The Communique (“Communique”) regarding the Procedures and Principles of Implementation of Article 376 of the Turkish Commercial Code Numbered 6102 (“TCC”), was published in the Official Gazette on September 15, 2018 and entered into force. This Communique is a guide for the implementation of Article 376 of the TCC and the purpose of this Communique is to regulate the procedures and principles in case of loss of share capital or indebtedness pursuant to Article 376 of TCC. Joint-stock companies, limited liability companies and limited partnerships divided into shares are included within the scope of the Communique.

  • In the event that at least half of the total share capital and legal reserves are uncovered (Communique Article 6)

o The board of directors submits to the general assembly the remedial measures it considers appropriate

o The board of directors explicitly explains the financial situation by submitting the last balance sheet to the general assembly in a manner to be understood by each shareholder. A report regarding this matter can be submitted to the general assembly.

o In order to eliminate or at least to reduce the effects of the deterioration of the financial situation of the company, the board of directors shall alternatively and comparatively submit and explain remedial measures to the general assembly, such as the completion of the share capital, share capital increase, shutting down or reduction of certain production units or departments, sale of subsidiaries, altering the marketing system.

o The general assembly may approve these remedial measures or approve such after some modifications. The general assembly may also decide to implement an alternative measure other than the measures submitted.

  • In the event that at least two-thirds of the total share capital and legal reserves are uncovered due to loss (Communique Article 7)

o The convened general assembly may decide in the following three ways:

i. To settle with one third of the share capital and decrease the share capital according to Articles 473 to 475 of the TCC

ii. To complete the share capital

iii. To increase the share capital

  • Share Capital Decrease (Communique Article 8)

In the event of at least two-thirds of the total share capital and legal reserves are uncovered due to loss; share capital shall be decreased in accordance with Articles 473 to 475 of the TCC if the general assembly decides to settle with one third of the share capital. In this situation, the board of directors may resolve not to call the creditors and not to pay or secure their rights.

  • Completion of the Share Capital (Communique Article 9)

Completion of the share capital is defined in the Communique as “closing of balance sheet deficits by all or some of the shareholders.” In the event of the share capital is decided to be completed, each shareholder is obliged to pay the amount of money equivalent to the amount uncovered due to losses. Each shareholder can participate in the completion pro rata to its shareholding and can not reclaim such amount. This obligation is not an injection of share capital or a loan and is a gratuitous transaction. In addition, these payments may not be considered as an advance payment to be set off from future share capital increases.

  • Increase of the Share Capital (Communique Article 10)

The General assembly is entitled to increase the share capital in two manners:

General assembly may decide to increase desired amount of share capital simultaneously with share capital decrease at the amount of the share capital loss due to losses. In this situation, at least one quarter of the share capital shall be paid.

o The share capital increase can be decided without decreasing the share capital at an amount equivalent to the share capital loss which is the result of the losses. In this situation, the amount covering at least half of the share capital must be paid before registration.

  • Situation of Indebtedness (Communique Article 12)

In the Communique, the situation of indebtedness of the company is defined as “the situation in which the assets of the company fail to cover the debts”. The signs of this situation can be understood from the annual and interim financial statements, the audit reports in companies subject to audit, the reports of the early determination committee and the determinations of the board of directors. If there are indications that the company is indebted, the board of directors prepares an interim balance sheet where the current assets are calculated at estimated current market value and according to the principles of the company’s continuity. If the interim balance sheet indicates that the company’s assets are not sufficient to cover its debts and the measures specified in Article 7 are not taken the board of directors must notify the court and file for bankruptcy.

  • Participating in mergers in state of indebtedness and share capital loss (Communique Article 14)

It is possible for a company which is in-debt or which has lost its share capital, to merge with another company that has sufficient freely disposable equity to cover the lost share capital of the other party. Thus, the company which is a party to the merger must possess the freely disposable equity amount that will meet the other company’s lost share capital or indebtedness status. A report from certified public accountant or independent accountant shall verify the before mentioned amount, indicating the account form or otherwise verify that the specified conditions do not exist.. If the transferee companies are subject to audit, this report may also be prepared by the auditor of the company.

  • Communique Provisional Article 1

It should be noted that until January 1, 2023, foreign exchange losses arising from obligations in foreign currency which are not fulfilled yet may be disregarded in the calculations made with respect to the loss of share capital or state of indebtedness within the scope of Article 376 of the TCC,