To introduce the subject of liquidation in joint stock companies, it is necessary to first address the concept of a company. Associations established by real or legal persons for the purpose of obtaining an economic benefit constitute companies.
Although Turkish Commercial Code No. 6102 does not define a company, it mentions commercial companies. Article 124 f.1 of the Turkish Commercial Code states that “commercial companies consist of collective, limited partnership, joint stock, limited liability, and cooperative companies.” Although collective, limited partnership, joint stock, and limited liability companies are regulated under the TCC, cooperatives are regulated separately under the Cooperatives Law.
Apart from these companies, there are also ordinary companies regulated under the Turkish Code of Obligations. Article 620 of the Turkish Code of Obligations defines an ordinary partnership as follows: “An ordinary partnership agreement is a contract in which two or more persons undertake to combine their labor and property to achieve a common purpose. A partnership shall be deemed an ordinary partnership subject to the provisions of this chapter if it does not have the distinctive characteristics of partnerships regulated by law.”
As can be understood from the second paragraph, partnerships that do not have the characteristics of commercial companies listed in the law should be considered ordinary companies. Additionally, based on this paragraph, some authors consider joint stock companies to be ordinary companies until their registration.
It has been stated that the purpose of establishing companies is to obtain an economic benefit. It would be correct to state that this purpose continues in joint stock companies. A joint stock company is defined in Article 329 of the TCC as follows: “A joint stock company is a company whose capital is fixed and divided into shares, and which is liable for its debts only with its assets.”
Joint stock companies can be established to engage in all kinds of economic activities, the purpose of which is to generate profits and distribute these profits to its shareholders. When examining the characteristics of a joint stock company, the obligation to operate with a trade name comes first.
In the establishment of a joint stock company, a contract referred to as the articles of association is concluded. In order for a joint stock company to be established, certain elements must be included in this agreement. One of these is the determination of the capital in the articles of association. With the recent amendments, in order to establish a joint stock company, the capital must be at least 250,000.00 TL.
Joint stock companies are legal entities. In order for them to acquire legal personality, they must be registered in the Trade Registry in the place where the headquarters of the joint stock company is located within 30 days following the signing of the articles of association or the granting of permission for joint stock companies subject to the permission of the Ministry.
Joint stock companies may be established for any economic purpose and subject, provided that it is not prohibited by law in a broad sense. The subject of the company’s operation must also be specified in the articles of association.
Joint stock companies are subject to the principle of limited liability. What is meant by limited liability is that the shareholders are only liable for the capital they have undertaken to bring. In other words, the creditors of the joint stock company cannot apply to the assets of the shareholders who have fulfilled their commitments. Creditors can only receive their receivables limited to the assets of the joint stock company. This situation is expressed in the second paragraph of Article 329 of the TCC as follows: “Shareholders are liable only for the capital shares they have subscribed to and to the company.”
Another qualification that should be included in a section on joint stock companies is that joint stock companies may be established with at least one natural or legal person.
In joint stock companies, as the name suggests, capital is more important than the identity of individuals. Therefore, as we will see in the TCC, elements such as personal labor, commercial reputation, and professional experience cannot be brought to joint stock companies as capital. It can be determined from the reverse of the sentence that receivables that are not due cannot be brought to the joint stock company as capital shares, while receivables that are due can be brought as capital shares (AYHAN et al., 2023).
It is also necessary to briefly mention the organs of joint stock companies. Joint stock companies have two bodies: the Board of Directors and the General Assembly. These bodies have inalienable powers. The Board of Directors manages and represents the company. The General Assembly convenes once a year and makes decisions regarding the company. The Board of Directors will implement these decisions. It should be noted that there is no hierarchical relationship between the Board of Directors and the General Assembly.
If we need to express the dissolution of the company during the transition to liquidation in joint stock companies, it is important to note that joint stock companies may terminate for many reasons, which are regulated in the Turkish Commercial Code as general and special termination cases. Another distinction is in the form of dissolution (automatic termination) and termination (voluntary termination) (AYHAN et al., 2023).
In the event of dissolution, the joint stock company does not need to make a decision; therefore, no notice is given in case of automatic dissolution. The court’s decisions consist of the determination of the situation, and the lawsuit filed is ultimately a case of determination. Automatic termination is effective prospectively, meaning it does not affect the works and transactions carried out in the past. It should also be noted that those concerned can use automatic termination as a defense (DINÇ, 2016).
The first of the reasons for the automatic termination of the company without the need for any further action upon the realization of the reasons for dissolution is the expiration of the term of the joint stock company established for a certain period of time. A company whose term expires and does not actually carry out activities is terminated. It should be noted here that the expired company should not continue its activities; otherwise, if it continues its activities, the company becomes indefinite and does not terminate.
Another termination is the realization or impossibility of realization of the subject of business, which is also regulated in the TCC. This situation may occur for a number of reasons, such as when the joint stock company is established on a business subject and this subject has been completed or it is no longer possible to realize it naturally or legally.
Another termination is the realization of the reasons for dissolution listed in the articles of association. In the articles of association of a joint stock company, it is possible to stipulate that the company will be terminated in the event of the realization or non-realization of these reasons.
In the event that two-thirds of the company’s capital remains uncovered, the company may be dissolved. In this case, the General Assembly may decide to complete the capital or to be content with the remaining capital. In the event that one of these decisions is not taken, the company terminates automatically.
In the event of bankruptcy of a joint stock company, the company is automatically terminated.
The grounds for termination in joint stock companies are divided into two: termination by the decision of the General Assembly and termination by court decision.
Meeting and decision quorums are important for termination by the General Assembly. In order for the General Assembly to decide on the termination of the company, the affirmative votes of the shareholders or their representatives constituting seventy-five percent of the capital are required. In case of termination of the company through activities such as the merger and division of the company, the General Assembly must take into account the quorums (AYHAN et al., 2023).
We have stated above that termination may also be decided by the court. Here, it is necessary to state that the continuation of the company has priority; therefore, the court may decide to terminate the company after exhausting the remedies, if any, other than termination.
The cases of termination under the Turkish Commercial Code can be listed as follows:
- In the absence of the Board of Directors or the General Assembly, which are the mandatory organs of the company, the Court may decide to dissolve the company.
- In the event of an activity contrary to public order and the subject of the business, a termination action may be filed within one year from the date of learning of this activity.
- The court may also decide to dissolve the company upon the realization of the grounds for dissolution specified in the company’s articles of association.
- In the presence of justified grounds, the dissolution of the company may also come to the agenda. It is important to note here that the judge is not bound by the principle of adherence to the request, meaning the judge may make another decision in line with the interests of the company in response to the request for dissolution.
Termination of joint stock companies is divided into two: liquidation and non-liquidation.
Joint stock companies are dissolved without liquidation in cases of merger, division, change of type, or acquisition of one joint stock company by another joint stock company. In case of liquidation, the company enters into a process, and eventually, the company is removed from the trade registry (YILDIRIM, 2019).
LIQUIDATION PHASE
It is important to note that joint stock companies remain in liquidation until they are removed from the Trade Registry during the termination phase. In liquidation, the legal personality of the joint stock company continues, but the company cannot perform all the transactions specified in the articles of association at this stage. During the liquidation phase, joint stock companies may only carry out limited transactions related to liquidation.
Also at this stage, some powers of the General Assembly and the Board of Directors are limited.
If it is necessary to express the liquidation process in joint stock companies in articles:
- Conversion of assets of a joint stock company into cash
- Receipt of receivables
- Performance of obligations
- Distribution of the remaining assets to the shareholders in proportion to the capital they have contributed after the debts have been paid
- Cancellation of the trade name from the trade registry
The purpose of the liquidation phase is to settle debts, collect receivables, and distribute liquidation shares to the shareholders.
Liquidation, which is regulated between Articles 533 and 548 of the Turkish Commercial Code, is actually important for the termination of the company, both to ensure the rights of third parties, to protect the assets of the company, and to distribute the last remaining amount granted to the shareholders of the company.
When examining the important results during the liquidation phase in joint stock companies, they can be itemized as follows:
- Continued legal personality of the company
- Change of purpose of the company
- Mandatory addition of the trade name of the company as “in liquidation”
- Continued existence of the Company’s General Assembly and Board of Directors
It should be noted that with the realization of the reason for termination, the purpose of the company is transformed into liquidation without the need for any further action. At this stage, the company may carry out all kinds of work and transactions to complete the liquidation process.
The company needs liquidators to carry out these works and transactions during the liquidation phase. In this context, it is possible to elect liquidators in the articles of association. If not specified in the articles of association, the Board of Directors, which is one of the mandatory organs of the joint stock company, may carry out the works and transactions related to liquidation as liquidators.
In the absence of the Board of Directors or in case the Board of Directors fails to take a decision, the court may also be requested to appoint liquidators.
The appointment of liquidators is stated in Article 536 of the Turkish Commercial Code as follows:
“Unless a liquidator is appointed separately by the articles of association or by a resolution of the General Assembly, liquidation shall be carried out by the Board of Directors. Liquidators may be among the shareholders or third parties. Unless otherwise stipulated in the articles of association or the resolution of appointment, those appointed for liquidation shall be entitled to ordinary remuneration.
The Board of Directors shall have the liquidators registered and announced in the trade registry. This provision shall also apply in case the liquidation works are carried out by the Board of Directors.
In cases where the court decides on the dissolution of the company, the liquidator shall be appointed by the court.
At least one of the liquidators authorized for representation must be a Turkish citizen and must be domiciled in Turkey.”
With the evaluation of this article, it is possible to say that the liquidators may be determined in the articles of association; if not, the Board of Directors may carry out the liquidation procedures, the General Assembly may appoint a liquidator by using its discretionary power, and finally, the Courts may appoint a liquidator.
In the event of liquidation, shareholders may request the dismissal and replacement of the liquidator. For this to be done, there must be a justifiable reason.
Special conditions for liquidators may be specified in the articles of association. Even in the absence of any conditions in the articles of association, at least one of the liquidators must be a Turkish citizen and reside in Turkey (DINÇ, 2016).
The liquidators must also be registered and announced in the trade registry. This process is carried out by the Board of Directors, one of the mandatory organs of the joint stock company. Even in cases where the Board of Directors will act as liquidators, the Board of Directors shall register and announce them as liquidators.
Another important point during the liquidation phase is the limit of the representative authority of the liquidators. The authority of the liquidators is limited to the transactions related to the liquidation, but the transactions made with third parties outside the liquidation are binding for the company if the third parties do not know that the transaction is outside the purpose of liquidation.
It is also important to note that unless otherwise stipulated in the articles of association, and if the number of liquidators is more than one, the decisions taken will become valid upon the signature of at least two liquidators under the trade name.
The first action, which is the duty of the liquidators and also the first action to be taken in case of liquidation, is the preparation of the inventory and balance sheet. The purpose here is to make a financial analysis of the company. The prepared balance sheet and inventory are submitted to the approval of the General Assembly. Liquidators may consult experts if deemed necessary in order to accurately determine the financial situation. The liquidation balance sheet should be organized according to the termination time of the joint stock company (AYYILDIZ, 2019).
Another important activity of the liquidation phase is the payment of receivables to creditors. The procedure for payment of receivables is regulated under the Turkish Commercial Code. According to the TCC, the liquidators notify the creditors they have identified by registered letter, and for other creditors, the Trade Registry Gazette and the company’s website, if any, with a total of three announcements at one-week intervals, and invite the creditors to notify the liquidators of their receivables. The remaining assets cannot be distributed until three months have elapsed after the third call to the creditors. In this way, creditors’ claims are paid.
The receivables of creditors who do not declare their receivables but are understood to be creditors are deposited in a bank designated by the Ministry.
The liquidators complete the works such as the completion of the works started before the termination of the company.
Article 538 of the Turkish Commercial Code, titled “Authorization to Sell Assets,” authorizes the liquidators to sell the assets of the company through a tender. It should be noted here that the General Assembly may decide otherwise, and it is necessary to state that the General Assembly’s decision is required for the wholesale sale of significant amounts of assets.
The duties of the liquidators are stated in the Turkish Commercial Code under the heading of other liquidation works, provided that they are not restricted. We find it useful to include a few of them here as examples. For example, in case the liquidation takes a long time, they prepare the financial statements related to the liquidation for the end of each year and the final balance sheet at the end of the liquidation and submit them to the General Assembly. Again, the obligations of the liquidators to provide information are stated as follows: they shall provide information to the shareholders about the status of the liquidation affairs and, if they request, a signed document in this regard.
As stated above, upon the payment of all debts and completion of unfinished works, the remaining balance is distributed to the shareholders in proportion to the capital they have contributed, unless otherwise stipulated in the articles of association.
Upon the completion of the activities to be carried out during the liquidation phase and the request of the liquidators to delete the trade name of the company from the registry, the Registry Directorate checks that the liquidation has been duly carried out and removes the trade name of the company from the trade registry.
Another point to be noted is that one of the termination conditions for liquidation must have occurred; that is, the company’s gradual payment of debts and sale of assets without a termination situation does not mean the liquidation of the company (DINÇ, 2016).
Another issue that should be addressed under the heading of liquidation is additional liquidation and reversal of liquidation in joint stock companies.
Additional liquidation is regulated under Article 547 TCC. Accordingly, in the presence of certain reasons such as miscalculation of debts after the completion of the liquidation, omission of the completion of unfinished works, the last liquidators, shareholders, creditors, or members of the Board of Directors may request the re-registration of the company within the scope of additional liquidation from the Commercial Court of First Instance where the company headquarters is located.
The considerations for additional liquidation are as follows:
- The existence of a situation indicating that additional liquidation is mandatory
- A request by one of the interested parties specified in the Law
- Existence of legal interest in requesting additional liquidation
- No solution other than additional liquidation is available to ensure the benefit
Although there are different views on the criterion that it is the only way to achieve the benefit, it is observed that this is the dominant view (DOĞANAY, 2023).
The lawsuit that is filed with the additional liquidation process is the reinstatement lawsuit. A reinstatement lawsuit is filed against unlawful termination, liquidation, and abandonment transactions. With this lawsuit, the legal entity is re-established. With this lawsuit, the record of abandonment is crossed out and registered and registered in the trade registry.
REVERSAL OF LIQUIDATION
When the reversal of the liquidation of a joint stock company is analyzed on the basis of Article 549 of the TCC, it is accepted that the liquidation may be reversed upon the expiration of the term of the company or upon the decision of the General Assembly, provided that the distribution of the assets of the company has not begun. In order to revoke the liquidation, the General Assembly may make this decision with the affirmative vote of sixty percent of the capital. The liquidators are obliged to register and announce the revocation decision.
In the case of a joint stock company that has been terminated due to bankruptcy, the company continues if the bankruptcy has been lifted or if the bankruptcy has ended with the implementation of the concordat. What is important here is that the distribution of the liquidation shares among the shareholders has not started (AYHAN et al., 2023).
PROVISIONAL ARTICLE 7
Another article that we find useful to mention during the liquidation phase is Provisional Article 7 of the Turkish Commercial Code. According to this article, joint stock companies that have failed to increase their capital to the required amount, joint stock companies that are dissolved before the effective date of this Law or until 1/7/2015, are subject to separate liquidation procedures. This article is applied separately from the liquidation procedures for the liquidation of joint stock companies whose ordinary general assembly meetings for the last five consecutive years could not be held for whatever reason, or for the liquidation of joint stock companies whose liquidation procedures were initiated before the effective date of this Law, but whose interim balance sheets or final balance sheets could not be submitted to the General Assembly due to the failure of the General Assembly to convene, and for the cancellation of the trade registry. Trade Registry Directorates manage the process in the implementation of Provisional Article 7. The purpose of this article is to ensure that the process proceeds faster and to complete the liquidation process of the company as soon as possible. It should also be noted that this article can be applied to other companies, provided that the conditions are met (only joint stock companies are mentioned above to stay within the limits of the subject).
In general terms, the issues that are important to be stated about joint stock companies and the liquidation process of joint stock companies are the ones mentioned above.
Beyda Rana YANIK
Uçar Law & Consultancy Office
REFERENCES:
Ayhan, R., Çağlar H., Özdamar M. (2023). General Principles of Corporate Law (5th edition)
Ayyıldız, S. (2019). Liquidation of joint stock companies according to provisional article 7 in the light of the liquidation provisions of the Turkish Commercial Code (Master’s thesis, Balıkesir University Graduate School of Social Sciences).
Dinç, S. (2016). Termination of Joint Stock Companies According to Law No. 6102. Yıldırım Beyazıt Law Journal, (2).
https://dergipark.org.tr/en/download/article-file/227130
Doğanay, M. Z. (2023). Additional Liquidation in Joint Stock Companies in terms of Civil Procedural Law. Journal of Justice, (70), 255-284.
https://dergipark.org.tr/en/download/article-file/3094742
Turkish Commercial Code T.C. Official Gazette, 6102, January 13, 2011.
https://www.mevzuat.gov.tr/mevzuat?MevzuatNo=6102&MevzuatTur=1&MevzuatTertip=5
