POSTPONEMENT OF BANKRUPTCY DUE TO EXCHANGE RATE FLUCTUATIONS (OCTOBER 2018)
“The Communique regarding
Application of Article 376 of the Turkish Commercial Code (“TCC”) numbered 6102,
entered into force by publication in the
Official Gazette dated, numbered 30536.
Article 376 of the TCC and the Communique
set forth two different levels of capital inadequacy and regulates the
corporate remedies specifically for each level. The first level involves 50% loss of the sum of capital and legal
reserves or loss of the sum of capital and legal reserves by two thirds which
expressed as “Capital Loss”. The second level is the financial distress.
1- PROCEDURES AND PRINCIPLES TO BE APPLIED IN CASE OFCAPITAL LOSS Pursuant to the Communique,
the board of directors (the “Board”) should regularly check financial
situations. In the event of evident in the most recent annual balance sheet of
the Company: (i) half of the sum of its capital and legal reserves have
remained uncovered due to deficit; or (ii) two thirds of the sum of its capital
and legal reserves have remained uncovered due to deficit. Both of these
situations indicate that the financial stability of the Company is under risk.
If the Board determines that the previous year's annual balance sheet is
half
of the sum of its capital and legal reserves has remained uncovered due
to deficit then the Board must call the shareholders general assembly ("GA")
immediately for an extraordinary meeting and to prepare a proposal for
strengthening the company's financial status, to be submitted to the GA's
approval. There is no legal requirement for the GA to comply with the Board suggestions
or to take any other specific actions.
If the Board determines that two thirds of the sum of its capital and legal reserves have
remained uncovered due to deficit, the Board must immediately call for an
extraordinary meeting of the GA and submit a proposal regarding remedial
measures for the company's share capital
status. At the related meeting, the GA must resolve:
To Complete the uncovered portion of the share capital through a cash
injection, in order to replenish the share capital to its original level; or To proceed with the amount equal to 1/3 of the share capital; or To increase the capital.
If the GA fails to adopt
any of the above-mentioned resolutions at the meeting, the company will be
automatically terminates.
2-PROCEDURES AND PRINCIPLES IN CASE OF FINANCIAL
DISTRESS In
the case where there are significant signs which create the impression that the
company is in financial distress; the Board should prepare an interim balance
sheets based over the current market value of the company assets. If it is seen
that the assets are not enough to cover the debts, then the Board shall notify
this situation to the Commercial Court and request declaration of the
bankruptcy of the company. Unless;
The creditors of the debts accept in writing prior to the bankruptcy
decision that their debts may be deferred after all other creditors are satisfied;
and The accuracy and validity of such statement are verified by the experts
appointed by the court where the bankruptcy request will be submitted,
the application submitted to the
court for expert review shall be deemed as a bankruptcy notice.”
It must be underlined that the
most important article of the Communique is the provisional Article 1 since the
mentioned article enables disregard of foreign
exchange losses originated from the outstanding obligations settled over the foreign
exchange rate while evaluation of technical bankruptcy or insolvency situations
until 01.01.2023.
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