Amendments on Capital Loss and Insolvency

By the Amendment Communiqué, certain explanatory regulations related to the situations of loss of capital and financial distress, and additional expense items that can be excluded from the calculations regarding capital loss and financial distress have been introduced.

What’s New:
In terms of being uncovered of at least half of the sum of the capital and legal reserves due to loss:
The statement of “due to loss” has been added to the heading of the Article regarding “half of the sum of the capital and legal reserves being uncovered”, as a condition of capital loss regulated under the Communiqué.

In this regard, it is also clarified that being uncovered of at least half of the sum of the capital and legal reserves refers to the situation in which the loss is either equal to half of the sum of the capital and legal reserves or, more than the half and less than 2/3 of the sum.

In terms of being uncovered of at least 2/3 of the sum of the capital and legal reserves due to loss:
The situation of “being uncovered of at least 2/3 of the sum of the capital and legal reserves due to loss” has been amended as “the situation in which the loss is either equal to or more than 2/3 of the sum of the capital and legal reserves”.

In terms of capital decrease:
By the Amendment Communiqué, the fact that remaining capital may be less than 1/3 of the capital before loss as a result of the capital decrease that may be implemented when 2/3 of the sum of the capital and legal reserves are uncovered due to loss, is emphasized through alteration of the statement of “continuation with 1/3 of the capital” with “continuation with remaining capital”.

Accordingly, provided that at least half of the sum of the capital and legal reserves are preserved within the equity, capital decrease may be carried out to the minimum share capital amount, being TRY 50.000 and TRY 10.000 in terms of joint stock companies and limited liability companies, respectively.

In terms of completion of the uncovered amount of capital:
The Amendment Communiqué clarifies that the “capital impairment fund” constituted as a result of adopting any resolution of covering balance sheet deficits, may solely be used by means of deducting losses.

In terms of capital increase without capital decrease:
Pursuant to the Amendment Communiqué, in case capital increase is carried out without a capital decrease, the amount that will secure at least half of the sum of the capital and the legal reserves are preserved within equity is required to be paid before registration to the trade registry.

In terms of capital loss and financial distress calculations:
The Amendment provided that losses stemming from exchange differences related with companies’ unperformed foreign currency liabilities may be excluded from the calculations regarding capital loss and financial distress until 1 January 2023.

The Amendment Communiqué introduced new expense items that may not be taken into consideration as well.

In this regard, apart from exchange differences, companies may now exclude half of the sum of (i) expenses stemming from leases (ii) amortizations, and (iii) labor costs from the calculations of capital loss or financial distress until the date of 1 January 2023.

However, the expense items introduced within the Amendment Communiqué ought to be indicated in the footnotes for information purposes.

Conclusion
There has been introduced certain explanatory regulations and criteria in terms of the assessment of financial situations of companies and some new expense items that may be excluded regarding the calculations of capital loss or financial distress by the Amendment Communiqué to be taken into account by companies.

The Amendment Communiqué does not have a readily available English version. However, the Turkish version of the Amendment Communiqué may be accessed from here.

MORAL & PARTNERS
Nur Duygu Bozkurt Kadirhan, Senior Associate
Burak Batı, Associate
Berk Bozkurt, Trainee Lawyer