THE LIQUIDATION OF LIMITED COMPANIES 10 January 2022

THE LIQUIDATION OF LIMITED COMPANIES

I. INTRODUCTION

Limited Companies are terminated by the following reasons such as the realization of one of the reasons for termination written in articles of association of the company, the resolution of the general assembly, the adjudication of bankruptcy, and other termination cases stipulated in the law.

The liquidation of joint-stock companies is regulated between articles 529 and 548 of the Turkish Commercial Code No. 6102 (“TCC”). Although the liquidation of limited companies is not regulated separately by the TCC, the provisions regarding the liquidation of joint-stock companies are also applied in the liquidation of limited liability companies, according to the explicit reference in Article 643 of the TCC. Therefore, the following explanations may apply to the liquidation of both joint-stock companies and limited liability companies.

II. THE LIQUIDATION PROCESS 

A. The Introduction Of Liquidation  and General Assembly Resolution

Shareholders will decide to enter the liquidation process with the general assembly decision. Unless a higher quorum is stipulated in the articles of association of the company, the affirmative vote of the shareholders representing 75% of the company's capital is sought for the liquidation decision.

Liquidators are obliged to complete the ongoing transactions of the company, collect the parts of the share prices that have not yet been paid, liquidate the assets and pay the company's debts if the debts of the company are not more than the company's assets determined on the first liquidation balance sheet and the call made to the creditors. Liquidators are unable to execute any activity unless it is not required by the liquidation. If the company's debts are greater than the company's assets, the liquidators immediately report the situation to the commercial court of the first instance where the company's head office is located. In this case, the court will decide to adjudicate bankruptcy.

Liquidators represent the company for transactions limited to liquidation and may be held legally liable to shareholders and creditors for the transactions in the liquidation process. Both legal entities and natural persons can be appointed as liquidators. However, at least one liquidator must be a Turkish citizen and reside in Turkey.

As soon as liquidators begin their duties, they examine the situation of the company at the beginning of the liquidation; If necessary, they apply to experts to appraise the company's properties and prepare an inventory and balance sheet showing the company's assets and financial situation and then submit it for the approval of the general assembly. After the inventory and balance sheet are approved by the general assembly, the liquidators confiscate all the company's property, documents, and books written in the inventory.

With the registration and announcement of the relevant general assembly resolution, the company enters the liquidation process. The company in liquidation will have the legal personality until the liquidation process is completed. The company's trade name will be used with additional phrases indicating that the company is in the liquidation process such as “in liquidation”.

B. Call to Creditors

The liquidator must identify the creditors of the company based on the company's books and other relevant documents, send them a registered letter informing them that the company is in the liquidation process, and notify the liquidator of its receivables from the company.

In addition to the relevant letters sent to the identified creditors, upon the application of the liquidator to the relevant trade registry, a general statement inviting all the creditors of the company to notify the liquidators of their receivables within three months should be published in the Turkish Trade Registry Gazette. The relevant announcement is made three times with an interval of one week.

C. Three Month Waiting Period

After the third announcement in the Turkish Trade Registry Gazette, shareholders must wait at least three months before the company's liquidation process is completed. The waiting period may be extended, but not shortened.

Afterward, the liquidator must claim and collect all receivables from the debtors of the company. The assets of the company must be sold by the liquidator.

On the other hand, the liquidator must pay all debts of the company to its creditors, including employees, service providers, banks, and public authorities. In this regard, all contracts previously concluded by the company must be duly terminated before the end of the three-month waiting period. All ongoing legal disputes will prevent the completion of the liquidation process. Therefore, all disputes must either be resolved by the parties or be finalized.

After the debts and shares are paid, the remaining assets of the company should be distributed to the shareholders in proportion to their shares and privileged shares. The remaining assets of the company cannot be distributed until one year has passed from the date of the third call to the creditors. If there is no risk to the creditors, the court may allow the distribution before one year has passed. Unless otherwise stated in the articles of association of the limited company and the resolution of the general assembly, the distribution will be made in monetary terms.

D. Ending The Liquidation Process with General Assembly Resolution and Deregistration From Trade Registry

With the end of the three-month waiting period, the general assembly decides that the liquidation process has been completed with the approval of the final balance sheet. Since all debts of the company will be paid and the remaining assets will be distributed to the shareholders at the end of the process, the final balance sheet will indicate that the company has no assets and liabilities. The liquidation process will be completed with the registration and announcement of the relevant general assembly resolution. The company's registration will be deleted from the relevant trade registry and the legal entity of the company will end.

Deregistration from the relevant trade registry does not automatically delete the company's tax and social security records. For this reason, the liquidator must also notify the relevant tax office and social security institution that the liquidation process has been completed.

After the end of the liquidation process, liquidators must preserve all the documents and corporate books according to the general provisions of TCC.

E. The Additional Liquidation

Additional liquidation is a temporary measure that is applied in the case that the liquidation process and operations are completed and it is understood that further liquidation procedures are mandatory. This liquidation is a temporary way to make the company into a liquidation company for a temporary period so that transactions required by the additional liquidation can be carried out. Additional liquidation does not create a different legal status, on the contrary; this liquidation completes the previous one.

To exemplify, if the company assets have not been liquidated even though they are within the scope of the liquidation process, some incomplete transactions, some legal obligations have been violated during the sharing and distribution of assets, and a lawsuit will be filed regarding the responsibility of the organs; re-registration of the company may be requested until the additional procedures are completed.

Additional liquidation may be requested by the last liquidation officers, members of the board of directors, shareholders, and creditors from the commercial court of the first instance in the place where the company's head office is located. If the court decides that the request is valid, it decides on the re-registration of the company for additional liquidation and appoints the last liquidator or one or more new liquidators to carry out these transactions, and has them registered and announced.

F. The Liquidation In Bankruptcy

The liquidation of a bankrupt limited company is carried out by the bankruptcy administration. In case of bankruptcy; bankruptcy administration is established and the bankruptcy administration will carry out the liquidation proceedings as well as the bankruptcy proceedings. Therefore, bankrupt the provisions of the Enforcement and Bankruptcy Law will be applied in liquidation, not the process mentioned above.

G. Reversing The Liquidation Decision

It is possible to reverse the liquidation decision in case of certain conditions. If the company has ended with the expiry of the period written in articles of association of the company or with the decision of the general assembly, the general assembly may decide to continue the company unless the distribution of the company's assets between the shareholders has been started. At least sixty percent of the company’s capital is required for this decision. This quorum can be increased with the articles of association and other measures can be arranged.

The liquidator is obliged to register and announce the decision of the general assembly regarding the abolition of liquidation.

III. CONCLUSION

As explained above; the liquidation of a limited liability company is a process that must be carried out carefully. Therefore, it is essential to carry out the process by carefully examining each stage in order not to cause any loss of rights.