Primetax Guide: Technical Bankruptcy under the Turkish Commercial Code Article 376

Introduction

Article 376 of the Turkish Commercial Code No. 6102 (the “TCC”) sets out the principal rules applicable where a company has suffered a material loss of capital or is over-indebted.

Although the expression “technical bankruptcy” is commonly used in Turkish business practice, Article 376 in fact addresses two distinct situations:

• capital loss, where losses have eroded a specified proportion of the company’s share capital and legal reserves; and

• over-indebtedness, where the company’s assets are insufficient to cover its liabilities.

The distinction is important. A company may fall within the capital loss thresholds under Article 376 without being over-indebted. The consequences, and the action required of the management body and shareholders, differ accordingly.

This Guide focuses on Turkish joint stock companies (anonim şirket – “AŞ”) and limited liability companies (limited şirket – “Ltd.”).

Article 376 applies directly to joint stock companies. For limited liability companies, Article 633 of the TCC provides that the corresponding provisions applicable to joint stock companies in cases of capital loss and over-indebtedness apply by analogy, without prejudice to the rules governing additional payment obligations of shareholders.

Capital Loss Thresholds

Loss of at Least One-Half of Capital and Legal Reserves

If the most recent annual balance sheet shows that losses amount to at least one-half, but less than two-thirds, of the aggregate amount of the company’s share capital and legal reserves, the management body must convene the general assembly without delay.

The management body must explain the company’s financial position and propose appropriate remedial measures.

Depending on the circumstances, those measures may include a capital increase, capital completion, the disposal of assets or investments, the closure or downsizing of business units, changes to the operating model or other measures aimed at restoring the company’s financial position.

The available alternatives should be presented on a comparative basis. The general assembly may adopt the measures proposed by the management body, amend them or resolve on different measures.

For an AŞ, these responsibilities rest with the board of directors. For a Ltd., they rest with the manager or board of managers.

Loss of at Least Two-Thirds of Capital and Legal Reserves

If the most recent annual balance sheet shows that losses amount to at least two-thirds of the aggregate amount of share capital and legal reserves, the general assembly must address the company’s capital position without delay.

The measures available under the Article 376 framework include:

• a reduction of share capital;

• completion of the capital by shareholders; and

• an increase of share capital.

If the general assembly fails to adopt one of the measures permitted under the applicable rules, the company is dissolved by operation of law.

The existence of substantial accumulated losses does not, of itself, require a bankruptcy filing. That obligation arises only in the separate context of over-indebtedness.

Capital Reduction

A reduction of share capital is one of the remedies available where at least two-thirds of the aggregate amount of share capital and legal reserves has been lost.

If the general assembly resolves to continue the company with reduced capital, it must implement the reduction in accordance with the TCC and the Communiqué on implementing Article 376.

Subject to the applicable equity protection requirement, the capital may be reduced to the statutory minimum.

In an Article 376 capital reduction, the management body may dispense with the requirement to invite creditors and to pay or secure their claims.

A capital reduction does not introduce new funds into the company. Its principal purpose is to absorb accumulated losses and align registered capital with the company’s existing equity position.

For restructurings undertaken during 2026, the resulting capital must also be considered against the current minimum capital requirements and the transition deadline of 31 December 2026.

2026 Minimum Capital Requirements

The minimum capital requirements introduced with effect from 1 January 2024 are particularly relevant for companies considering an Article 376 restructuring during 2026.

The current statutory minimums are:

• TRY 250,000 for joint stock companies;

• TRY 50,000 for limited liability companies; and

• TRY 500,000 as the minimum initial capital for non-public joint stock companies operating under the registered capital system.

Existing joint stock companies and limited liability companies whose capital remains below the applicable minimum must increase their capital by 31 December 2026.

Under Temporary Article 15 of the TCC, an AŞ or Ltd. which fails to meet the applicable minimum by the end of the transition period is dissolved by operation of law.

Non-Public joint stock companies under the Registered Capital System

A different consequence applies to non-public joint stock companies operating under the registered capital system.

Where the issued capital is at least TRY 250,000 but the company has not increased its initial and issued capital to TRY 500,000 by the deadline, the company is deemed to have exited the registered capital system rather than being dissolved solely on that ground.

General Assembly Rules for Minimum Capital Increases

Temporary Article 15 provides a simplified approval regime for capital increases carried out specifically to comply with the minimum capital requirements under Articles 332 and 580 of the TCC.

For general assembly meetings held for that purpose:

• no meeting quorum applies;

• resolutions are passed by a majority of the votes represented at the meeting; and

• privileges may not be exercised against the relevant resolution.

The Ministry of Trade may extend the transition period for one year at a time, on no more than two occasions.

As at 25 August 2026, the deadline remains 31 December 2026.

Interaction with Article 376

The minimum capital rules and Article 376 should be considered together.

A company that is both within the Article 376 capital loss regime and required to comply with the increased minimum capital thresholds should generally address both issues within the same restructuring.

A stand-alone capital reduction may therefore be unsuitable if it produces a capital structure that does not satisfy the applicable minimum or otherwise fails to provide a sustainable solution.

Depending on the company’s financial position and funding requirements, a simultaneous capital reduction and increase, capital completion or another permitted restructuring may be more appropriate.

Capital Completion

Capital completion (sermayenin tamamlanması) is a distinct remedy under the Article 376 framework.

It involves shareholders making contributions to cover the company’s balance sheet deficit.

A capital completion payment:

• does not form part of registered share capital;

• is not a shareholder loan;

• is made without consideration;

• is not repayable to the contributing shareholder; and

• is not an advance against a future capital increase.

The contributed amount is recorded in equity in a capital completion fund and may be used only to offset losses.

Capital completion should therefore be distinguished from both an ordinary capital increase and shareholder financing.

Corporate Approval

The approval requirements differ between joint stock companies and limited liability companies.

For an AŞ, the relevant rules governing qualified general assembly resolutions must be considered.

For a Ltd., the TCC provisions on additional payment obligations, including Articles 603 and following, may be relevant.

The applicable corporate requirements should be reviewed before the contribution is made, particularly where shareholders will not participate on the same basis.

Tax Treatment of Capital Completion

Article 6(3) of the Corporate Income Tax Law provides a specific rule for capital completion payments made under Article 376.

Where the company has duly resolved to complete its capital pursuant to Article 376, amounts contributed by shareholders to cover the portion of capital depleted by losses are not taken into account in determining the company’s taxable corporate income.

A private ruling issued by the Istanbul Tax Office on 7 July 2026 provides further clarification.

The ruling confirms that, where a capital completion resolution has been duly adopted under Article 376, shareholder contributions made to cover the relevant losses are not included in taxable corporate income.

It also states that, where no such resolution has been adopted under Article 376, amounts paid by shareholders to cover the company’s losses must be taken into account in determining taxable corporate income.

The corporate law treatment of the contribution is therefore relevant to its tax treatment. A shareholder payment intended economically to cover losses should not be assumed to qualify for the tax treatment applicable to capital completion unless the relevant Article 376 requirements have been satisfied.

VAT

The same ruling confirms that qualifying capital completion payments are outside the scope of Turkish VAT.

The payment is not consideration for a supply of goods or services and, for these purposes, is not treated as a financing transaction.

Capital Increase

Article 376 does not prevent a company from increasing its capital. The relevant Communiqué provides several routes.

Capital Reduction Followed by a Simultaneous Capital Increase

The general assembly may resolve to reduce the existing capital by the amount of the loss and simultaneously increase it by the desired amount.

The capital subscribed as part of the increase must be paid in accordance with the applicable provisions of the TCC.

This method allows the company to absorb accumulated losses while introducing new equity. It may be particularly useful in 2026, when the company must also align its capital with the increased statutory minimum.

Capital Increase Without Prior Reduction

The company may increase its capital without first reducing the existing capital by the amount of accumulated losses.

In that case, before registering the increase, an amount must be paid to ensure that at least one-half of the aggregate amount of the capital to be registered and the legal reserves is maintained within equity.

Capital Increase Followed by Reduction

The general assembly may also resolve, at the same meeting, first to increase the capital to the desired level, with the relevant subscription amounts fully paid, and subsequently to reduce the capital.

After completing the transactions, at least one-half of the aggregate amount of registered capital and legal reserves must remain within equity.

For publicly held joint stock companies, you must also consider the applicable capital markets rules.

The appropriate route will depend on the company’s existing equity position, accumulated losses, funding requirements, shareholder structure and intended post-restructuring capital level.

Over-Indebtedness

Over-indebtedness is distinct from capital loss.

A company is over-indebted where its assets are insufficient to cover its liabilities.

Indicators may arise from annual or interim financial statements, independent audit reports, early-detection risk committee reports, or findings from the management body.

Where there is reason to believe that the company may be over-indebted, the management body must prepare interim balance sheets on two bases:

• going-concern values; and

• probable sale values of the assets.

If those balance sheets show that the company’s assets are insufficient to cover its liabilities, the available statutory remedies must be considered without delay.

If the management body does not eliminate the over-indebtedness through a legally available mechanism, it must notify the competent commercial court at the company’s registered office and request the company’s bankruptcy.

For an AŞ, the board of directors bears this obligation.

For a Ltd., Article 633 applies the relevant AŞ provisions on capital loss and over-indebtedness by analogy. In contrast, Article 634 separately applies the AŞ provisions governing bankruptcy notification and an application for concordat.

Subordination of Creditors

Article 376 also provides a mechanism under which creditors may agree in writing that claims sufficient to eliminate the balance sheet deficit will rank behind the claims of all other creditors.

Creditors must satisfy the statutory requirements for such subordination, including verification by court-appointed experts.

Negative equity should not therefore be equated automatically with over-indebtedness. The latter requires a separate assessment under the valuation principles prescribed by Article 376.

Financial Statements Relevant to the Article 376 Analysis

The Article 376 analysis must be based on financial information prepared in accordance with the financial reporting framework applicable to the company under the TCC and the rules issued by the Public Oversight, Accounting and Auditing Standards Authority.

The financial information used for the analysis should therefore be consistent with the reporting framework applicable to the company.

To assess over-indebtedness, the company must also observe the specific interim balance sheet requirements under Article 376.

An Article 376 analysis should not be reduced to a mechanical comparison between registered capital and the equity figure appearing in a trial balance or management account.

Temporary Relief Applicable Through 2026

A temporary adjustment remains available for Article 376 calculations made during 2026.

Until 1 January 2027, companies may elect not to take into account:

• the full amount of foreign exchange losses arising from foreign-currency liabilities that have not yet been settled; and

• one-half of the aggregate amount of lease expenses, depreciation and personnel expenses accrued in 2020 and 2021.

The calculation must avoid any duplication.

No accounting entry is made in the financial statements for amounts disregarded solely for the Article 376 calculation. Instead, the effect is disclosed in the notes to the relevant financial statements.

The adjustment may materially affect whether an Article 376 threshold is met and should therefore be considered before a company concludes that a capital loss or over-indebtedness trigger has occurred.

Under the rules currently in force, the relief ceases to apply from 1 January 2027.

Merger as a Restructuring Alternative

A company facing capital loss or over-indebtedness may also participate in a merger with another company that has sufficient freely disposable equity to cover the relevant deficit.

The required equity must be appropriately evidenced.

In general, this is demonstrated by a report prepared by a sworn-in certified public accountant. Where the relevant company is subject to independent audit, the report may also be prepared by its independent auditor.

A merger may therefore provide an alternative restructuring route, particularly within corporate groups, although its corporate, accounting and tax implications must be considered separately.

Responsibilities of the Management Body and General Assembly

Joint Stock Companies

For an AŞ, the board of directors is responsible for monitoring the company’s financial position, identifying whether the Article 376 thresholds have been reached, convening the general assembly where required and proposing appropriate remedial measures.

Where there are indications of over-indebtedness, the board must also prepare the required interim balance sheets and make the necessary court application if the statutory conditions are met.

The general assembly determines the measures requiring shareholder approval.

Limited Liability Companies

For a Ltd., the corresponding responsibilities fall on the manager or board of managers pursuant to Article 633 of the TCC.

The general assembly of shareholders decides on matters reserved to it under the TCC and the company agreement.

The rules governing additional payment obligations should also be considered where relevant.

Liability

Failure to comply with the duties arising under Article 376 may have material consequences for the company and, depending on the circumstances, may also expose directors or managers to personal liability.

Article 376 is therefore not merely an accounting issue. It is also a corporate governance and directors’ duties matter requiring timely action.

Practical Considerations

An AŞ or Ltd. approaching or exceeding the Article 376 thresholds should consider, among other matters:

• the amount and composition of accumulated losses;

• the company’s registered capital and legal reserves;

• the applicable capital loss threshold;

• whether the company is over-indebted;

• the financial reporting basis used for the calculation;

• the effect of the temporary relief available through 2026;

• compliance with the minimum capital requirements and the 31 December 2026 deadline;

• the company’s liquidity and funding requirements;

• the availability of shareholder funding;

• whether shareholder support should take the form of capital completion, a capital increase, a shareholder loan or another instrument;

• for a Ltd., any relevant additional payment obligations;

• the corporate income tax and VAT treatment of the proposed steps;

• the corporate approvals and supporting documentation required; and

• the company’s intended post-restructuring capital and equity position.

The legal form of shareholder support should follow the commercial objective and the applicable legal requirements, rather than its intended accounting presentation alone.

In light of the July 2026 ruling, particular care should be taken where shareholder contributions are intended to qualify as capital completion payments for corporate income tax purposes.

For restructurings undertaken during the remainder of 2026, address the Article 376 analysis and the minimum capital requirements together. A solution to one issue which creates a problem under the other should be avoided.

Conclusion

Article 376 provides a framework for early intervention where a company’s capital position has materially deteriorated.

Capital loss and over-indebtedness are separate concepts and should be analysed separately. A company that has suffered substantial capital loss is not necessarily insolvent and does not, for that reason alone, need to file for bankruptcy.

Depending on the circumstances, the available measures may include a capital reduction, capital completion, a capital increase or a broader restructuring.

The tax treatment of those measures should form part of the analysis. In particular, following the Istanbul Tax Office ruling dated 7 July 2026, the treatment of shareholder contributions intended to cover losses may depend on whether the contribution has been properly implemented as capital completion under Article 376.

Two timing issues are particularly relevant during 2026.

The temporary adjustments available for Article 376 calculations remain available until 1 January 2027. Separately, Joint stock companies and limited liability companies whose capital remains below the increased statutory minimums must, under the rules currently in force, bring their capital into compliance by 31 December 2026.

Where both regimes are relevant, they should be considered as part of the same restructuring.