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Liquidation of companies in TRNC

Liquidation of companies in TRNC

Which legislation is applied in the liquidation of companies?

Liquidation, as setting up of the company, is also part of Company Law. The liquidation of companies can take place for many reasons. For example, if a company's assets do not meet its liabilities, if it is financially incapable of paying their debts or have declared bankruptcy, the company's shareholders or the board of directors may demand the liquidation of the company, as the requirements of the articles of association and the statutes are not fulfilled.

There are several legal rules and regulations applicable to the liquidation of companies. The main legal legislation to be applied for the liquidation of the companies in the TRNC is the Article 113 of Company Law. In addition, in the event of liquidation of banks, the relevant provisions of the 39/2001 Law on Banks, the bankruptcy charter set forth under the Rules of Courts of 1953, the 1933 Liquidation Regulation, the Article 5 Bankruptcy Law, the Rules of Procedure of the Civil Procedure and the principles of Equity Law and the Common Law are applied. In a decision related to liquidations, the Supreme Court stated that the 1933 liquidation charter and the jurisdiction of the jurisprudence constituted a whole.[¹]While the legislation to be applied for liquidation is very complex and confusing, sometimes the implementation of which legislation is controversial. Therefore, it is very important to know what kind of company is the company whose liquidation is on the agenda, the reason of liquidation and who is demanding the liquidation.

What are the types of liquidation?

The Company Law of TRNC Article 113 is a counterpart to the 1948 UK Company Act and is the legislation that contains the basic rules for the liquidation of companies. In accordance with the Company Act Article 113, it is generally possible to liquidate a company in three ways:

  1. Liquidation by the Court
  2. Voluntary liquidation
  3. Liquidation carried out under the Court supervision.[²] These types of liquidation are determined according to the reasons on which liquidation is based.

In what cases can the company be liquidated by the Court?

Chapter 113 regulates the circumstances in which the Court can decide on the liquidation of the company. The first condition is that the Court's decision to liquidate is just and equitable. In the absence of this condition coming from the Equity Law, the Court will not allow the company to be liquidated even in the case of other liquidation reasons. The following cases are provided as examples of such cases by the Supreme Court;

"I. The disappearance of the company's main target or its core values,

ii. Having a deadlock in the management of company matters,

iii. In a situation whereby the company has been created for fraud purposes and the company is only a cover company,

iv. Pressures against the minority shareholders in the company or severe mismanagement of the company.[³]

Some of the examples of the rule of fair liquidation include, a situation where the company business damages the company,  inability of the company to pay its’ debts, in the case whereby the company's liquidation is the only way to get rid of bankruptcy, or there is a conflict amongst the directors, or the directors doing business without informing the shareholders and as a result causing the shareholders to justifiably doubt that the company shares will be sold to a lesser value than their real worth.[⁴]

The Court may decide on the liquidation of the company in the following cases;

  1. If the company is allowed to be liquidated by an extraordinary decision by the Court.
  2. In the event that the first general assembly (company general assembly) after the establishment of the company is not made in a timely manner or if the first general assembly report is not submitted to the Registrar of Companies.
  3. If the company does not become operational within 1 year from the date of its establishment or if the company terminates its activities for a period of 1 year.
  4. If the company falls below the minimum number of members required (2 members for private companies and 7 members for all others)
  5. If the company is incapable of paying its debts.
Attr. Berke Ada
  • Attr. Berke Ada
  • January 2019