The duties, obligations and liabilities of liquidators who play a major role in the dissolution and liquidation of companies are briefly explained below.
Liquidators, Their Duties and Obligations
The duties to be performed by liquidators are determined in the relevant articles of the Turkish Commercial Code (TCC). In principle, liquidators shall exercise their authority themselves and cannot transfer their authority to third persons. However, in case there is more than one liquidator, a liquidator may grant representative authority to his co-liquidator or to a third person for the purposes of fulfillment of some specific transactions (TCC Art. 539/1).
Liquidators represent companies with regard to the issues on liquidation before courts or in external relations. In this respect, they can appoint attorneys, conclude settlement agreements, or bring the dispute to arbitration.
The liquidator shall act as a diligent director.
First Inventory and Balance Sheet
The liquidators shall first examine the status of the company concerning the liquidation at the time of their appointment. They shall prepare an inventory and balance sheet disclosing the financial and asset status of the company by consulting with experts for the assessment of assets, and submit these to the approval of the general assembly.
Following the approval of the inventory and balance sheet by the General Assembly, the liquidators shall seize all of the assets, documents and books of the company that are included in the inventory.
Invitation and Protection of Creditors (TCC Art. 541)
Concerning a company in liquidation, the creditors shall be invited to notify their receivables to the liquidators. The liquidators shall invite the creditors, via registered letter with return receipt, whose addresses can be obtained from the company's books or other relevant documents. Other creditors shall be informed of the liquidation of the company and invited to claim their receivables by announcing the liquidation of the company 3 times (once a week) on the web site of the company and in the Trade Registry Gazette. If the creditors who are known do not make any claim, the amount of their receivables shall be reserved in the account of a bank to be determined by the Ministry of Customs and Commerce.
Unless the debts of the company, which are not due and which are not subject to any dispute, are guaranteed by sufficient sureties, or in case the distribution of the company assets among shareholders is not subject to the condition of the payment of these debts, such amount equivalent to such debt shall be deposited with the notary public. Liquidators who act contrary to the aforesaid and unjustly distribute funds to the shareholders shall be held liable pursuant to Art. 553 TCC.
Other Liquidation Transactions (TCC Art.542)
The duties of liquidators concerning other liquidation transactions are briefly provided below (TCC Art. 542):
- Liquidators conduct daily business of the company and conclude work already begun before their arrival. They cannot engage in new transactions that are not necessary in terms of liquidation.
- Unpaid portions of shares shall be collected. The assets are turned into cash. The liquidators have the authority to sell the assets one by one or in whole. Unless otherwise provided in the general assembly, the liquidators can sell the assets at a bargain price (TCC Art. 538/1).
- The debts shall be paid and the obligations shall be fulfilled. The liquidators are obliged to pay the company's debts, if the debt does not exceed company assets, which will be turned into cash pursuant to the first liquidation balance sheet and in accordance with the situation after the creditors have been paid.
- Where a company's debts exceed its assets, the liquidators shall immediately notify this situation to the court. If the court decides in favor of bankruptcy, the liquidation shall be made pursuant to the provisions of bankruptcy law.
- The transactions of liquidation shall be concluded as soon as possible and the liquidators shall keep necessary records/books for the good conduct and protection of transactions.
- Pursuant to the accountability principle, in case the liquidation is not concluded within a year, the liquidators shall prepare the financial statements relevant to the liquidation at the end of every year. They shall also prepare the final statement at the end of the liquidation, submit it to the general assembly and answer questions, if any.
- The liquidators shall deposit the balance of the necessary expenses of the company to a bank account in the name of the company.
- The liquidators shall immediately pay debts that are not due, by applying a discounted interest rate as for a short-term loan as determined by the Central Bank of the Republic of Turkey.
- The liquidators shall provide information to the shareholders on the status of liquidation transactions and must provide signed documents in this respect, if requested.
Distribution to Shareholders (TCC Art. 543)
Following the payment of debts and the return of share prices, the distribution to shareholders shall be realized, upon a general assembly resolution, on the proportion of the capital they paid and their concession rights.
For the distribution to be made, one year shall have passed as of the third announcement made to the creditors. However, where there is no risk for the creditors, a request can be submitted to the court for the authorization of distribution before the1-year term.
In principle, the distribution shall be in principle made in cash but it may be made in kind if determined under the articles of association of the company (TCC Art. 543/3).
Preservation of Books (TCC Art. 544)
The liquidators are obliged to keep the commercial books and other relevant documents (including liquidation transactions) in accordance with TCC Art. 82. The last company general assembly shall declare and ensure that company books are kept by the Civil Court of Peace for 10 (ten) years.
Cancellation of Registration of Trade Registry (TCC Art. 545)
The liquidators shall apply to the relevant trade registry for the cancellation of the company trade name at the end of liquidation.
The liquidators shall notify tax offices, banks and other relevant official institutions and submit them a statement of liquidation.
Liabilities of the Liquidators
Concerning the liabilities of liquidators, Art. 546/2 refers to Art. 553, which stipulates the liabilities of directors in joint-stock companies.
Pursuant to the said Article, in case the founders, members of the board of directors, managers and liquidators violate their obligations as provided in law and in the Articles of Association by fault, they are liable for the damages incurred to the company, the shareholders and creditors of the company.
The liquidators, who pay money unjustly by violating the provisions relevant to the invitation and protection of creditors, shall be liable as per Art. 553 TCC (TCC Art. 541/4). Additionally, the liquidators, who do not deposit the equivalent of disputed credits to a notary pursuant to Art.541/4 of the TCC, shall be liable as per Art.553 of the TCC.
The liability stipulated in said Article is based on the fault of the liquidators and it shall be determined if the liquidators have performed their duties in diligence. The claimant shall prove if the liquidators are in fault.
Although said liability in the relevant Article is a joint liability in principle, the joint liability occurs only when the liquidators manage and represent jointly. Where the distribution of duties is realized by a general assembly resolution and liquidators are separately authorized to execute actions with regard to the liquidation, each is only liable for the results of the action they executed.
The company, shareholders or creditors of the company can file a liability suit against the liquidators in case they violate their obligations as provided in law or the company articles of association. The lawsuit shall be initiated within two years from the date of becoming aware of the damage and responsibility, and in any case, within five years from the date of the act causing the damage. These time limitations constitute a prescription for the right of action. However, if the action causing the damage constitutes a crime pursuant to Turkish Criminal Law No. 5237 where there is a longer time limit on the right to take action, then the liability lawsuit may be opened within such term. (TCC Art.560)
Liquidators shall be appointed to a company that enters into liquidation pursuant to the TCC. Within this scope, liquidators do not only play a major role, but also hold important responsibilities in this process.
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.