Technical bankruptcy in joint-stock companies – Insolvency/bankruptcy


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In recent years, situations have often arisen in which the activities of joint-stock companies have caused losses, companies have become overwhelmed with debts due to the mobility of the exchange rate, and therefore companies cannot honor their debts and obligations. In particular, debts denominated in foreign currencies on company statements are increasing due to the increase in the exchange rate. These debts therefore reach significant amounts in Turkish liras. In the article of the law regulating the technical bankruptcy, in the event of loss of two thirds of the capital of the company, the board of directors is required to seize the court and to request the technical bankruptcy of the company.

Regarding indebted companies, Article 376 of the Turkish Commercial Code No. 6102, “Notification to court in case of indebtednessis one of the inalienable and indispensable duties of the board of directors in article.

Similarly, in Article 324, one of the duties of the board of directors in joint-stock companies and of the directors in limited liability companies is the protection and supervision of the capital of the company. In the law, this function is assigned to the board of directors in joint-stock companies and to the managers in limited liability companies. Although in practice, the provisions of the article on joint stock companies also apply to limited liability companies. Thus, the protection and monitoring of the company’s capital in joint-stock companies are part of the inalienable and indispensable duties of the board of directors.

Capital and technical bankruptcy issues are governed by Article 376 of the Turkish Commercial Code. The following statements are given in the article;

“(1) If it emerges from the last annual balance sheet that half of the sum of the capital and the legal reserves is not guaranteed due to a claim, the Board of Directors immediately convenes the GM and submits the corrective measures that he deems appropriate.

(2) According to the last annual balance sheet, if it emerges that two-thirds of the sum of the capital and the legal reserves are unsecured due to loss, unless the immediately convened GM decides to supplement the capital in full or to be content third of the capital, the company terminates automatically.

3) (Amended: 26/6/2012- art.6335/16) In the event of suspicion that the company’s liabilities exceed its assets, the Board has an interim balance sheet drawn up based on the value in use and on the basis of the liquidation value of the assets and hands it over to the auditor. The auditor takes note of this interim report within seven working days and presents his assessment and his proposals to the Board in the form of a report. The proposals of the early detection committee governed by Article 378 must also be taken into account in the proposals of the auditor. This will be done on the condition that before the judgment of bankruptcy, the creditors of the company representing a sum sufficient to cover the deficit of the company and to eliminate the indebtedness of the company accept in writing that they will be ranked after all other creditors and that the legitimacy, authenticity and validity of this declaration or this contract is verified by experts appointed by the court which is seized of the application for bankruptcy by the CA. Otherwise, the request for expertise made to the court is worth declaration of bankruptcy.

When the item is reviewed; We see that if two-thirds of the total capital and the legal reserve funds remain unrequited, the general meeting must be convened immediately, and if it is not decided to settle with one-third of the capital or to supplement the capital at the said meeting, it is agreed that the company will end naturally. However, although there is a provision in the wording of the law that technical bankruptcy will occur naturally, companies do not go bankrupt without going to court. Here, even if the wording of the law provides that the bankruptcy will take place without referral to the court, the bankruptcy will not take place without referral to the commercial court. Therefore, it is observed that the Technical Bankruptcy Regulation is not procedurally separated from the General Bankruptcy Regulation. The liquidation procedure of the company is carried out in accordance with Article 536 and continuation of the Turkish Commercial Code.

There “Communiqué on Procedures and Principles Regarding the Implementation of Article 376 of the Turkish Commercial Code No. 6102”, which regulates the principles relating to the implementation of Article 376 of the Law, entered into force on 15.09.2018 and was published in the Official Gazette on 26.12. With the “Communique on the modification of the communiqué on the procedures and principles concerning the implementation of the articlevarious changes have been made to insolvency and loss of capital practices. Detailed explanations of the capital loss and indebtedness have been provided in these press releases.

In the provisional article 1 added to the press release, it is specified that “Until 01/01/2023, exchange difference losses resulting from unsatisfied foreign currency obligations cannot be taken into account in the calculations relating to the capital loss or the state of indebtedness in the scope of article 376 of the law.” .

By the press release published in the Official Journal of 26.12.2020, until 01/01/2023, within the framework of article 376 of the law, it is specified that “In the calculations concerning the capital loss or insolvency, the totality of the exchange losses and half of the sum of the charges resulting from the leases accrued in 2020 and 2021, the depreciation and the personnel charges cannot be taken into account.”. However, it is not clear how to calculate the amount that will not be taken into account as a loss of exchange difference resulting from foreign currency obligations that have not yet been fulfilled. In fact, only exchange losses are mentioned in the press release and we see that exchange income is not mentioned at all. For this reason, it is not clear whether all exchange losses or the loss incurred as a result of the calculation made taking into account the income will be excluded from the calculation in the calculation to be made. Due to the economic problems encountered, the absence of a clear wording on the calculation in this regulation is problematic.

In addition, in accordance with legal provisions, if it emerges from the last annual balance sheet that two-thirds of the total capital and legal reserve funds remain non-reinvested due to losses, the general meeting may take the following decisions when convened by the board of directors:

  1. Capital reduction

  2. Simultaneous capital increase after the transfer of the loss out of the company

  3. Capital completion.

If the General Council does not decide on one of these preventive solutions, an application for bankruptcy of the company will be filed with the court and the company will initiate the liquidation procedure. For this reason, it is important to take corrective action in deciding the appropriate solution in order to avoid technical bankruptcy.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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