Amendment to the Communiqué on Implementation of Article 376 of the Turkish Commercial Code

Highlights

Article 376 of the Turkish Commercial Code sets out the framework for companies to follow in cases of capital loss or insolvency, which are further regulated in detail by the Communiqué.

The original version of Provisional Article 1 of the Communiqué allowed companies to disregard, until 1 January 2023, only any foreign exchange losses arising from outstanding foreign currency denominated liabilities in their calculations for capital loss or insolvency. The Communiqué was first amended on 26 December 2020, to introduce two additional exceptions. Accordingly, half of the sum of expenses arising from leases as well as any depreciations and personnel expenses accrued in 2020 and 2021 were added to the list of exceptions that could be disregarded in capital loss or insolvency calculations, in addition to foreign exchange losses.

In the latest amendment to the Communiqué, published in the Official Gazette dated 8 November 2022, the duration of the exceptions is extended until 1 January 2024. Therefore, after 1 January 2023, all of the aforementioned exceptions (i.e., foreign exchange losses arising from outstanding foreign currency denominated liabilities, half of the sum of expenses arising from leases, as well as depreciations and personnel expenses accrued in 2020 and 2021) will continue to apply in capital loss or insolvency calculations, for an additional year.

In light of the challenging economic environment that the world and Turkey have been facing after the COVID-19, this amendment should allow some businesses additional time, to remedy any balance sheet deficits which, in the absence of the exceptions, could require them to resort to the procedures under Article 376 of the Turkish Commercial Code.