All countries in the world have went through economic crises at some time in their histories and Turkey is no exception. This is why it is common for Turkey to have its own legislation which covers debt recovery, restructuring, insolvency and bankruptcy of companies and individuals.
With respect to companies, Turkey has enabled the Execution and Bankruptcy Law of 2004. This law is shortly known as the Insolvency Law and it is supported by the Companies Code which provides for measures which delay the bankruptcy of a business. You can obtain more information on the insolvency legislation from a lawyer in Turkey.
Companies with financial difficulties can avoid immediate bankruptcy by appealing to corporate restructuring followed by insolvency. These procedures are covered by the Code of Obligations which is comprised in the Civil Law in Turkey and which provide for a company to try and pay its debts before winding up.
According to the Insolvency Law, a Turkish company may try to settle the debts with its creditors. However, the creditors also have the right to ask for the debts to be paid directly with the company or with a court of law which will dispose for a period of maximum 4 years for a company to pay the outstanding amounts. If the company fails to pay its debts, it is declared insolvent, case in which all if its assets will be sold in order to pay the creditors.
According to the Turkish Insolvency Law, the company itself will be liable for paying its creditors. Shareholders will be liable to the extent of the capital they contributed with to the business. In the case of partnerships, the participants will be fully held liable for the business’ obligations. According to a new provision of the Commercial Code, directors or a management board can only be held liable in case of an insolvent company only if they intentionally have failed to fulfill their duties and this failure has affected the business’ activities.
For full information on insolvency procedures applicable in Turkey, please feel free to contact us. You can also rely on our law firm in Turkey if you want to start a business in this country.