Liquidation Procedure in Türkiye: Implications of Pending Lawsuits

1. Voluntary Termination and Initiation of Liquidation Procedure

Under Turkish law, the termination of a corporation may be due to various reasons (e.g., merger, division, voluntary termination). In case of voluntary termination, a general assembly resolution for the termination is required. If and when a corporation decides on the termination voluntarily, the liquidation procedure must be initiated and exhausted.

2. Assessment of Assets, Receivables, and Liabilities

As per Article 533/1 of the Turkish Commercial Code ("TCC"), a corporation that voluntarily decides on the termination should initiate a liquidation procedure, save for the specified exceptions as determined by the law. The corporation in liquidation will undergo an assessment of its receivables, assets, and liabilities. After the sale of identified assets, the collection of its receivables, and the payment of the corporation’s liabilities, the surplus amount will be distributed among the shareholders in accordance with the provisions of the corporation’s articles of association and relevant statutory provisions.

3. Asset Liquidation and Conversion into Cash

In principle, the assets of a corporation in liquidation are sold and converted into cash, unless otherwise stipulated in the articles of association or adopted by a general assembly resolution. Following the settlement of the corporation's liabilities and the allocation of shareholders' share prices, the residual sum will be distributed among the shareholders in proportion to their contributed share capital and privileged rights, unless otherwise set forth in the articles of association.

4. Impact of Pending Lawsuits on Liquidation Procedure

Any lawsuit pending before local, regional, or high courts involving a corporation in liquidation would delay the conclusion of the liquidation process, as the liquidation process would not be concluded until a final judgment in such a lawsuit.

5. Instances of Improper Conclusion of Liquidation Procedure

Nevertheless, there have been instances where corporations improperly concluded liquidation processes even in the presence of a lawsuit pending. In such a scenario, where the corporation in liquidation is likely the defendant of such a lawsuit, the judge would grant a certain time to the other party (likely the claimant) to initiate a lawsuit to reinstate the terminated corporation for additional liquidation. If, following this lawsuit, the terminated corporation is reinstated due to the necessity of additional liquidation, the corporation will be re-registered with the trade registry as per the relevant court decision.

Conclusion

The liquidation procedure in Türkiye is a meticulous process ensuring that the termination of a corporation is carried out in a systematic and fair manner. However, the presence of pending lawsuits can significantly impact the timeline and outcome of the liquidation process, potentially leading to the reinstatement of a terminated corporation for further liquidation proceedings. It is imperative for corporations and stakeholders involved in liquidation to manage these legal complexities with diligence and adherence to the relevant laws and regulations to achieve a satisfactory resolution.