An Overview of the Extraordinary Liquidation and Revival Institution from the Perspective of the Constitutional Court
Introduction
In an extraordinary dissolution, ex officio cancellation from the trade registry without liquidation is regulated under the provisional Article 7 of the Turkish Commercial Code No. 6102 (“TCC”). Under Paragraph 15 of the relevant provision, the creditors of the company or cooperative, which was ex officio canceled by the trade registry, and those who have legal interests in the company or cooperative could apply to the court within five years from the date of cancellation based on justified grounds and request the revival of the company or cooperative. The Constitutional Court (“CC”) decided to annul the phrase “... within five years from the date of deletion...” in the provisional Article 7 with its decision numbered 2023/33 E. 2023/117 K.[1]
In this Newsletter article, the decision and its effects will be analyzed regarding its repercussions on the extraordinary liquidation and revival mechanisms of joint stock companies from the perspective of the TCC.
Extraordinary Liquidation
Provisional Article 7 of the TCC, which is the subject of the decision, regulates special liquidation provisions for joint stock and limited liability companies and cooperatives that have been dissolved or are considered as such, which are referred to as “inactive companies” in practice, and for which the liquidation process has been initiated but not completed[2]. The term “inactive companies” has a broad meaning. The concept of inactive company does not only cover companies that are inactive in the technical sense, i.e., by the TCC, but also includes joint stock and limited liability companies and cooperatives that continue their activities even though they have been dissolved for any reason; that have repeatedly failed to hold their general assembly meetings and are therefore without a body, but for which a lawsuit for dissolution has not been filed; or that have been in liquidation for a long time but have not finalized their liquidation.
The reason why this provision is called “extraordinary liquidation” is that it includes provisions that accelerate the process and, in some cases, envisages the cancellation of the joint stock company, limited liability company, or cooperative from the trade registry and the transfer of its assets to the Treasury before the liquidation process is completed. In fact, through this provision, the TCC seeks to eliminate joint stock companies, limited liability companies and cooperatives that are inactive, without bodies or unable to complete the liquidation process. Thus, the aim is to prevent these companies and cooperatives from continuing their existence in form.
Considering the scope of application of the provision for joint stock companies, a limitation is made within this scope. The listed joint stock companies are within the scope of this article:
- Joint stock companies that have not increased their capital to the minimum amount specified in the Decree Law No. 559 within the prescribed period;
- That have been dissolved for any reason;
- That have not held their ordinary general assembly meetings for the last five years;
- That have started liquidation procedures before the entry into force of the TCC but whose titles have not been deleted from the trade registry since their interim balance sheets and final balance sheets have not been submitted to the general assembly due to the failure of the general assembly to convene.
These joint-stock companies may be ex officio canceled from the registry. The realization of the ex officio cancellation may be determined by the trade registry directorates, or it may be determined by the examination to be made by the registry directorate upon notification from any person.
The second and third sentences of paragraph 15 of the provisional Article 7, which is the subject of the CC's decision, stipulate that the assets of the companies or cooperatives canceled from the trade registry without liquidation under this Article shall be transferred to the Treasury ten years after the date of cancellation and the Treasury shall not be held liable for the debts of such company or cooperative. The fifth sentence of this paragraph stipulates that the creditors of the company or cooperative whose registration is canceled from the trade registry and those who have legal interests may request the revival of the company or cooperative by applying to the court within five years from the date of cancellation based on justified reasons. The phrase “...within five years from the date of cancellation...” in the aforementioned sentence is the rule subject to the court's review.
Assessment of the Constitutional Court
Paragraph 15 of the provisional Article 7 of the TCC stipulates that companies and cooperatives that have ceased to operate or are deemed to have ceased to exist, but remain registered in the trade registry before the liquidation process is completed, shall be automatically cancelled from the registry by the relevant registry directorate. This terminates the legal existence of the debtor companies and cooperatives and removes their capacity as parties. Therefore, creditors will no longer be able to file a lawsuit against these legal entities, while at the same time, the right of the companies and cooperatives in question to file a lawsuit will be terminated.
However, the relevant provision also allows revitalizing the companies and cooperatives that have been ex officio canceled from the trade registry for company creditors and those with legal interests. In this context, creditors of the company or cooperative that has been ex officio canceled from the trade registry, or those who have an interest in revitalizing these legal entities, may request the revival of the relevant company or cooperative. However, this provision limits the period for the revival of a legal entity to five years from the date of cancellation.
The CC evaluates the unconstitutionality of the relevant provision from the perspective of the right to property regulated under Article 35 and the protection of fundamental rights and freedoms regulated under Article 40 of the Constitution. The Court defines the right to property as a right that allows a person to use, benefit from and dispose of what he owns as he wishes, provided that he does not harm the rights of others and complies with the limitations imposed by law[3]. The receivables of the creditors of the companies and cooperatives whose registry records have been canceled and other material claims that may be asserted against them are considered within the scope of the property right.
On the other hand, Article 40 of the Constitution, in conjunction with Article 35, is also particularly relevant to this provision. Article 40 of the Constitution guarantees the protection of fundamental rights and freedoms and recognizes the right to apply to the competent authorities for violations within this scope. This provision undoubtedly applies to the receivables of the creditors of the companies and cooperatives whose registry records have been canceled, which are within the scope of the property right. In this context, effective remedies must be established to enable creditors to determine the existence of their receivables and to ensure their follow-up and collection.
Although the request for the revival of the company is recognized as an available and effective remedy, this request is limited by the time limit for the application to the court. Within the scope of Article 40, it is essential to check whether the time limit for creditors and persons with a legal interest to apply to the court with a request for revitalization based on justified grounds renders this remedy ineffective. This period should not be so restrictive as to render the remedy ineffective.
Revival as a remedy is limited to five years from the date of cancellation for companies that have been ex officio canceled from the registry. This regulation may be explained by the fact that the deletion from the registry is due to an extraordinary liquidation, which is an exceptional procedure. However, the protection of fundamental rights and freedoms guaranteed by Article 40 of the Constitution cannot be ensured only by providing a remedy in the legislation. This remedy must also be effective in practice, i.e., it must offer the applicants an adequate chance to achieve an effective result and success.
The CC emphasizes that the period stipulated by the provisional Article 7 of the TCC for the application for the revival of companies and cooperatives canceled from the registry starts as of the date of cancellation and that the rule does not include any safeguards to ensure that creditors or those with a legal interest are mindful of this liquidation. The lack of a requirement for the creditor or the person with a legal interest to be aware of the receivable or interest for the commencement of the recovery period may weaken the functionality of this remedy and destroy the applicant's chances of success. If the creditors or those with a legal interest learn or become able to assert their claims after the expiration of the deadline, the remedy will not be available.
In this context, according to the CC, in the event of cancelation from the registry as a result of a facilitated liquidation under Provisional Article 7 of the TCC or in some cases without liquidation, the fact that the re-registration request is subject to a deadline starting from the date of cancelation may render this remedy useless. It is emphasized that the period starting from the date of cancelation instead of the date when a legally assertible claim arises against the company or cooperative, when the claimant learns or can reasonably be deemed to have learned of this situation, and when the claim becomes legally assertible is an obstacle to the functioning of the revival remedy.
For all these reasons, the phrase “... within five years from the date of cancellation...” regarding the commencement of the maximum period for the application for revival of companies and cooperatives canceled from the registry under provisional Article 7 of the TCC as of the date of cancellation is annulled because it is contrary to the right to property guaranteed under Article 35 of the Constitution and the related right to effective remedy regulated under Article 40.
Conclusion
The CC's decision numbered 2023/33 E. and 2023/117 K. provides an essential example of constitutional review regarding the extraordinary liquidation, revival, and ex officio cancelation of the company regulated by the provisional Article 7 of TCC. The Constitutional Court annulled the time limit for the revival applications of companies and cooperatives that have been ex officio canceled because it does not provide adequate protection for creditors and those with legal interests regarding the property right and, accordingly, the right to protection of fundamental rights and freedoms. In this way, the CC has made a proper intervention regarding the property right and, consequently, the right to protection of fundamental rights and freedoms of the creditors and those with legal interests in the companies that have not completed the liquidation process.
As emphasized by the CC, to guarantee the relevant fundamental rights, legal remedies in case of violation must not only be provided for in the legislation, but must also be effective and accessible in practice. In this context, the failure to base the commencement of the period for the revival of a company that has been ex officio canceled from the registry on a date on which the creditors or the person with a legal interest are, or at least could have been, aware of such cancellation constitutes a significant problem. This approach weakens the functionality of the revival mechanism, which is envisaged as a remedy in the context of property rights restrictions through cancellation procedures and the protection of fundamental rights and freedoms, thereby limiting creditors’ ability to seek their rights.
Consequently, with this decision, the CC has made an appropriate intervention to the provision of Provisional Art. 7 of the TCC, which provides for the ex officio cancellation of companies that have ceased their commercial activities, to protect the rights of creditors and stakeholders. In this context, it would be appropriate for the legislator to provide a new regulation by the CC's assessments regarding the limit of the revival period in case of ex officio cancellation, especially in terms of the starting moment of this period.
- CC, numbered E. 2023/33, K. 2023/117, dated 22.06.2023, https://normkararlarbilgibankasi.anayasa.gov.tr/Dosyalar/Kararlar/KararPDF/2023-117-nrm.pdf
- Poroy, Reha/Tekinalp, Ünal/Çamoğlu, Ersin: Ortaklıklar Hukuku II, Revised 13th Edition, İstanbul, Vedat, 2017, p. 368.
- CC, numbered E. 2023/33, K. 2023/117, dated 22.06.2023, https://normkararlarbilgibankasi.anayasa.gov.tr/Dosyalar/Kararlar/KararPDF/2023-117-nrm.pdf
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INCOTERMS are a set of rules introduced by the International Chamber of Commerce (ICC) to explain the commercial terms that are widely used in international trade. The purpose of the Incoterms rules is to contribute to and facilitate the safe and swift conduct of international trade...
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