerger

Scope

Article 159 of the Turkish Commercial Code (TTK) provides for two types of demerger. In a full demerger, the entire assets of the company are divided into parts and transferred to other companies; the shareholders acquire shares of the acquiring companies, and the demerging company ceases to exist and is deleted from the trade registry. In a partial demerger, one or more parts of the assets are transferred; the shares are either given to the shareholders of the demerging company, or the demerging company acquires these shares and thereby forms its subsidiary. A demerger is possible only between capital companies and cooperatives (TTK Art. 160). In a demerger in which the proportions are not preserved, at least ninety percent of the shareholders with voting rights in the transferring company are required for the approval resolution (TTK Art. 161, 173).

Practical significance

A demerger is based on a demerger agreement or demerger plan and on the demerger report prepared by the management bodies (TTK Art. 169). Creditors are called upon, through announcements in the Türkiye Trade Registry Gazette, to notify their receivables; the receivables of those who make a request are secured within the period set by law (TTK Art. 174–175). If the company to which a debt is allocated does not pay it, the other companies participating in the demerger bear secondary and joint and several liability under the conditions set by law (TTK Art. 176). A demerger becomes valid upon registration in the trade registry, and the assets and liabilities listed in the inventory pass to the acquiring companies (TTK Art. 179).

Commonly confused concepts

A demerger works in the opposite direction to a merger: in a merger the assets of several companies are brought together in one company, whereas in a demerger the assets of one company are distributed to other companies (TTK Art. 136, 159). A partial demerger can also be confused with the sale of a business unit: in a sale the consideration is the price paid to the selling company; in a demerger the consideration is the shares of the acquiring company, and the assets and liabilities pass upon registration. A change of legal form is not a demerger either; the assets are not transferred to another company, but the legal form of the same company changes (TTK Art. 180).