Shareholders can choose to liquidate their companies through a resolution. The company may have achieved its goal, or its operations may no longer be needed, or the unmet business goals, economic and legal uncertainties may be the reasons for such decision. Even if the company can still pay its debts, the winding up of the company may be the best option.
In this article, we will be explaining the legal steps and some other points to consider for the shareholders’ voluntary liquidation for joint-stock companies and limited liability companies incorporated in Turkey.
Legislative Framework
The liquidation of joint-stock companies is regulated under Articles 529 to 548 of the Turkish Commercial Code (“TCC”) numbered 6102. Although the liquidation of limited liability companies is not separately regulated by the TCC, with the explicit reference of Article 643 of the TCC, the provisions related to the liquidation of joint-stock companies are also applied to the liquidation of limited liability companies. Therefore, all our explanations should be construed as applicable to the liquidation of both joint-stock companies and limited liability companies.
Preparation for the Liquidation Process
With the completion of the liquidation, the company will be deregistered from the relevant trade registry and its legal personality will finally come to an end. However, liquidation is a lengthy process. Certain legal actions must be carried out before its finalization. Consequently, the liquidation process takes at least 4-5 months even in smooth cases where there are no unpaid debts or legal disputes.
Therefore, until the finalization of liquidation of the company, the company will continue to incur expenses, such as the lease fee of the office, salaries of the directors (and/or managers) and other employees, the salary of the liquidator, service fees of the lawyers and accountants, taxes, and other official fees. Furthermore, the company may need to pay additional remunerations to terminate the agreements (e.g., employment agreements and other agreements) and to settle legal disputes. In this respect, a budget should be allocated to the liquidation process by considering all current and potential liabilities of the company.
Main Steps of the Voluntary Liquidation Process
1. General assembly resolution initiating the process and appointing the liquidator
Liquidation decision: In the form of a general assembly resolution, shareholders should decide on the liquidation of the company. Unless a higher quorum is required under the articles of association, affirmative votes of the shareholders representing 75% of the total share capital of the company are required for the respective liquidation decision.
Appointment of the liquidator(s): Liquidation procedures should be carried out by one or more liquidators (i.e. liquidation officer). Liquidators shall be authorised to represent the company regarding the transactions limited to liquidation and they can be held legally responsible towards the shareholders and the creditors for the transactions during the liquidation process. Both legal entities and real persons can be appointed as liquidators. However, as per the TCC, at least one liquidator must have Turkish citizenship and residency in Turkey. In the same general assembly resolution regarding the liquidation decision, a liquidator should be appointed.
Upon registration and announcement of the respective general assembly resolution, the company will enter the liquidation process. The commercial title of the company will also have additional words indicating that the company is in the liquidation process (e.g., “ABC import-export ltd” will be changed to “ABC import-export ltd in liquidation”). An inventory list and a balance sheet should be prepared to determine the financial situation at the beginning of the liquidation.
2. Invitations for the creditors
Letters to the known creditors: The liquidator should identify the creditors of the company based on the company’s ledgers and documents and send them a letter (by a registered mail), which announces that the company has entered the liquidation process, and they should notify the liquidator of their receivables from the company.
Announcements in the trade registry gazette: In addition to the respective letter to be sent to the known creditors, upon application of the liquidator with the relevant trade registry, a general declaration, which invites all the creditors of the company to report their receivables to the liquidators within three months, should also be announced in the Turkish Trade Registry Gazette. The respective announcement shall be made three times in a row with intervals of one week.
3. Three-month waiting period
Following the third announcement in the Turkish Trade Registry Gazette, the shareholders must wait at least three months before the completion of the liquidation process of the company. The respective waiting period can be extended but not shortened. In this period, certain actions must be carried out by the liquidator.
Collection of receivables: The liquidator should collect or settle all the receivables of the company’s debtors. The assets of the company should be sold by the liquidator.
Payment of debts: The liquidator should pay all debts of the company to its creditors, including but not limited to employees, service providers, lessors, banks and public authorities. In this respect, all agreements that have been previously concluded by the company must be duly terminated before the end of the waiting period. The pending legal disputes would prevent the completion of the liquidation process. Therefore, all disputes must either be settled or resolved with a final judgement.
Distribution of remaining assets: The assets of the company which remain after the payment of debts should be distributed to shareholders pro-rata to their shares in the company.
4. General assembly resolution finalising the process
Completion decision and deregistration from the relevant trade registry: Upon expiry of the waiting period, the shareholders’ general assembly should resolve that the liquidation process has been finalised with the approval of the final balance sheet. As all debts of the company would have already been paid and the remaining assets would have already been distributed to the shareholders at the end of the process, the respective final balance sheet would indicate that the company has no remaining assets or liabilities. The liquidation process will be completed with the registration and announcement of the respective general assembly resolution. The company will be deregistered from the relevant trade registry, and the company’s legal personality will end.
Deregistration of the tax and social security registrations: The deregistration from the relevant trade registry does not automatically enable the deletion of the tax and social security registrations of the company. Therefore, the liquidator should also notify the relevant tax office and social security institution of the completion of the liquidation process.
For further queries, please contact:
Arif Yetkin
Managing Partner
Doğukan Berk Aksoy
Partner