Winding Down and Liquidating a Company in Turkey: Getting A Strong Start

Winding down for the purposes of liquidation usually requires a strong momentum to accomplish a clean and timely completion. In this respect strong start is vital. A strong start, for me, requires comprehensive fact finding, clear planning and clear communication of outcomes to stakeholders.

I have outlined below the three main steps which should precede winding down in operational companies.

Liquidation Due Diligence

The liquidation due diligence is a red flag exercise carried out for the purpose of planning and executing the winding down and liquidation. The main purpose is to determine the contractual liabilities of the company, liquidation requirements relating to its corporate structure, possible tax exposures and public law implications. Accordingly, these finding will constitute a legal and commercial information base for the exit plan and budget.

As such, all contracts, including but not limited to those related to purchase of goods and service; lease of equipment, tools and vehicles; and, employment should be reviewed to identify what sort of financial liabilities are triggered upon termination.

The corporate structure relating to number of branches, registered capital and intragroup external financing are carried out to provide an understanding the corporate documentation which will be necessary for the ensuing process.

The liquidation due diligence may involve other legal practice areas and the scope is likely to change depending on the operations of the company.

Preparation of an Exit Plan & Budget

An exit plan and budget would be prepared in light of the due diligence findings. The plan will include a calendar for liquidation tasks (i.e. responsible parties and relevant milestones), such as termination of employment agreements and commercial contracts, corporate law requirements, asset sale efforts and other issues which vary depending on the operation. The exit plan should consolidate all operational, legal and tax efforts, since these will inevitably be intertwined.

The exit budget will include obligations resulting from early termination of contracts, entitlements of employees, corporate costs and operational expenditure for the duration of the winding down and liquidation. The task is to basically see how much financing is required and limit the expenditures relating to winding down.

It’s important to keep in mind that a key purpose of this step is to align all parties and professionals which will be involved in the liquidation process, such as legal and accountancy support units, management team and shareholders; as well as, streamlining efforts for reporting and execution. If the exit plan is prepared correctly, with foresight and realistic deadlines, the execution of the winding down will have a lower probability of losing momentum.

Communicating Exit to Stakeholders

Winding down and liquidation is likely to have an impact on all stakeholders of the company, some more than others. It is important to remember that managing the communication of the wind down properly is likely to ensure a more constructive reaction from stakeholders.

The outcomes of the due diligence and planning phases will provide the clear information on the issues which are important to stakeholders, such as exit and termination calendar, expectations for the duration of the winding down and financial entitlements (if any) resulting from termination. Communicating information clearly will be instrumental in managing expectations and anxiety of the stakeholders. This in turn is vital to ensuring that there is continued assistance, constructive termination negotiation, and lower risks for disputes. This effort to manage communication usually contributes to a winding down process in the form of lower costs and a faster finalisation date.