Liquidation of a Foreign Branch Office Under Turkish Law

LIQUIDATION OF A FOREIGN BRANCH OFFICE UNDER TURKISH LAW

Introduction

Instead of establishing a Turkish company, foreign corporate entities prefer to establish a Turkish branch office in order to operate in Turkey. As Turkish companies these branch offices can also be liquidated.

Liquidation of branch offices is subject to provisions valid for liquidation of joint stock companies. Accordingly there are different corporate actions to be taken in order to validly liquidate a branch office.

i. Commencement of liquidation
In order to commence with the liquidation procedures, a decision has to be taken by the authorised corporate body of main company. The authorised corporate body is to be determined in accordance with the local laws. In other words, if the main company is a German company and pursuant to German law, the authorised corporate body to decide on liquidations is the board of directors, the board of directors must take necessary resolution for the liquidation of Turkish branch office.

The decision basically has to include the followings:
– Reason of the liquidation:
Even stating that the operation of the branch office is not commercially feasible, is a valid liquidation ground.

– Release of the branch office director:
According to Article 553 of Turkish Commercial Code, the founders, board of directors members, managers and liquidators have legal responsibilities for their activities during their offices. The decision takers can face a wide range of sanctions from administrative fines to imprisonment. In order to ensure the impunity of these decision takers, it is crucial to release such from their acts. A corporate decision serves to this result.

The release of the branch office director shall therefore be mentioned within the liquidation decision.

– Appointment of a liquidator:
The decision must include the appointment of a liquidator who will be responsible for the next steps of the liquidation.

The liquidator can be the former director or a third party, however, Turkish Commercial Code Article 536 requires that one of the liquidators to be Turkish citizen and resident in Turkey.

ii. Interim Period Procedures
The liquidation decision must be registered with the trade registry and announced in the trade registry gazette. Once the liquidation decision is registered and announced, the liquidator shall issue a notification to the creditors of the branch office, if any. This notification shall be published at least three times in the trade registry gazette. The publication is made automatically by the trade registry, subsequently each week.

In the event there are company creditors, paying these debts even before the commencement of the liquidation process would shorten the liquidation process.

iii. Closing of the branch Office
After all notifications are completed the liquidator has to prepare a closing balance sheet.
The closing balance sheet has to be approved by the authorised corporate body of the main company which then has to be registered with the trade registry.

Once the balance sheet is registered with the trade registry, the liquidator has to take another decision regarding the completion of the liquidation process. This decision has also be registered. The registered decision will be submitted to the tax offices and social security authorities in order to complete the deletion of the branch office from these authorities.

For detailed information ozlem.ege@ege.av.tr or bilgi@ege.av.tr