Liquidation Process of Joint Stock Companies

Entrance

Joint-stock companies are one of the most preferred types of companies within the category of capital companies. However, in commercial life, not every joint-stock company can achieve its intended goals, or it may have to cease operations for various reasons. At this point, the termination and liquidation of joint-stock companies come into play. Liquidation includes processes such as paying off existing debts, collecting receivables, classifying assets and liabilities, and distributing the remaining assets to shareholders before the company is removed from the commercial registry.

Articles 529 and subsequent articles of the Turkish Commercial Code contain detailed regulations regarding the termination and liquidation of joint-stock companies. These regulations aim to protect both the rights of shareholders and the interests of creditors. This article will comprehensively examine the legal aspects of the liquidation process of joint-stock companies, evaluating them in light of legislative provisions and Supreme Court decisions.

I. Reasons for the Termination of Joint Stock Companies

For a joint-stock company to enter the liquidation process, it must first cease to exist. Articles 529 and subsequent articles of the Turkish Commercial Code regulate the grounds for termination. These can be examined under the following main headings:

1. Legal Reasons

Term expiry: The company automatically dissolves upon the expiry of a specific period stipulated in the articles of association.
Termination clauses stipulated in the articles of association: The company shall be dissolved if any provision in the articles of association occurs.

2. General Assembly Resolution

The termination of a joint-stock company is also possible through a dissolution decision taken by the general assembly (Turkish Commercial Code, Article 529/1-c). Unless otherwise stipulated in the articles of association, a two-thirds majority of the votes present at the meeting is required for this decision.

3. Court Decision

According to Article 531 of the Turkish Commercial Code, if there are justifiable reasons, one of the partners may request the dissolution of the company from the court. For example, reasons such as the company's continuous losses, the failure of the management bodies to perform their duties, or the breakdown of the trust relationship among the partners may be grounds for a dissolution lawsuit.

4. Bankruptcy

If a company becomes unable to pay its debts, it will be dissolved through bankruptcy. In this case, the liquidation is carried out by the bankruptcy court.

II. Legal Nature of the Liquidation Process

Liquidation is the process of classifying and closing all legal and financial relationships of a company and removing it from the commercial registry. The liquidation process takes place in three stages:

Entering Liquidation:
The company enters liquidation upon the decision to terminate its operations.
Liquidation Procedures:
Payment of debts, collection of receivables, conversion of assets into cash.
Distribution and Delisting After Liquidation:
Distribution of remaining assets to shareholders and delisting of the company from the commercial registry.

III. Appointment and Duties of Liquidators

1. Appointment of Liquidators

According to Article 536 of the Turkish Commercial Code, liquidators are appointed to carry out liquidation procedures. If no liquidator is specified in the articles of association, an election is held by the general assembly. If no appointment is made, the members of the board of directors legally acquire the title of liquidator.

2. Duties and Powers of Liquidators

The duties of liquidators include the following:

Preparing the company's balance sheet,
To identify receivables and payables,
Converting company assets into cash,
Paying off debts,
Divide the remaining assets among the partners.

Liquidators are accountable to both shareholders and creditors in fulfilling their duties. The Supreme Court strictly enforces the duty of care of liquidators.

IV. Procedures to be Followed During the Liquidation Process

1. Initial Balance Sheet and Announcement

When liquidators begin their duties, they prepare an opening liquidation balance sheet . This balance sheet is published in the Trade Registry Gazette.

2. Calling Creditors

According to Article 541 of the Turkish Commercial Code, liquidators are obliged to summon creditors three times by public notice. The purpose is to prevent the distribution of the remaining assets to the shareholders before the company's debts are paid.

3. Payment of Debts and Collection of Receivables

Liquidators collect the company's receivables and pay its debts. At this stage, the interests of the creditors are paramount.

4. Conversion of Assets into Cash

The company's assets will be liquidated by converting them into cash. Sales will be made if necessary.

5. Distribution of Increased Assets

After the debts are paid, the remaining assets are distributed to the partners in proportion to their capital shares.

6. Removal from the Commercial Registry

Once all procedures are completed, an application is made to the commercial registry to have the company removed from the register.

V. Tax Obligations During the Liquidation Process

During the liquidation process, the company's tax debts must also be settled. According to the Tax Procedure Law and the Corporate Tax Law, corporate income is calculated separately during liquidation. Furthermore, the liquidators are accountable to the tax authorities.

VI. Liquidation in Light of Supreme Court Decisions

Some key points highlighted in Supreme Court rulings are as follows:

The 11th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2017/4358 E., 2019/2211 K., emphasized that liquidators can be held personally liable for damages arising from their negligent conduct.
The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2015/1234 E., Decision No. 2017/4567 K., stated that closing the company without summoning the creditors was unlawful.
The 23rd Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2014/6789 E., 2016/3456 K., ruled that shareholders should be treated equally in the distribution of assets after liquidation.

VII. Problems Encountered in Practice

Negligence of duties by liquidators,
The attempt to close the company without paying tax debts,
Creditors failing to apply despite the announcements,
Disputes among partners regarding the distribution of assets.

These problems often lead to legal proceedings.

VIII. Differences Between Liquidation and Bankruptcy

Liquidation: The company is dissolved either voluntarily or for legal reasons, and creditors are notified by public announcement.
Bankruptcy: When a company becomes unable to pay its debts, it initiates bankruptcy proceedings through an application by creditors or a court order. Liquidation is carried out by the bankruptcy court.

Conclusion

The liquidation process of joint-stock companies is of great importance in terms of protecting creditors and securing the rights of shareholders. The provisions of the Turkish Commercial Code regulate the liquidation process in detail, both providing guidance in practice and aiming to prevent potential disputes. However, in practice, serious problems can be encountered, especially regarding the responsibilities of liquidators, the payment of tax debts, and the distribution of assets. Therefore, it is essential that the liquidation process is carried out meticulously and that the precedents of the Supreme Court are taken into account.

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