Technical bankruptcy due to over-indebtedness in joint stock and limited liability companies has been set forth in Article 376 of Turkish Commercial Code ("TCC") numbered 6102.
Under Article 376/1 of the TCC; if it is clear in the last annual balance sheet that half of the sum of the capital and legal reserves are unsecured due to loss, board of directors calls general assembly immediately to meeting and submit its appropriate remedial measures to this general assembly.
Under Article 376/2; according to the last annual balance sheet, if two-thirds of the capital and legal reserves are unsecured due to loss, if general assembly called immediately doesn't decide to fully supplement the capital or to be satisfied with one-third of the capital, the company shall automatically dissolve.
On 15 September 2018 "The Notification on the Procedures and Principles for the Application of Article 376 of the Turkish Commercial Code Numbered 6102 ("Notification")" was published in Official Gazette number 30536. It regulatesthe procedures and principles to be followed in case of loss of capital or financial insolvency within the scope of article 376 of TCC.
Under the Notification, the board of directors ("BoD") describes the financial situation of the company in its entirety and in a way that can be understood by each shareholder. In this respect, a report can also be submitted to the general assembly. In order to resolve the deterioration of the financial situation of the company or at least to reduce its effects, the BoD may adopt alternative and comparative measures such as complement the capital, complete the capital increase, close or reduce certain production units or departments. The General Assembly may either adopt the proposed remedial measures as they are or may adopt a measure other than the measures provided.
The Notification regulates specific cases of capital inadequacy in these companies and determines recovery methods to be adopted by these companies in order to strengthen the company's financial status such as
- Be content with one third of the capital and capital decrease according to articles 473 to 475 of the Law,
- To fully supplement the capital
- Capital increase.
If the general assembly fails to adopt any of these resolutions at the meeting or if a meeting is not convened at all, the company would be deemed dissolved. Technical Bankruptcy is one of the legal reasons for dissolution of companies.
The most important provision set out by the Notification is the postponement of technical bankruptcy due to the increase in the foreign currencies. Many companies may have fallen in the technical bankruptcy situation after the significant depreciation in Turkish lira. Within the scope of this "Notification", under the Provisional Article 1, until the date 01.01.2023 losses of exchange rate caused by obligations in foreign currencies not yet performed may not be taken into account with regard to calculations about financial insolvency and loss of capital in relation to the art 376 of TCC.
Notification has entered into force on the date of its publication.
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.