Winding Down and Liquidating a Company in Turkey:

Milestones.

Several types of companies regulated under Turkish law are required to follow through on formal liquidation process before they can be deregistered from the trade and tax registries. This is a process ultimately marks the end of the companies legal existence. We have set out below some milestones in this process to provide you with a general picture of what the liquidation process may entail.

Initiation of Preparation

The preparation phase consists of a red flag due diligence exercise and the preparation of an exit budget. More detailed explanations of these steps are provided in our previous post (click here).

Winding Down Operations

The order of the winding down steps are likely to change depending on the human resource capacity required, nature of the operations, number of locations and the variety of company assets. A typical flow is laid out below.

Termination of Employment Agreements: Depending on the headcount of the company, termination of employment agreements may play a vital role in winding down. It is usually not only the most strenuous step but also the most prone to resulting in dispute, which can have undesired effect on the liquidation calendar.

Termination of Commercial and Lease Contracts: In essence all relationships of businesses which money changes hands constitute a contract. Most typically, all businesses are engaged in one or more lease agreements, purchase and sale of goods and services. These ongoing agreements may be terminated unilaterally through notices issued through a notary public or through mutual termination agreements. This is critical so that no additional obligations or liabilities are incurred beyond any desired date.

Offsetting Intra Group and Shareholder Loans: A large number of investments in Turkey are externally financed via intragroup or shareholder loans. In order to clear the balance sheet, these liabilities will have to be waived or reclassified within the financials. A combination of injections of the loans into paid capital, an increase of registered capital and a partial waiving of loans is carried out for a tax effective reclassification.

Sale or Otherwise Disposal of Company Assets: The operational complexity which may be involved in the sale or disposal of company assets is often overlooked. Moreover, the validity of the sale, which is inevitable in a liquidation process; or the disposal of company assets which cannot be sold will require shareholders’ approval and possibly a tax evaluation. However, all in all, this phase usually poses more of an operational difficulty than a legal one.

Entrance into Formal Liquidation

Companies are required to enter into a period of formal liquidation through a shareholders’ resolution. The initiation of formal liquidation proceeding will require the appointment of a liquidation officer resident in Turkey, who will be in charge of the liquidation of the company. The entrance into liquidation will mark the start of announcement to creditors followed by a six month wait period.

Finalisation of Formal Liquidation

After the six month wait period has expired, the company will be entitled to finalise its liquidation through a shareholders’ resolution. The registration and announcement of this resolution result in the removal of the company from the trade registry records, which will mark the end of the company’s legal existence.

Final Tax Declarations and Removal of the Company from Tax Registry

Tax declarations for the final operational month of the company will be carried out, final taxes will be paid, remaining invoices of the company will be physical destroyed and the company will be removed from tax registries.