Duties, Obligations and Civil Liability of Liquidators
Introduction
As a rule, the termination of a commercial company does not simultaneously result in the cessation of its legal personality. Subject to the exceptions provided by law, a company that has terminated enters into liquidation and retains its legal personality until the liquidation is completed. During this period, the company’s ongoing business must be concluded to the extent required by liquidation, its assets must be realized, its debts must be paid, the rights of its creditors must be protected, and any remaining assets must be distributed to its shareholders.
As the persons responsible for conducting this process, liquidators are vested with significant powers. Correspondingly, they are also subject to important obligations aimed at protecting the company’s assets and, in particular, the rights of its creditors. Accordingly, a liquidator’s role is not limited merely to completing the formalities required for the company’s closure and deregistration from the trade registry.
Articles 536 et seq. of the Turkish Commercial Code No. 6102 (the “TCC”), which govern the liquidation of joint stock companies, regulate the appointment, powers, duties and liabilities of liquidators. Pursuant to Article 643 of the TCC, these provisions also apply to the liquidation of limited liability companies.
Appointment, Status and Powers of Representation of Liquidators
Unless the articles of association or a resolution of the general assembly provides for the appointment of a separate liquidator, the liquidation is carried out by the board of directors. Liquidators may be appointed from among the shareholders or may be third parties. Where the dissolution of the company is ordered by a court, the liquidator is appointed by the court (Article 536 of the TCC).
The company’s corporate bodies do not cease to exist upon the commencement of liquidation. Once the company enters into liquidation, the duties and powers of its corporate bodies are limited to matters that are necessary for the liquidation but, by their nature, cannot be performed by the liquidators. The management and representation of the company in matters falling within the scope of the liquidation, on the other hand, principally rest with the liquidators.
Liquidators represent the company before courts and third parties in matters relating to the liquidation. As a rule, the powers conferred upon them by law may not be delegated; however, one of the liquidators or a third party may be authorized to represent the company for the performance of specific implementation acts (Article 539/1 of the TCC).
The fact that a liquidator’s power to represent the company is limited to the purpose of the liquidation does not mean that every transaction entered into with third parties outside that purpose is invalid. Pursuant to Article 539/2 of the TCC, transactions entered into by a liquidator with third parties outside the scope of the liquidation will, as a rule, also bind the company. The company will not be bound, however, if it is proven that the third party knew that the transaction fell outside the purpose of the liquidation or, in light of the circumstances, could not reasonably have been unaware of this fact.
Liquidators also have broad powers to realize the company’s assets. Unless the general assembly resolves otherwise, assets may be sold by private sale. However, a resolution of the general assembly is required for the bulk sale of a substantial portion of the company’s assets (Article 538 of the TCC).
Principal Duties and Obligations of Liquidators
The liquidator’s first duty is to determine the company’s financial position at the commencement of the liquidation. For this purpose, an inventory and a balance sheet reflecting the company’s assets and financial position are prepared and submitted to the general assembly for approval. Where necessary, expert assistance may be sought in determining the value of the company’s assets. Following approval of the inventory and balance sheet, the company’s assets, documents and books are taken over by the liquidators (Article 540 of the TCC).
One of the most important stages of the liquidation is the identification and protection of creditors. Creditors who are apparent from the company’s records and whose addresses are known must be notified directly, while other creditors are invited to notify their claims through announcements made three times at one-week intervals in the Turkish Trade Registry Gazette, on the company’s website and, where applicable, by the methods stipulated in the articles of association (Article 541 of the TCC).
The fact that a claim has not been notified to the liquidator does not mean that a known creditor of the company may be disregarded during the liquidation. The TCC requires amounts corresponding to the claims of known creditors who have not made a notification to be deposited. Likewise, unless adequate security has been provided, an amount sufficient to cover debts that are not yet due or are subject to dispute must be deposited with a notary public. These provisions demonstrate that the liquidator’s duty to identify creditors and consider the company’s existing or potential liabilities lies at the heart of the liquidation process.
Liquidators must also complete the company’s ongoing transactions, collect its receivables to the extent required by the liquidation, realize its assets and pay its debts. Conversely, they may not enter into new transactions that are not required for the liquidation. If it becomes apparent that the company’s debts exceed its assets, this circumstance must immediately be notified to the commercial court of first instance at the company’s registered office so that the court may decide on the opening of bankruptcy proceedings (Article 542 of the TCC).
A liquidator is not merely expected to complete the acts enumerated by law as a matter of form. Pursuant to Article 542 of the TCC, the liquidator must act as a diligent manager mindful of his or her duties in order to protect all of the company’s assets and rights, and must complete the liquidation as soon as possible. Where the liquidation continues for an extended period, the preparation of financial statements relating to the liquidation at the end of each financial year and a final balance sheet upon completion of the liquidation, and their submission to the general assembly, also form part of this obligation.
After the company’s debts have been paid and the necessary provisions have been made, the remaining assets are distributed to the shareholders. As a result of amendments to Article 543 of the TCC, the liquidation surplus may not, as a rule, be distributed until three months have elapsed from the third call to creditors. However, if the circumstances indicate that no risk exists for the creditors, the court may permit distribution before the expiry of this period.
Upon completion of the liquidation, the liquidators must apply for the deregistration of the company’s trade name from the trade registry. However, if an additional asset requiring liquidation or a transaction requiring completion is discovered after deregistration, the company may be re-registered for the purpose of supplementary liquidation pursuant to Article 547 of the TCC. Accordingly, deregistration does not cure deficiencies in the liquidation process or extinguish any liability that may arise from them.
Civil Liability of Liquidators
Pursuant to the reference made in Article 546/2 of the TCC, the provisions of Articles 553 et seq. apply to the civil liability of liquidators. Accordingly, liquidators are liable to the company, its shareholders and its creditors for losses caused where, through fault, they breach obligations arising from the law or the articles of association.
For a liquidator to incur liability, there must be a breach of duty, fault, loss, and an adequate causal link between the breach and the loss. Accordingly, the mere fact that the company is unable to satisfy all of its debts as a result of the liquidation does not, in itself, give rise to the liquidator’s personal liability. The liquidator’s conduct and the effect of that conduct on the loss sustained must be assessed separately.
In particular, excluding a known creditor from the liquidation, failing to make the necessary provision for disputed debts or debts that are not yet due, unlawfully distributing the company’s assets to the shareholders, or completing the liquidation without taking the company’s debts into account are among the principal circumstances that may give rise to liability.
Indeed, in its decision dated 11 March 2024, File No. 2022/5737, Decision No. 2024/1961, the 11th Civil Chamber of the Court of Cassation examined the liability of a liquidator under Article 553 of the TCC in circumstances where the liquidation had been completed without paying the company’s debts despite the liquidator’s knowledge of the creditor’s claim against the company. The Court found the liquidator at fault for having completed the liquidation without paying the company’s debts and, consequently, without satisfying its creditors, and held the liquidator liable to pay an amount sufficient to satisfy the creditors’ claim, subject to the limitation represented by the net assets available in the liquidation.
In liability actions brought by creditors, the nature of the loss and fault are also relevant. The TCC distinguishes between loss suffered directly by the creditor and indirect loss arising where loss suffered primarily by the company is reflected upon the creditor. Under Article 553 of the TCC, a creditor may claim compensation for loss suffered directly by it. Liquidators are likewise liable to the company, its shareholders and its creditors for losses caused where, through fault, they breach obligations arising from the law or the articles of association. Claims seeking recovery of loss suffered by the company, however, are subject to the conditions set out in Articles 555 and 556 of the TCC.
This distinction was expressly addressed by the 11th Civil Chamber of the Court of Cassation in its decision dated 2 December 2024, File No. 2023/6783, Decision No. 2024/8545. The Court concluded that, since the liquidation had not yet been completed and the claimants still had the opportunity to pursue enforcement proceedings and legal action against the company in liquidation, the time for bringing a liability action against the liquidators had not yet arisen.
Where more than one person is liable for the same loss, the principle of differentiated joint and several liability under Article 557 of the TCC must also be considered. Accordingly, the scope of each liable person’s responsibility is determined by the extent to which the loss may be attributed to that person, having regard to his or her degree of fault and the circumstances of the specific case. Therefore, the existence of more than one liquidator does not automatically mean that each liquidator will be held liable for the entirety of the loss to the same extent.
Pursuant to Article 560 of the TCC, claims for compensation against liquidators are subject to a limitation period of two years from the date on which the claimant becomes aware of both the loss and the person liable, and in any event to a limitation period of five years from the date of the act giving rise to the loss. If the relevant act also constitutes a criminal offence and criminal law provides for a longer limitation period, that longer period applies.
Conclusion
Liquidators are not merely responsible for carrying out the formal procedures associated with the termination of a company. They are also responsible for safeguarding the company’s assets, accurately identifying its debts and receivables and, in particular, protecting the rights of its creditors. The broad powers granted to liquidators to realize the company’s assets and represent the company are therefore accompanied by a correspondingly significant standard of care and liability regime.
Against this background, completing the liquidation swiftly is not sufficient in itself. The liquidator must consider all known and disputed liabilities of the company, make the necessary provisions and ensure that any required security is in place, and distribute the remaining assets to the shareholders only after the rights of creditors have been adequately protected.
Recent decisions of the Court of Cassation likewise assess a liquidator’s liability by examining, in light of the circumstances of the specific case, whether there has been a breach of duty, fault, loss and an adequate causal link. The fact that the liquidation has not yet been completed may be particularly relevant to the occurrence of loss and the timing of a liability action. Accordingly, when performing their duties, liquidators should consider together the potential consequences for the company, its shareholders and, in particular, its creditors in order to mitigate the risk of personal liability.
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