Turkey: What Changed In Article 376 Of The Turkish Commercial Code?

Last Updated: 29 January 2019
Article by Begüm Solak Ekler and Ezgi ER
Most Read Contributor in Turkey, July 2019


In this article, we will mention about the Communiqué on the Principles and Procedures for the Application of Article 376 of the Turkish Commercial Code No. 6102 ("Communique") dated 15 September 2018 which provides amendments and changes to the principles and procedures relating to the application of this Article and what kind of explanation and changes it brings.

The Communiqué also provides a temporary article that provides solutions to exchange rate fluctuations which may affect many companies in the recent period and this arrangement will be examined separately.

Key Words : Loss of Capital, Company Loss, Technical Bankruptcy, Insolvency, Capital Increase- Decrease, Completion of Capital, Calculation of Balance Sheet, Communiqué, Exchange Differences


Legislative wants to protect joint stock companies' shareholders who are likely to suffer from company debts with their own assets, company creditors and general economic benefits with Article 376 of the Turkish Commercial Code numbered 6102 ("TCC").1 Along with the new Communiqué, which regulates the measures about companies under insolvency and loss of capital, some uncertainties and questions about the application of the article have been sought, and various practices which may be advantageous for the companies that have lost capital or under insolvency are also included.


Loss of capital at different rates in case of deterioration of financial status of the company causes loss of capital and insolvency. In accordance with Article 376 of TCC, the lower limit in terms of taking measures is that half of the main capital is unrequited and upper limit is insolvency. Insolvency is that total value of assets of the company is lower than the total value of debits of  the company.2 We will examine the measures to be taken in other headings in light of the new Communique.


In the event that at least half of the capital and legal reserves are unrequired, the measures that shall be taken by Board of Directors of the company in order to eliminate the deterioration in the financial status of the company are listed as capital increase, closure or reduction of certain production units or divisions, sale of subsidiaries, change of marketing strategy etc.in the law's preamble. The new Communique also adds "completion of capital" to this examples.


According to related article of the Law, when the last annual balance-sheet data of the company is examined, if the two-thirds of the capital and legal reserves are unrequited due to loss, the general assembly should decide to complete the capital or reduce the capital by relying on one third of the capital. The communiqué has added "increase capital" as a new option to these options. In this context, the actions that can be taken in accordance with the Communiqué are as follows:

  • Capital reduction by relying on one third of capital
  • Completion of capital
  • Increasing of capital
  1. Capital Reduction (at the rate of loss)By Relying On One Third Capital

Capital reduction at the rate of loss, which is the first option envisaged by both Law and Communiqué, is the process of reducing the nominal value of the shares to the current level of capital by changing the articles of association in accordance with the principal of equal transaction.3At this point, there is no change between the Communiqué and the Law.

  1. Completion of Capital

Acccording to the Law and the Communique, the second option is "completion of capital". Completion of capital may be in three forms.These are:

  1. Simultenous capital increase along with the capital decrease
  2. Completion of capital by shareholders

Deleting receivables which is from the company by creditors

  1. Increasing the Capital

In accordance with the Law and its preamble, while capital increase is a measure that can be taken in case of loss of half of the capital, it is not a measure in case of loss of two thirds of the capital. The first way to increasing the capital is "simultaneous increase-decrease."

Pursuant to the Law and its preamble, prerequisite of making simultaneous increase-decrease was that capital increase shall be made at the amount of the capital increased or more than this amount. In other words, after the reduction of capital, the amount to be increased in increasing process shall be at least the amount reduced. However, the Communiqué bring innovation about this topic and capital increase which is increased simultaneously with the reduction of capital may be at desired amount. In conclusion, the obligation to increase capital at reduced amount no longer exists. Another important innovation introduced by the Communiqué is regarding the payment of one-fourth of the increased capital  (provided that the remaining is paid within 2 years).

In accordance with the Communiqué, the second type of capital increase is regulated as a direct increase without any reduction. On the other hand, in order to increase the capital to be made in this way, it is obligatory to pay the amount that will cover at least half of the capital increased before the registration. 


There are parallel explanations in Communiqué and the Law about insolvency. However in the Communiqué, the step of "the order the creditors to accept the order of their receivables after the order of all other creditors" does not exist on the contrary to the Law.


In the Law, it was not stated which financial statements should be taken into account while accounting. However, in practice the financials held in accordance with Tax Procedure Law No.213 ("TPL") were taken into consideration.

On the other hand, the companies which is subject to inspection and holding books in accordance to Turkish Accounting Standards (IAS)- Turkish Financial Reporting Standards (TFRS) were able to take this data into consideration because they submitted and approved the financial statements. With this Communique, this question marks have been removed and it has been clarified that TMS-TFRS tables can be used voluntarily, in addition to VUK tables.


The most important amendment of the Communiqué is the provisional article and in accordance with this article, until 1/1/2023 in the calculation of loss of capital or insolvency in the context of Article 376 of the Law, foreign exchange losses arising from foreign currency liabilities that are not yet fulfilled may not be taken into consideration. To make it clearer, in the calculation of insolvency, companies will not take the current period loss as they are, and will recalculate the period loss by separating the losses arising from the unfilled debts in the income statement. In this way, the amount of loss due to non-performing foreign currency debts will decrease and possibility of insolvency will decrease. The most important reason behind the introduction of this amendment is the foreign exchange losses of  the companies due to exchange rate inflations.

On the other hand, we would like to point out that this amendment offers solutions, but has left a number of questions unanswered. The first question is that at which period, currency exchange losses are considered. For example, can a company that wants to increase its capital in 2018 and has foreign exchange losses in 2017, not consider the foreign exchange losses in 2017? Our view is that the foreign exchange loss corresponding to a foreign currency debt that is not included in the 2017 year-end balance sheet is also deducted from the 2017 period loss. We would like to underline that it would be much more appropriate for the Ministry to announce this issue to the public through an announcement.


While the regulations brought by this Communiqué on the capital loss / insolvency institution, which has long occupied the agenda of the companies and the executives, may have some shortcomings and differences with the Law, we believe that this Communiqué will provide great convenience both for the Trade Registry Offices and the companies in practice and will eliminate the procedural differences/inconsistencies.


1 Murat Kaderoğlu,Dissolution of Joint Stock Companies, On İki Levha Publishing, İstanbul, 2017, p.149

2   Ünal Tekinalp, New Law of Capital Partnerships, Vedat Publishing, İstanbul, 2015, p.287

3 a.g.e. Kaderoğlu, p.161

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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