1. Liquidation of a Limited Company
The liquidation of a limited company is a common occurrence in commercial life. As the name suggests, liquidation refers to the collection of the company's debts, satisfaction of creditors, and the subsequent distribution of the remaining assets among shareholders, leading to the termination of the company. The Turkish Commercial Code No. 6102 (TCC) does not require separate regulations for the liquidation of limited companies; instead, it stipulates that the provisions regulating the liquidation of joint-stock companies, with reference to Article 643, shall also apply to the liquidation of limited companies.
2. Cases of Termination for a Limited Company
Limited companies can terminate for various reasons. Whether a decision for liquidation will be made and the method of liquidation will depend on the specific circumstances and reasons for termination. Limited companies can terminate under the following conditions:
- If the limited company's articles of association contain termination conditions, and one of these conditions is met, the company will terminate.
- The general assembly can decide to terminate the limited company.
- If bankruptcy proceedings are initiated, the limited company will also terminate.
- If there are other termination conditions specified by law, the company can terminate when those conditions are met.
From a legal standpoint, certain organs are mandatory for a limited company to maintain its existence. However, if any of these organs are absent or the general assembly cannot convene, a shareholder or a creditor may request the judicial dissolution of the limited company. The court, usually the commercial court of first instance in the location of the company's headquarters, will appoint a time for the company to rectify its situation after hearing the directors. If the company fails to rectify its situation, the court may decide to dissolve the limited company.
Additionally, in the presence of justifiable reasons, any shareholder can request the dissolution of the limited company from a court. Instead of granting the request, the court may order the payment of the plaintiff shareholder's actual share value and their removal from the company, or it may impose another appropriate and acceptable solution.
3. Liquidation Process for a Limited Company
The steps to be taken before liquidation can begin may vary depending on the specific conditions and needs of the company in question. For example, in some cases, it may be necessary to settle debts and collect receivables as much as possible before initiating liquidation, while in other cases, these processes may be left for the liquidation phase. Additionally, the company may have assets that need to be disposed of (such as fixed assets) or preserved. Preparing the initial balance sheet at the beginning of the liquidation process is crucial. Furthermore, an evaluation must be made regarding who will serve as the liquidator.
The liquidation process commences with the termination of the company and the first step in this process is to notify the commercial registry. However, as mentioned earlier, this process can start before the actual termination, and thorough preparation can facilitate a smoother liquidation process.
3.1. Commencement of Limited Company Liquidation and Appointment of Liquidators through a General Assembly Resolution
Initiation of Liquidation Resolution: Shareholders must pass a general assembly resolution indicating that the company is entering the liquidation process. Unless a higher quorum is specified in the articles of association, the approval of shareholders representing 75% of the company's capital is required for the liquidation resolution.
Appointment of Liquidators: Liquidation proceedings are conducted by one or more liquidators. These liquidators represent the company during the liquidation process and bear legal responsibility towards shareholders and creditors for their actions. Liquidators can be both legal entities and natural persons. However, according to the Turkish Commercial Code, at least one liquidator must be a Turkish citizen residing in Turkey. The general assembly resolution should include the appointment of liquidators.
Once the relevant general assembly resolution is registered, the company enters the liquidation process. The company's trade name is changed to include additional phrases indicating that it is in liquidation (for example, "ABC Import-Export Ltd." would be changed to "ABC Import-Export Ltd. in Liquidation"). At the beginning of the liquidation process, an inventory list and balance sheet should be prepared to determine the company's financial status.
3.2. Notification to Creditors
Notification to Known Creditors: The liquidator identifies creditors using the company's records and other documents, and sends registered letters to these creditors, informing them of the company's entry into the liquidation process and requesting that they declare their claims.
Publication in the Trade Registry Gazette: To inform creditors, the liquidator applies to the relevant trade registry to publish a general notice in the Turkish Trade Registry Gazette, inviting all creditors to participate in the liquidation process. This announcement is made three times with one-week intervals.
3.3. Three-Month Waiting Period
Third Publication in the Turkish Trade Registry Gazette: Following the third publication in the Turkish Trade Registry Gazette, shareholders must wait for a minimum of three months before the company's liquidation process can be completed. This waiting period can be extended but not shortened. During this period, specific actions should be carried out by the liquidator.
Collection of Debts: The liquidator must request and collect all the debts owed to the company. The company's assets should be sold by the liquidator.
Payment of Debts: The liquidator must pay off all the company's debts to creditors, including employees, service providers, lessees, banks, and government authorities. Therefore, all contracts made by the company should be properly terminated before the end of the liquidation process. Ongoing legal disputes can hinder the completion of the liquidation process, so all disputes should be resolved or settled appropriately.
Distribution of Remaining Assets: After settling the debts, the remaining assets of the company should be distributed among the shareholders in proportion to their shares.
3.4. Decision to Complete the Liquidation Process for the Limited Company and Deletion of Relevant Records
Once the waiting period has ended and the general assembly has approved the final balance sheet, it is decided that the liquidation process is complete. Therefore, the final balance sheet will show that the company's assets and liabilities no longer exist. The liquidation process concludes with the registration and announcement of the relevant general assembly resolution. The company's registration in the trade registry is deleted, and the legal personality of the company is terminated.
The deletion of records in the trade registry does not automatically remove the company's tax and social security registration. Therefore, the liquidator must inform the relevant tax office and social security institution that the liquidation process has been completed.
3.5. Documents Required for the Liquidation of a Limited Company
When a company terminates and begins the liquidation process, several documents must be submitted to the trade registry. These documents can be divided into two main categories: first, the documents required for the registration application for the termination of the limited company, and second, the documents confirming the deletion of records after the completion of the liquidation process. Here are these documents:
Upon Termination of the Limited Company:
- A notarized copy of the general assembly resolution if the termination is based on such a resolution.
- Documentation explaining the reason for termination if it is not due to a general assembly resolution.
- Declarations of the liquidators containing their signatures.
- If the liquidators are individuals from outside the board of directors or the general assembly, a signed document indicating their acceptance of the task.
- A ministry permission certificate if required for certain companies.
- The final and approved balance sheet as approved by the general assembly.
After the Completion of Limited Company Liquidation:
- A notarized copy of the general assembly resolution.
- Advertisements published in the trade registry gazette calling creditors, published three times at one-week intervals.
The duration of the liquidation of a limited company can typically take up to a year. However, this timeline may vary due to factors such as communication between shareholders, coordination by liquidators, and the resolution of disputes in which the company is involved. Once the company has terminated and the liquidation process is completed, these details are recorded in the trade registry.
3.6. Liquidation of a Limited Company in Case of Bankruptcy
The procedures described above do not apply to the liquidation of a limited company in the event of bankruptcy. When a limited company goes bankrupt, a bankruptcy estate is established, and the liquidation process is managed by the bankruptcy administration under the framework of the Execution and Bankruptcy Law.
3.7. Can a Limited Company Reverse Its Liquidation?
Reversing the liquidation of a limited company is possible under certain conditions, but specific requirements must be met. If the termination of the company is due to the expiration of the specified duration or a general assembly resolution, and the division of the company's assets among shareholders has not yet begun, the general assembly can decide to continue the company's operations. However, for this continuation decision, at least 60% of the total capital represented by shareholders must vote in favor of continuation unless a higher ratio is specified in the articles of association. Of course, this ratio can be increased in the articles of association. If the termination occurs for any reason other than those mentioned above or if bankruptcy is involved, the limited company cannot be reversed from liquidation.
The option to reverse a limited company's liquidation is possible under the circumstances mentioned above. When the decision to reverse the liquidation is made, the liquidator must register and announce this decision. There is a specific time limitation for reversing the liquidation. Once the distribution of the company's assets has begun, reversing the liquidation process is not possible. However, if the termination of the company occurs due to the expiration of the specified duration, the passage of time, or a general assembly resolution, reversing the liquidation is not possible.
The liquidation of a limited company is a common occurrence in commercial life, and it is a process that is not as straightforward as it may seem. In limited company liquidations, the most important aspects to consider are the protection of stakeholders' interests and preventing any harm to their rights. Therefore, it is strongly recommended to seek legal assistance in all limited company liquidation cases.