On December 26, 2020 the Communiqué regarding the Implementation of Article 376 of the Turkish Commercial Code No. 6102 (“Communiqué”), which relates to technical bankruptcy, has been amended (“Amending Communiqué”).
The Amending Communiqué stipulates several amendments which clarify the capital loss circumstances and provide more flexible options for capital increases and capital reductions for the companies experiencing technical bankruptcy. The Communiqué also provides for new rules for the calculations to be made in relation to capital loss and insolvency.
The main amendments are as follows:
- Clarification on the circumstances of capital loss: The Amending Communiqué provides for clarifications on the determination of capital loss and technical bankruptcy by defining the circumstances in which at least half of the sum of capital and statutory reserves are unreciprocated due to loss. Pursuant to Amended Article 6 of the Communiqué, in the event that the loss is equal to or more than half of the sum of the capital and statutory reserves and is less than the 2/3 of such amount, at least half of the sum of the capital and statutory reserves must be unreciprocated. Prior to the Amending Communiqué, there was no such definition and the provision did not highlight the “loss”.
- Clarification on the “loss”: Pursuant to Amended Article 7 of the Communiqué, in the case that at least 2/3 of the sum of the capital and statutory reserves are unreciprocated due to a loss equal to or exceeding the 2/3 of the sum of the capital and statutory reserves, the general assembly may decide to make a capital increase in accordance with Articles 344 and 585 of the Turkish Commercial Code or a capital completion (i.e., loss compensation) or a capital reduction. Prior to the Amending Communiqué, the general assembly was allowed to decide a capital increase together with a decision to settle for 1/3 of the capital.
- Flexible options for capital reductions: Amended Article 8 of the Communiqué has enabled capital reductions to be made by the general assembly of the company of whom at least 2/3 of the sum of capital and statutory reserves are unreciprocated if such companies have decided to settle for the remaining capital. Prior to the amendment, settlement for 1/3 of the capital was required in order to conduct such capital reduction. Further, the Amending Communiqué provides an opportunity to reduce the capital to the minimum capital amount, provided that at least half of the sum of the capital and statutory reserves are preserved within the equity.
- Limitation on the use of the capital completion fund: As per Amended Article 9(3) of the Communiqué, it has been stipulated that the capital completion fund can only be used by offsetting the losses.
- New requirements for capital increases: Amended Article 10 of the Communiqué envisages three options for capital increases and payment of cash capital undertaking in order to overcome the capital loss and technical bankruptcy. Without prejudice to the provisions of the capital market legislation for publicly-held companies, the general assembly may decide to make:
- a capital reduction in the amount of loss incurred and a capital increase to a desired amount simultaneously. (In this case, the cash capital undertaking is paid in accordance with Articles 344 and 585 of the Turkish Commercial Code (previously, it was required to pay at least 1/4 of the increased capital));
- a capital increase prior to a capital reduction in the amount of loss incurred, provided that the amount which will secure at least half of the sum of the capital to be registered and statutory reserves within the equity are paid prior to the registration of such capital increase (previously, an amount at least covering the half of the capital was required to be paid);
- a capital increase to a desired amount, without being subject to the requirement stated in above paragraph (b) which is followed by a capital reduction decided in the same general assembly meeting, provided that at least half of the sum of the capital to be registered and the statutory reserves are preserved within the equity.
- Re-formulation of the calculations in relation to capital loss and insolvency: Amended Article 10 of the Communiqué envisages that all of the foreign exchange losses arising from foreign currency obligations which have not yet been performed and half of the sum of the lease expenses, amortizations and personnel expenses accrued in 2020 and 2021 may not be taken into account in the calculations in relation to capital loss and insolvency until January 1, 2023. As per the Amended Article 10, such amounts shall be calculated without being repetitive. In the previous version of this provision, it was still possible to not take into account the foreign exchange losses yet the provision did not provide an option to exclude other aforementioned items in the calculations.
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