What is Technical Bankruptcy? What are The Procedures And Principles To Comply With? 20 March 2019

The extent to which the financial distress of capital companies affects the company's capital is important in terms of determining whether the company fall into scope of capital losses or over indebtedness that is also known as technical bankruptcy.

Procedures and principles to be complied in the event of capital loss or over indebtedness of capital companies that are regulated in general terms under Article 376 of the Turkish Commercial Code (“TCC”) are clarified with The Communiqué on the Principles and Procedures for the Application of Article 376 of the Turkish Commercial Code No. 6102 (”Communiqué”) which was published in the Official Gazette dated 15 September 2018 and became effective upon its publication. In general terms, while bringing in regulations parallel to Article 376 of the TCC, it is seen that the Communiqué explains some of the regulations stipulated in Article 376 with some examples and brings about important changes in some principles.

I. In Case At Least Half of Total of Capital and Legal Reserves of A Company Are Unrequited

Pursuant to Article 376/1 of the TCC, it is foreseen that if at least half of the total capital and legal reserves are unrequited, the Board of Directors will immediately call the General Assembly and submit appropriate remedial measures. The Communiqué explains by sampling the remedial measures of which details and scope are not determined under TCC. Accordingly, it can be submitted by Board of Directors as remedial measures such as completion of capital, capital increase, sale or closure of certain production units, change of marketing system etc. However, it should be noted that the measures mentioned in the Communiqué are not limited and the measures to be taken should be evaluated separately according to the situation of each company.

In the event that at least half of the total of capital and legal reserves are unrequired, the legislator has authorized the general assembly to accept the remedial measures offered by the Board of Directors by same or by amending. In the light of the information and documents submitted by the Board of Directors, General Assembly may also decide to apply the measures other than the measures provided, if it considers that is a more appropriate measure to improve the financial position of the company.

II. In Case At Least Two-Thirds of Total of Capital and Legal Reserves of a Company Are Unrequited

A. Introduction

In case it is understood that at least two-thirds of total of capital and legal reserves of a company are unrequited according to the last year’s balance sheet; Article 376/2 of TCC brought obligation to the Board of Directors that General Assembly is immediately called for the meeting; it also brought obligation General Assembly to decide to (i) confine one thirds of the capital or (ii) completion of capital.

Article 7 of the Communiqué states that if at least two-thirds of the total capital and legal reserves are unrequited, the general assembly called for the meeting may decide;

(a) To confine with one-thirds of capital or to reduce the capital under TTC,

(b) To complete the capital,

(c) To increase the capital.

It was seen in practice that the capital companies increased their capital by making simultaneous capital reduction and increase in accordance with the explanation in justification of Article 376 of TTC. As well as the simultaneous capital reduction and increase that is enjoyed in practice, is regulated by the Communiqué; capital companies are also enabled to increase their capital without capital reductions.

B. Measures To Be Taken

i. The capital reduction means that the General Assembly decides to confine with one third of the capital according to the articles 473 to 475 of the TCC.  At this point the decision to reduce the capital is required not to violate the minimum capital and nominal values ​​stipulated in the TCC.

ii. The capital increase has been regulated by two different methods by the legislator. Accordingly, besides a capital increase can be made simultaneously with the capital reduction as an amount of loss, it is also possible to decide on direct capital increase.

iii. The capital completion, the balance sheet deficits can be decided to be completed by all or some of the shareholders. At this point, the money added to the company's capital by the shareholders as a result of the decision to complete is unrequited.

In case at least two-thirds of total of capital and legal reserves of a company are unrequited, one of the measures to reduce capital, to complete capital or to increase capital is mandatory. Both the TCC and the Communiqué set forth the result of the failure of the General Assembly to take one of the necessary measures as automatic termination of the company.

III. In Case Of Over Indebtedness

Finally, if it is understood that the assets of the company are not sufficient to cover the receivables of the company’s creditors, then the situation of over indebtedness will emerge. Article 376 of the TTC imposes obligation of requesting the bankruptcy of the company by applying to the court to Board of Directors if the situation of over indebtedness is determined with company’s balance sheets that is prepared by Board of Directors.  However, this Communiqué brought an important innovation related to this issue. Pursuant to Article 12 of the Communiqué, where it is determined that the company is in over indebtedness, in the first place it is possible to apply one of the aforementioned measures to reduce the capital, to complete the capital or to increase the capital. In case of failure to take one of these measures, the Board of Directors will apply to the court for the bankruptcy of the company.

On the other hand, it should be highlighted as important innovation brought by Communiqué those losses of exchange difference arising from foreign currency liabilities which is not performed yet, shall not be taken into consideration in the calculations made regarding the loss of capital or situation of over indebtedness under the article 376 of the TCC. Therefore, it is aimed to prevent capital firms from being faced with technical bankruptcy due to fluctuations in exchange rate by being affected from current economic situation.

Türkçe Versiyonu İçin

http://www.kasaroglu.av.tr/tr/teknik-iflas-nedir-uyulacak-usul-ve-esaslar-nelerdir