CLIENT ALERT

September 2018

   

 

For further information please contact:

Dr. Çağdaş Evrim Ergün
Partner, Ankara
c.ergun@cergun.av.tr

Lara Sezerler
Senior Associate, Istanbul
l.sezerler@cergun.av.tr

Ergün Avukatlık Bürosu İstanbul | Levent Loft II, D: 13-16, Levent
T +90 (212) 280 90 91

Ankara | Mahall Ankara, E Blok, D: 63, Çankaya
T +90 (312) 220 30 60

E info@cergun.av.tr

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New Method for Calculation of FX Change Losses for Companies exposed to Technically Bankruptcy and Financial Distress Risks in Turkey

As part of the Government’s measures to support financial stability in Turkey, a new Communiqué on calculation method of FX change losses was issued on September 15, 2018. The currency crisis in Turkey exposed several companies to technical bankrupcty and financial distress risks due to FX change losses. The new Communiqué aims at improving troubled companies’ financial situations and their access to finance by providing a new alternative method for calculation of FX change losses.

According to the Turkish Commercial Code, loss of two thirds of the capital and legal reserves or the insufficiency of the company’s assets to meet its liabilities may lead to technical bankruptcy and financial distress situations. The new Communiqué provides that, until 1 January 2023, in the calculations made for determining loss of capital and financial distress situations, the companies have the option no to take into account the FX change losses for obligations which have not yet been discharged. As such, the negative effect on the balance sheets of Turkish companies of the FX change losses resulting from the recent currency crisis shall be limited to debts discharged as of the calculation date, which is expected to improve the financial records of the company and to improve its access to finance. It should, however, be noted that benefiting from such new alternative calculation method may increase the corporate tax basis of the companies and may result in the payment of more corporate tax as compared to the other alternative calculation method which permits recording all of the FX change losses at once.

It should also be noted that such calculation method is not in compliance with the International Financial Reporting Standards (IFRS) and therefore may not affect the calculations taken into account by foreign or international financial instutions in their credit analysis of Turkish companies.

 

This information is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This should not be acted upon in any specific situation without appropriate legal advice. This information is protected by copyright and may not be reproduced or translated without the prior written permission of Ergün Avukatlık Bürosu.