• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren


The Communiqué on the Procedures and Principles of the Implementation of Article 376 of the Turkish Commercial Code No. 6102 (“Communique”) was published in the Official Gazette dated 15.09.2018 and numbered 30536 and entered into force on the same day. According to Article 5 of the Communiqué, if it is identified from the company’s balance sheet pertaining to the last fiscal year that at least half or 2/3 of the company’s capital plus legal reserves have been depleted due to loss, the Board of Directors is required to invite the General Assembly for meeting immediately. The depletion of the share capital shall also be included in the agenda of the next general assembly meeting to be convened. Moreover, even in circumstances where the general assembly is called for the meeting with a different agenda, a topic in respect of share capital depletion shall also be added if half or 2/3 of the company’s capital plus legal reserves have been depleted due to loss.


In parallel with the respective provisions of the Turkish Commercial Code No. 6102 (“TCC”), the consequences of the loss of half of the capital and 2/3rd of the capital are also regulated separately under the Communiqué.


As such, if it is determined from the company’s year-end financials that at least half of the capital company’s capital plus legal reserves have been depleted due to loss, the Board of Directors shall propose to the General Assembly, the remedies such as appropriate compensation of the lost capital, increase of the capital, closure or downsizing of some departments, liquidation of subsidiaries or change of the marketing methods. The General Assembly may either accept the proposal or resolve to take different measures.


If it is determined that 2/3 of the company’s capital plus legal reserves have been depleted due to loss, the General Assembly shall decide on one of the following three measures:


1. Continuing the operation with the remaining 1/3 of the capital and decreasing the capital as per Articles 473, 474 and 475 of the TCC.

2. Replenishment of the capital

3. Increase of the capital (which is an option not clearly indicated under the TCC).


Regarding the decrease of the share capital, it is worth to note that the General Assembly is entitled to decide not to notify the creditors and not to pay their rights or provide security if it is decided to continue the operations of the company with the remaining 1/3 of the capital.


Article 10 of the Communiqué foresees two different initial payment methods for the capital increase. If the General Assembly resolves on the simultaneous capital decrease and increase,1/4 of the share capital is expected to be injected at the time of the registration of the general assembly  whereas, in the event of capital increase without a simultaneous decrease, half of the increased capital is expected to be injected as initial payment at the time of the registration of the general assembly.


If the General Assembly does not resolve to apply any of the aforementioned measures, the company will be terminated automatically and the liquidation will be carried out in line with Article 536 and the following articles of the TCC.


Section three of the Communiqué regulates the indebtedness of the companies which refers to the circumstances where the assets of the company do not cover its liabilities. Indebtedness of a company can be determined pursuant to the annual/semi-annual financial statements and, to the extent applicable, from audit reports and early risk committee reports of companies. If the board of directors believes that there is suspicion on indebtedness, an interim balance sheet shall be prepared based on the assets and potential sale prices of the company. If, as per such interim balance sheet, it is determined that the assets of the company is insufficient to cover its liabilities and if none of the measures required to be taken in cases where 2/3 of the company’s capital plus legal reserves are depleted due to loss (as explained above), the board of directors shall notify this situation to the Commercial Court of First Instance of the lieu of the headquarters of the Company and request declaration of the bankruptcy of the company. Although it is not referred in the Communiqué, the TCC provides that notification requirement to the court shall not apply, if the creditors of the debts, with an amount covering the company deficit and remedying the financial distress, accept in writing prior to the bankruptcy decision that their debts may be deferred after all other creditors are satisfied; and the accuracy and validity of such statement are verified by the experts appointed by the court to which the bankruptcy request will be made. Otherwise, the application filed to the court for expert review shall be accepted as a bankruptcy notice.


The last section of the Communiqué stipulates the terms and conditions which will be applicable in case of merger of a company, the capital of which is lost or which is bankrupt, with another company that has freely disposable equity sufficient to cover the lost capital. 


Finally, Provisional Article 1 of the Communiqué introduces a measure against fluctuations in the currencies. In that respect, foreign exchange losses arising from foreign currency liabilities which are not yet fulfilled may not be taken into consideration in the calculation of the foregoing until 01.01.2023.

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