Berk Cin
A. Alper Katırcı
The Communiqué Amending Communiqué on Procedures and Principles Regarding the Implementation of Article 376 of the Turkish Commercial Code No. 6102 was published in the Official Gazette dated October 31, 2023 and no. 32355 and entered into force on the date of publication.
The Communiqué on Procedures and Principles Regarding the Implementation of Article 376 of the Turkish Commercial Code No. 6102 (“Communiqué”) regulates procedures and principles regarding the limited liability and joint stock companies’[1] capital loss or insolvency.
With this piece of legislation, the period stipulated in Provisional Article 1 of the Communiqué has been extended from “January 1, 2024” to “January 1, 2025”.
Pursuant to Provisional Article 1, “the sum of all the foreign exchange losses arising from foreign currency liabilities that have not yet been performed and half of the sum of expenses from leases, depreciation and personnel expenses accrued in 2020 and 2021” may not be taken into account in the calculations regarding capital loss or insolvency based on financial statements prepared pursuant to Article 88 of the Turkish Commercial Code (“TCC”). This article aims to protect companies from technical bankruptcy by relieving their financial statements from foreign exchange losses arising from exchange rate volatility and the negative effects of the pandemic on the economy.
Pursuant to Article 376, in case of a capital loss the company’s board of directors must take the following actions depending on the amount of losses incurred:
In case of loss of half of the capital (TCC Art. 376/1), the board of directors must immediately convene a general assembly to take remedial measures.
In case of loss of 2/3 of the capital (TCC Art. 376/2), the board of directors is required to call for a general assembly meeting for the shareholders to resolve either to replenish the share capital or continue with the remaining one-third of the share capital. If the shareholders do not reach a decision on either of the above, the company must file for bankruptcy.
If the assets of the company are insufficient to cover its liabilities (TCC Art. 376/3), the board of directors must file for bankruptcy.
Failure to fulfill these obligations may result in the liability of the board of directors. Therefore, it is critical to determine the capital loss or insolvency of companies. In this regard, it is sufficient for companies to indicate in the footnotes of their financial statements, the disregarded balance sheet items in accordance with the regulation under Provisional Article 1 until January 1, 2025 regarding capital loss and insolvency.
[1] For public joint stock companies, Capital Markets Board’s Decision No. 11/352 dated April 10, 2014 applies.