Turkey: Capital Decrease Under Turkish Law

1- GENERAL

Capital decrease is regulated under Articles 473 - 475 of the Turkish Commercial Code numbered 6102 ("TCC") The main reasons for companies to reduce capital in Turkey are i) returning some of the capital to the shareholders as new shares or ii) recovering the company's loss indicated in the balance sheet (i.e. deciding to operate with less capital as a precaution for capital protection in case of capital inadequacy/technical bankruptcy under Article 376 of the TCC).

2- PROCEDURE

2.1. Step 1: Report of the Board of Directors

As the first step, the Board of Directors must prepare a report stating the purpose and scope of the capital decrease and the procedures which will be carried out within the context of the capital decrease. The Board of Directors will submit this report to the attention and approval of the General Assembly (as mentioned below).

2.2. Step 2: Report of the Accountant/Auditor (can be carried out simultaneously with step 1)

A sworn-in certified public accountant (YMM)/independent accountant and financial advisor (SMMM) or the company auditor (if the company is subject to independent audit under the TCC) must also prepare a report certifying that there are enough assets to cover the rights and receivables of the creditors despite the capital decrease.

This report will also be submitted to the attention and approval of the General Assembly (as mentioned below).

2.3. Step 3: General Assembly Resolution for Capital Decrease

2.3.1. Invitation to the Shareholders and Announcement in the Trade Registry Gazette for Holding the General Assembly Meeting

The requirements set forth under the TCC for holding a General Assembly meeting such as notification to the shareholders (via registered letter) and announcement in the Trade Registry Gazette (by applying to the relevant Trade Registry) must be followed prior to holding the General Assembly meeting for capital decrease. Announcement in Trade Registry must be made at least 14 days prior to the date of the meeting (excluding the announcement and meeting dates) Also, a separate announcement must also be made on the website of the company if the company is required under Article 1524 of the TCC to open a web site.

As a specific requirement for capital decrease, in all above-mentioned announcements, the purpose and scope of the capital decrease and the procedures which will be carried out within the context of the capital decrease, must be clearly stated.

That said, according to Article 416 of the TCC, if all shareholders are to be present at the General Assembly meeting, the above-mentioned notification and announcement procedures (except for the announcement on the company website) will NOT be required.

2.3.2. Appointment of a Ministry Representative

A representative of the Ministry of Customs and Commerce is required to attend the General Assembly meeting to be held for capital decrease. In order to request appointment of the representative, an application must be made to the Provisional Directorate of Commerce located in the relevant jurisdiction with the following documents:

  • Board of Directors resolution inviting the General Assembly - This resolution will NOT be registered with the Trade Registry and announced in The Trade Registry Gazette if all shareholders are to be present at the upcoming General Assembly meeting (as per Article 416 of the TCC)
  • The Trade Registry Gazette showing the current Board of Directors
  • Meeting agenda of the General Assembly meeting
  • A simple one page petition to be stamped and signed by the authorized signatories of the company
  • Signature circular indicating the signatory powers of the persons signing the above-mentioned petition
  • A bank receipt showing the fee for the appointment of the Ministry Representative is paid

2.3.3. Holding the General Assembly Meeting

Once the reports of the Board of Directors and the accountant/auditor are prepared (and the invitation/announcements procedures are followed if necessary), the shareholders of the company must convene the General Assembly and adopt a General Assembly resolution approving the capital decrease.

The General Assembly resolution must clearly indicate the purpose of the capital decrease, what type of capital decrease will be carried out and which procedures will be followed. In said the resolution, the above-mentioned reports of the Board of Directors and accountant/auditor must be reviewed and approved.

Unless the articles of association requires a higher quorum (cannot be lower), capital decrease decision can only be taken with the consent of shareholders (or their proxies) owning shares which represent at least 75% of the capital of the company (required in all meetings).

2.4. Step 4: Invitation to the Creditors

Following the adoption of the above-mentioned General Assembly resolution for capital decrease, the Board of Directors of the company will make an application to the relevant Trade Registry to make an announcement to the creditors1. The creditors will be invited three times at intervals of 7 days in the Trade Registry Gazette. The Board of Directors is also required to send registered letters to the creditors of the company whose addresses are already known. Also, a separate announcement must also be made on the website of the company if the company is required under the Article 1524 of TCC to open a web site.

With the above-mentioned announcements, the creditors will be invited to notify their receivables and request to have their receivables paid or secured, within 2 months following the last (third) announcement published in the Trade Registry Gazette.

It is very crucial to note that in order to implement the resolution for capital decrease, the receivables which are due and payable must either be paid or secured. If the claims of the creditors are not paid or secured, the creditors can apply to the relevant court for the cancellation of the General Assembly resolution adopted for the capital decrease within 2 years subsequent to the publication of the resolution in the Trade Registry Gazette.

Having said that, according to Article 474/2, in case the purpose of the capital decrease is to recover the company's loss indicated in the balance sheet of the company and the capital is decreased in the amount of such loss; the Board of Directors, in its own discretion, may decide not to follow the procedures of notifying the creditors and paying or securing their receivables. In such case, however, the Board of Directors must obtain a decision to that end accordingly.

2.5. Step 5: Preparation of the Board of Directors Report Regarding the Status of the Creditors and Their Receivables - (2 months after the last announcement made to the creditors in the Trade Registry Gazette)

After 2 months following the last (third) announcement made to the creditors in the Trade Registry Gazette, a report must be prepared and signed by the Board of Directors showing the list of the creditors who applied to the company to have their receivables paid or secured.

If no creditor has applied to the company within the aforesaid 2-months period, the said report of the Board of Directors will declare that no creditor has applied to the company.

2.6. Step 6: Application to the Trade Registry

As the final step (after all above steps are completed), the Board of Directors of the company must make an application to the relevant Trade Registry with the following documents:

  • A simple one page petition to be stamped and signed by the authorized signatories of the company (1 copy)
  • The letter obtained from the Provisional Directorate of Commerce regarding the appointment of the Ministry Representative (1 copy)
  • Copies of the three Trade Registry Gazettes in which the announcements made to the creditors, (1 copy for each)
  • List of Attendants of the General Assembly meeting (1 copy)
  • Notarized General Assembly meeting minute (2 copies)
  • Copies of the notarized/appostilled proxy(ies) if shareholder(s) is/are represented through are proxy at the meeting (1 copy)
  • Amendment text indicating the revised version of the provision in the Articles of Association regarding the capital of the company (1 copy)
  • The above-mentioned (in paragraph 2.1.) report of the Board of Directors (2 copies, one original)
  • The above-mentioned (in paragraph 2.2.) report of the accountant/auditor (2 copies, one original) together with the activity certificate (good standing certificate) of the accountant
  • A report prepared and signed by the Board of Directors showing the list of the creditors applied to have their receivables paid or secured, with the documents evidencing that their receivables are either paid or secured or a report obtained from a sworn-in certified public accountant (YMM)/independent accountant and financial advisor (SMMM) attesting to the fact that the receivables of the creditors are actually paid or secured. If a report is obtained from an accountant, the activity certificate (good standing certificate) of the accountant must accompany the said report. OR The Board of Directors resolution stating that procedure for notifying the creditors is not followed as the capital is decreased to cover the losses in the balance sheet.

Footnote

1. Application to the Trade Registry at this stage will only be made for the announcement to the creditors with a one page announcement letter, not for the registration of the General Assembly meeting yet. Application for announcements to the creditors will only be made one time with one letter (and then the Trade Registry will announce the said letter three times as mentioned above.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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