Introduction
Situation of the capital, namely, the effect of losses on a company’s equity, carries vital importance in the deterioration of a joint stock company’s financial structure. Worsening of the financial structure, losses due to incompetency, in other words, loss of equity, or superiority in the ratio of assets versus debts, may lead to over-indebtedness.
The essential objective underlying the provisions of Turkish Commercial Code numbered 6102 (“TCC” or “Law”), governing the precautions to be taken upon the loss of capital and over-indebtedness of joint stock companies, is to maintain the organization and protection of the company capital that constitutes the main assurance for creditors of joint stock companies.
TCC Art. 376/1 and TCC Art. 376/2 are two of the primarily debated, and most significant, provisions of the TCC, aiming to maintain protection of the capital until termination of the company. TCC Art. 376 regulates the precautions that are to be taken in the event of deterioration of the company’s financial structure. Due to the fact that the first two paragraphs of such provision govern the duties of the board of directors in the event of capital loss, those two paragraphs pertain solely to the protection of the equity. The third paragraph, on the other hand, designates over-indebtedness of the company, namely, if a company’s debts exceed its assets.
The actions to be performed in both the events of loss of capital and over-indebtedness have been designated as obligations of the board of directors. Moreover, the duty to notify the competent court in the event of over-indebtedness has been stipulated under the TCC as one of the non-transferable duties and authorities of the board of directors.
Precautions Regarding Protection of the Capital
As per TCC Art. 376/1[2]. The board of directors is responsible to undertake such precautions.
In accordance with TCC Art. 376/2[4]
The first precaution envisaged under Article 376/2 of the Law, which is the general assembly decision pertaining to continuation of the operations with the remaining one-third of the capital, is a capital decrease by means of reducing two-thirds of the capital. This may only be performed via extinguishing one-third of the capital, or reducing two-thirds of the nominal price of each share. Minimum capital and nominal prices envisaged in the TCC must be regarded during the implementation of both methods.
If the general assembly decides to continue operations with the remaining one-third of the capital, then Art. 474/2 of the TCC shall be instructive. Pertaining to such Article, the board of directors may relinquish convening the creditors and satisfying or securitizing them.Decrease of capital, as much as the uncovered portion, and following, increase of the capital as much or more,
- Covering of adverse balances by all shareholders or some of the shareholders, and
- Some creditors’ waiver of their receivables.
It should be stated that along with the option to increase the capital to an amount higher than the former capital, by complying with the capital increase and decrease procedures, the general assembly may also choose to replenish the capital of the company until registered share capital is reached, provided that this increment does not exceed the capital loss by two-thirds.
Due to Art. 480/1 of the TCC that prohibits the general assembly resolution from forcing the shareholders to make additional payments, such general assembly resolution regarding the method mentioned above under subparagraph (ii), which covers adverse balances by shareholders, must be unanimously taken. However, if unanimity is not able to be provided, there are no restrictions inhibiting the shareholders to cover the adverse balances by submitting cash at their own discretions. This submission denotes neither a shareholder loan, nor an advance payment for capital increase. This submission of cash solely signifies the shareholders’ sacrifice in order to save their company from the current situation without expecting something in return, or claiming a right in return. The amount of shares that the shareholders hold shall not change after the completion of this capital replenishment.
Although loss of capital is detected principally from the annual balance sheet, it may also be identified from the interim balance sheet issued for any reason. For instance, if the interim balance sheet that has been issued upon the suspicion of over-indebtedness and implies that the company is not over-indebted, yet it has lost 1/2 or 2/3 of its capital, the precautions stipulated under Art. 376/1 and 376/2 of the TCC should be taken.[7] Due to the fact that such provision explicitly indicates that the premium of newly issued shares shall be added to the legal reserve fund, premiums on issued capital shall be regarded in calculating the legal reserve funds. By virtue of the fact that inflation correction differences are not listed under Art. 519, they shall not be taken into consideration in calculation of legal reserve funds.
[2] Prof. Dr. TEKİNALP Unal, Sermaye Ortaklıklarının Yeni Hukuku, Degistirilmis ve Duzenlemelerle Guncellestirilmis 3. Basi, Vedat Kitapcilik 2013, P:244.
[4] Prof. Dr. KAYAR Ismail, Yeni TTT’ya Gore Anonim Sirkette Sermaye Kaybi ve Borca Batıkligin Tespiti ve Sonucları Tebligi.
[6] Prof. Dr. KAYAR Ismail, Yeni TTT’ya Gore Anonim Sirkette Sermaye Kaybi ve Borca Batıkligin Tespiti ve Sonucları Tebligi.
[8] Prof Dr. PULASLI Hasan, Yeni Sirketler Hukuku Genel Esaslar, Guncellenmis 2. Basi Ankara 2013, p. 467.
