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What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
As per the law, a bankruptcy decision can be rendered only against merchants or persons subject to merchant provisions. In this respect, the following are subject to bankruptcy pursuant to Article 18 of the Commercial Code:
- collective companies;
- commandite companies;
- joint stock companies;
- commandite companies with share capital;
- limited liability companies;
- foundations and associations operating a commercial enterprise in order to achieve their goal; and
- institutions and corporations established by the state, a special provincial administration, municipality, village or other public legal entity, for the purpose of being managed or commercially operated in accordance with the private law provisions pursuant to their own laws of establishment.
What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
Bankruptcy proceedings are the main way to liquidate an insolvent company. Both voluntary and compulsory liquidations have the same consequences. A company may also be liquidated in a composition proceeding with assignment of the assets. A company may also be liquidated in a composition proceeding with assignment of the assets.
How are liquidation procedures formally approved?
Bankruptcy decisions are rendered by the specialised commercial courts. The commencement of liquidation is stipulated in the decision with the date and hour. The bankruptcy office is notified of the decision. The bankruptcy office automatically notifies the land registry, trade registry, customs and postal administrations, the Banks Association of Turkey, local chambers of commerce, chambers of industry, stock exchanges, the Capital Market Board and other necessary authorities. The bankruptcy office also publishes the decision in:
- a national newspaper with circulation in excess of 50,000;
- a local newspaper at the debtor’s centre of main interest; and
- a trade registry gazette.
What effects do liquidation procedures have on existing contracts?
As a general rule, agreements are not terminated automatically upon the bankruptcy of one party. The law states that the following exceptional agreements are deemed to be terminated upon the bankruptcy of one party:
- usufructuary lease agreements;
- attorney agreements;
- commission agreements;
- agency agreements;
- life annuity agreements;
- ordinary partnership agreements; and
- current account agreements.
For other agreements, commencement of bankruptcy liquidation may have important effects aside from termination and this should be evaluated in terms of each agreement. For example, pursuant to the Code of Obligations, in an agreement burdening mutual debts, if a party goes bankrupt, the other party should refrain from fulfilling its obligations until its performance is secured. Therefore, for such agreements, if a bankruptcy administration does not provide security, the other party can terminate the agreement. In this respect, bankruptcy administrations are entitled to continue the agreements which are in favour of the bankruptcy estates, but they are not obliged to do so.
What is the typical timeframe for completion of liquidation procedures?
The Enforcement and Bankruptcy Law allows for a six-month period for completion of liquidation procedures. However, this may be extended by the enforcement court. In practice, liquidation processes may be lengthy and the liquidation period is extended annually.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
Liquidation is ordinarily executed if the debtor’s assets meet the liquidation costs. Ordinary liquidation is managed by the bankruptcy administration, which consists of three people appointed by the enforcement court from the six nominees nominated by each creditor in the first creditors’ meeting. The powers and responsibilities of the bankruptcy administration are limited to those stated in the Enforcement and Bankruptcy Law. In this respect, the authority and responsibility of the directors remain for unstated matters under the Enforcement and Bankruptcy Law. Bankruptcy administration should be separately authorised by creditors to sell the assets by way of negotiation rather than auction.
What is the extent of the court’s involvement in liquidation procedures?
The courts are involved in appointing the bankruptcy administration, hearing complaints against transactions of the bankruptcy administration, closure of liquidation and hearing requests for the termination of bankruptcy decisions.
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
Creditors cannot initiate a new proceeding against the debtor during the bankruptcy liquidation. However, the secured creditors may continue the selling process of the pledged property. As per the law, creditors are entitled to:
- nominate the bankruptcy administration;
- authorise the bankruptcy administration to sell by way of negotiation;
- decide on the composition offer of the bankrupt and suspend the liquidation;
- decide on the continuation of litigations;
- object to the rankings determined by the bankruptcy administration; and
- make complaints regarding the transactions of the bankruptcy administration.
Creditors may also continue the litigation process which is not followed by the bankruptcy administration.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
Directors and shareholders of the debtor are obliged to show the debtor’s assets to the bankruptcy office and comply with its requests. The authority and responsibilities of directors and shareholders continue only for the matters over which the bankruptcy administration has no power or responsibility. Shareholders can also request the rescission of the bankruptcy decision when the debts are paid.
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