Capital Loss and Over-Indebtedness in Companies: Measures under TTK 376 and the Responsibility of Management

A company making a loss, losing a certain proportion of its capital and being over-indebted do not produce the same legal consequence. Article 376 of the Turkish Commercial Code (TTK) requires that, where half of the capital is lost, the general assembly be called to meeting immediately and remedial measures be presented to it; where two-thirds is lost, the decisions necessary to keep the company going must be taken. Once there is a suspicion of over-indebtedness, an interim balance sheet is additionally prepared on two valuation bases. Where the company's assets do not cover the claims of its creditors, the duty to notify the court and to request bankruptcy comes into play. The mere expectation that the shareholders will put in money in the future does not remove this duty.

As of October 14, 2026, the current change to be aware of is this: the temporary rule under which certain exchange-difference losses and historical expenses may be disregarded in TTK 376 calculations has been extended to January 1, 2028 by the regulation of October 10, 2026. The scope of this facility is limited; it does not erase the company's debts and does not remove management's duty to monitor the financial position. Ministry of Trade announcement

How Are Capital Loss, Over-Indebtedness and Inability to Pay Distinguished?

The Measure of Capital Loss Is Not Capital Alone

The first two paragraphs of TTK 376 are based on the sum of the capital and the statutory reserves (kanuni yedek akçe) being left uncovered because of losses. Money in the company's bank account, sales turnover or the current-period loss alone cannot take the place of this test. It must be determined which equity items the loss is set against and what the nature of the reserves taken into the calculation is. The Application Communiqué defines the statutory reserve as the reserve referred to in TTK 519. It is not correct to add all special reserves or items arising from inflation adjustment to the same total without examining their nature.

In a simplified example, assume that the capital is TL 900,000, the statutory reserves are TL 300,000 and there is no other equity item. The protected total is TL 1,200,000. When the loss reaches TL 600,000, the first threshold is met; when it reaches TL 800,000, the second threshold is met. In the second case, it is possible that TL 400,000 of positive equity remains. Therefore, a loss of two-thirds of the capital does not, by itself, mean over-indebtedness. In an actual company, free reserves, prior-year results and the applicable accounting rules are examined separately.

In Over-Indebtedness, the Assets Do Not Cover the Company's Debts

Over-indebtedness is the situation in which the valued assets are insufficient for the company's debts. In this comparison, "debt" means the liabilities other than equity. Because the two sides of an accounting balance sheet are equal, comparing the entire liabilities-side total with the assets does not constitute a meaningful test. Debts that have not yet fallen due also cannot be left out of the assessment; over-indebtedness is not merely a calculation of the debts payable today.

Inability to pay (ödeme güçlüğü), by contrast, concerns the company's lack of means of payment to meet debts that have fallen due. A company holding a valuable immovable may experience a cash squeeze; the total assets of another company whose cash flow continues for a while may nonetheless be insufficient for its debts. The two situations may also exist together. This distinction changes which remedial tool will work and on what ground the court will be approached. TTK 376; İİK 179

To Which Companies Does TTK 376 Apply?

The direct addressee of the provision is the board of directors in a joint-stock company. In a limited company, the provisions on joint-stock companies apply by analogy under TTK 633; the duty belongs to the manager or the board of managers. The special provisions on the obligation to make additional contributions in a limited company are reserved. The Communiqué also covers partnerships limited by shares whose capital is divided into shares. The same organ and capital regime is not applied to an ordinary partnership merely because it is a partnership.

In publicly held joint-stock companies, capital markets legislation and financial reporting obligations are additionally taken into account. In entities subject to special regulation, such as banks or insurance companies, a TTK 376 review does not take the place of the sector's capital adequacy and intervention rules. A company's expecting support from its parent company within the group also does not remove the obligation of its own management organ. TTK 375, 376, 625, 633–634; Communiqué Arts. 2 and 4

What Should the General Assembly Do in a Loss of Half of the Capital?

The Call and the Information Are Provided Together

When management realizes from the last annual balance sheet that the first threshold has been met, it cannot wait for the ordinary general assembly calendar. The standard of "immediately" in the law is not a fixed number of days for all companies; the date on which the situation was learned and the steps required for a call made in accordance with the procedure are assessed together. Where there are signs of over-indebtedness, there is also no option of waiting until the annual balance sheet is prepared.

The call agenda must disclose the loss in the sum of the capital and the statutory reserves. Communiqué Art. 5 provides that this matter be discussed even in a general assembly convened with another agenda. However, this rule does not mean that the notice, quorum and registration requirements of every amendment to the articles of association to be made at the end of the discussion fall away. Management must present the balance sheet in an understandable manner; it should not be content with merely saying "a loss has arisen."

The Financial Effect of the Proposal Must Be Shown

Remedial proposals must be suited to the company's operating structure. Closing a loss-making division, improving collectability, obtaining new equity or selling certain assets produce different effects. For example, selling an asset at only its book value may increase cash, but does not by itself increase equity. Extending a loan may relieve short-term payment pressure; however, if the amount of the debt does not change, it does not close the over-indebtedness gap.

For this reason, the file presented to the general assembly should contain the amount of the measure, the time of its realization, its assumptions and the course to be followed in case of failure. The general assembly may amend management's proposal or choose another measure. For management, the duty is not limited to taking the decision; whether the decision is implemented and whether its financial effect materializes must be monitored. Communiqué Arts. 5–6

Which Transactions Can Be Carried Out in a Loss of Two-Thirds of the Capital?

Which Problem Does a Capital Reduction Solve?

While TTK 376/2 regulates being content with one-third of the capital or making it up, Communiqué Arts. 7–10 elaborate on reduction, make-up and increase. For a reduction, the procedure in TTK 473–475 applies. Article 8 of the Communiqué in its current form permits a reduction down to the minimum capital amount, on condition that at least half of the sum of the capital and the statutory reserves is preserved within the net assets (özvarlık).

A reduction does not bring new money into the company's treasury; it brings the balance-sheet deficit and the nominal capital into line. For this reason, it is not possible to turn negative net assets positive merely by making the capital figure smaller. The facility of calling creditors in connection with a reduction that covers losses cannot be applied to every reduction in which money is returned to shareholders either. The purpose of the transaction and the amount of the reduction must be examined together with TTK 474/2.

Capital Make-Up, a Shareholder Loan and a Capital Increase Are Different

The make-up in Communiqué Art. 9 is the covering of the balance-sheet deficit without consideration by all or some of the shareholders. The payment is tracked in the capital make-up fund; the fund is used only for offsetting losses. This payment is not regarded as a repayable loan made to the company or an advance to be set off against a future increase. It is not mandatory to make up the lost statutory reserves separately.

If a shareholder lends money to the company, cash enters the assets while a corresponding debt also arises. The cash need may decrease; but, other things being equal, the net asset deficit does not close by itself. Converting an existing shareholder receivable into capital or waiving the receivable are separate transactions with their own legal, accounting and tax conditions. Their consequences cannot be inferred merely from the "capital" description on a bank receipt.

In a joint-stock company, an amendment to the articles of association that imposes an obligation to cover the balance-sheet loss requires, under TTK 421/2-a, the unanimity of the holders of the shares that make up the entire capital, or of their representatives. A new payment obligation cannot be imposed on every shareholder merely because a majority decision was taken. It is possible for some shareholders to make up the deficit voluntarily. In a limited company, an existing contractual additional-contribution obligation is assessed within the conditions and limits of TTK 603; if the obligation is to be introduced or increased later, the approval of all the shareholders concerned is required under TTK 607. Communiqué Art. 9; TTK 421, 603 and 607

Can a Direct Capital Increase Be Made?

Communiqué Art. 10 regulates an increase simultaneous with a reduction equal to the loss; an increase without a reduction; and a reduction following a fully paid increase in the same meeting. In a direct increase, the amount that ensures at least half of the sum of the capital to be registered and the statutory reserves is preserved within the net assets must be paid before registration. A single rule such as "paying twenty-five percent is sufficient" cannot be used for every transaction. Amendment of December 26, 2020, Article 5

For example, suppose a company with no statutory reserve has capital of TL 900,000 and net assets of TL 200,000. If the capital is increased by TL 500,000 and the whole amount is paid, the net assets become TL 700,000 and the new capital TL 1,400,000; with other data constant, the condition that half be preserved is met. Paying only TL 125,000 does not produce the same result. This example does not remove the need to examine registration and the other conditions of the increase separately.

In its decision dated June 23, 2025, E.2024/5934, K.2025/4434, the 11th Civil Chamber of the Court of Cassation (Yargıtay 11. Hukuk Dairesi) reversed a regional court of appeal decision that had ordered cancellation on the ground that a decision to increase capital was taken, without a reduction, in a company that had lost its capital. In the decision, the concrete financing need, the absence of reserves and the failure to show that the transaction was contrary to the rule of good faith are significant. This result does not render all increase decisions of a company in financial difficulty immune from cancellation review; pre-emptive rights, equal treatment, the right to information and the real need are examined separately. Full text of the decision

If the necessary measure decision is not taken, TTK 376/2 provides for termination by operation of law. This is not the company's immediate deletion from the registry; liquidation and registration procedures are carried out separately. Nor does deciding on a capital transaction on paper turn an unperformed financing undertaking into realized equity.

How Is an Interim Balance Sheet Prepared When Over-Indebtedness Is Suspected?

The Function of the Two Valuation Bases

Continuous losses, failure to collect significant receivables, a severe fall in asset values or findings in the audit report may give rise to suspicion. Management prepares an interim balance sheet on both the going-concern basis and the probable sale price. The going-concern assumption must rest on realistic operating and financing data; the sale price approach cannot be built on unexamined book values or on arbitrary discounts applied to all assets either.

The ownership of the immovable, the condition of the machinery, the marketability of the inventory, the collectability of the receivable and the current amount of the debts are each verified separately. Treating an entire pledged immovable as having zero value while also carrying the related debt in full in the calculation may not lead to the correct result without investigating the sale and the remaining balance.

In its decision dated May 8, 2025, E.2025/805, K.2025/1899, the 6th Civil Chamber of the Court of Cassation (Yargıtay 6. Hukuk Dairesi), while reviewing a bankruptcy decision issued after the rejection of a composition with creditors (konkordato), found it insufficient that certain immovables were shown at zero value without investigating their fate. It required a verifiable report based on actual data and market values. The decision shows not that every immovable must necessarily be taken into the account at a high value, but that leaving a valuation out also requires a concrete reason. Full text of the decision

If the Balance Sheets Give Different Results

Communiqué Art. 12/4 deals with the balance sheets prepared on the two bases together. In legal scholarship, it is debated whether both balance sheets must show over-indebtedness for notification and how decisive the sale-value balance sheet is. İİK 179 expressly takes as its basis, for bankruptcy purposes, the interim balance sheet drawn up on probable sale prices. For this reason, ignoring a deficit in the sale values by relying solely on a favorable result in the going-concern balance sheet is not a safe approach. A special assessment should be made, documenting the reason for the divergence and the company's ability to continue. Baydak, 2025, pp. 157–159

What Is the Scope of the Exchange-Difference Exception in 2026?

The Period Was Extended to January 1, 2028

Under Provisional Article 1 of the Communiqué, in the relevant calculations made until January 1, 2028, all exchange-difference losses arising from foreign-currency liabilities not yet performed, and half of the total of rental expenses, depreciation and personnel expenses accrued in 2020 and 2021, may be disregarded. The date limit for the second group has not been removed; it is not possible to exclude half of the 2026 personnel expenses under this provision.

The criterion "not yet performed" is not identical merely to debts that have not yet fallen due. The payment status of the debt, the liability from which the relevant exchange difference arises and what amount was previously taken into account must be shown. The same loss cannot be excluded a second time under two separate headings. Under the temporary rule, no new entry is made in the financial statements because of this calculation; the position is shown in the footnotes for information purposes. Communiqué Provisional Article 1

A Calculation Facility Does Not Create Real Financing

The temporary rule relates to the determination of the position under TTK 376. The foreign-currency debt continues as against the creditor; the payment plan and the cash requirement do not change. In addition, the conditions of a capital transaction and the protection of creditors are assessed separately. Alongside the calculation with the exception, management should also see the real financial position and the scenario in which the exception is not applied.

It is not correct to build a single calculation by selecting items from statements to which inflation adjustment has been applied and statements to which it has not. The reporting framework to be used must be determined under Communiqué Art. 13; the TTK 376 calculation, the accounting statements and the reconciliation of the temporary exception must be shown separately. Provisional Article 1 is not a general provision that allows all inflation-adjustment losses to be excluded automatically.

Notification to the Court, Subordination and Composition with Creditors

A General Assembly Decision Does Not Postpone the Duty to Notify

Where over-indebtedness is established, TTK 376/3 provides for notifying the commercial court of first instance (asliye ticaret mahkemesi) at the place of the company's registered office and requesting bankruptcy. This duty of the board of directors cannot be delegated under TTK 375/1-g. Obtaining a report from a financial adviser (mali müşavir) or a finance director does not remove management's responsibility for decision and follow-up.

The wording of Communiqué Art. 12/4 that links a court application to the failure to take measures has created debate over whether the statutory notification can be postponed. In legal scholarship there is criticism in terms of the hierarchy of norms, and the effect of a remedial possibility that could produce a result immediately is also debated. The TTK has no general thirty-, sixty- or ninety-day waiting period granted to management in every case. It should not be accepted that the statutory application may be postponed merely because discussions with investors are continuing. Baydak, 2025, pp. 160–164; TTK 376/3

On What Conditions Does a Creditor's Subordination Depend?

The creditors of debts in an amount that will close the company's deficit may agree in writing to rank their claims behind all other creditors. It is not mandatory for all creditors to agree individually; the amount of the claims of those who agree must cover the deficit. A mere extension of maturity or a letter saying "we will support the company" does not produce the same legal result.

The appropriateness, genuineness and validity of the declaration or the contract must be verified by experts appointed by the court to which the bankruptcy request will be notified. The conditions must be completed before a bankruptcy decision is given. If the verification does not take place, the application for an expert examination made for this purpose is deemed by law to be a bankruptcy notification. For this reason, subordination is not a solution that can be implemented merely by an internal accounting entry. TTK 376/3

The Place of Composition with Creditors and Merger

Under TTK 377, the board of directors or any creditor may request a composition with creditors (konkordato) together with the relevant bankruptcy request or during that bankruptcy proceeding. For a konkordato, the document, financing and judicial supervision conditions in İİK 285 et seq. must be separately fulfilled. Filing the request petition does not by itself stop all enforcement proceedings; the relevant court decisions are needed for the consequences the law attaches. The current regulation should not be confused with the abolished institution of postponement of bankruptcy.

The merger of an over-indebted company is also subject to the condition of sufficient and freely disposable net assets in TTK 139. The mere commencement of merger negotiations does not close the deficit. In konkordato proceedings, too, current developments are taken into account: the decision of the 6th Civil Chamber of the Court of Cassation dated November 8, 2023, E.2023/3428, K.2023/3766, required that the company's current over-indebtedness be investigated rather than being content with an earlier report. This decision cannot be interpreted as permission to wait before notification. Full text of the decision

Management's Responsibility and the Application File

The Conditions of Liability in Damages and Criminal Liability Differ

A director's liability is not tied merely to the company's having made a loss. Under TTK 553, the culpable breach of a duty, the loss and the causal link are assessed. A loss that has grown because of a late call, a failure to obtain a reliable valuation or avoidance of notification must be made concrete. A shareholder claiming the company's loss ordinarily asks that payment be made to the company, not to himself or herself; the creditor's direct loss is distinguished from the loss that is merely reflected from the company's loss. In bankruptcy, the priority of the bankruptcy administration under TTK 556 is taken into account. For limited company managers, the reference in TTK 644 is important.

For liability damages, TTK 560 provides a limitation period of two years from learning of the loss and the person liable, and five years from the act. The conditions of the longer criminal limitation period and the effect of a release (ibra) on the right of action are examined separately. An action may be filed in the commercial court of first instance at the company's registered office. In a commercial damages action whose subject is money, mediation as a condition precedent to litigation is considered; a notification of over-indebtedness and a bankruptcy request, however, is not a claim action that requires prior recourse to mediation.

İİK 345/a provides for a penalty, dependent on a creditor's complaint, for the administration and persons charged with representation, or liquidation officers, who do not request bankruptcy although the conditions are met. A criminal consequence cannot be inferred automatically from every balance-sheet loss. The complaint periods in İİK 347, namely three months from learning and in any case one year from the act, must be examined together with the dates on which the act occurred and was learned. TTK 553–561; İİK 345/a and 347

Which Records Should Be Prepared?

The file should contain the last annual and current financial statements, the interim balance sheet on the two valuation bases, account reconciliations, the list of creditors, debt and security documents, the asset inventory, the grounds for valuation, general assembly calls and organ decisions. If the temporary exception has been used, a separate working paper explaining which item was excluded and in what amount is needed. The financial effect of the proposed capital transaction before and after must also be shown.

One of the most important records in a concrete file is the timeline: When was the suspicion first seen, when did management learn of it, what report did it request, what decision did it take and when was the decision implemented? These dates determine both the urgent steps and any liability claim that may later be asserted. Preparing the application and its costs should not be turned into an open-ended exercise that delays the mandatory notification.

Conclusion

Under TTK 376, the right starting point is to separate the rate of capital loss from over-indebtedness and from a cash squeeze. Then a suitable balance sheet, a workable financing method and a timely organ decision are needed. Failing to take the decision necessary for the company's continuation in a loss of two-thirds may lead to termination; neglecting notification in over-indebtedness may separately lead to the liability of directors. The temporary calculation facility extended to January 1, 2028 does not remove these duties. The chosen measure should be documented with its real financial effect and the date it was implemented.

Related articles: Liability of the Company Manager and Board of Directors: Compensation for Company Loss and Rights of Action; Annulment of a Company General Meeting Resolution: Deadlines, Nullity and Stay of Execution; Capital Reduction in Companies: Returns to Shareholders, Balance-Sheet Deficits and Creditor Protection; Capital Increase and Pre-Emptive Rights in a Company: Dilution of Shareholding and Protection of the Shareholder; Recovering a Loan a Shareholder Made to the Company: Current Account, Proof and Collection; Shareholder Rights in Company Mergers and Demergers: Inspection, Exit Payment, Equalization and Annulment; What to Do If the Company General Assembly Is Not Convened: Power to Call, Minority Rights and Court Application.

Frequently Asked Questions

Does a Company Automatically Go Bankrupt When It Loses Two-Thirds of Its Capital?

No. A loss of two-thirds of the capital and the assets' being insufficient for the debts are different. In the former, if the necessary measure decision is not taken, termination by operation of law comes into play; for bankruptcy, the relevant statutory ground and a court decision are required.

Do Shareholders Have to Cover the Company's Loss out of Their Own Pockets?

The mere fact that a loss has arisen does not automatically create a new payment obligation. In a joint-stock company, the unanimity rule is examined for the obligation to cover the balance-sheet loss; in a limited company, the provisions on contractual additional contributions and the approval of the shareholders concerned are examined. Voluntary make-up is possible.

Does a Shareholder's Lending Money to the Company Cure Over-Indebtedness?

By itself, generally not. A repayment obligation arises as much as cash comes in. The conversion of the debt into equity, its valid waiver, or the method of subordination under the statutory ranking must be assessed separately.

Until What Date May Exchange-Difference Losses Be Disregarded?

As of October 14, 2026, the period in force runs until January 1, 2028. The liability, the type of expense, the period and the check for double counting within the scope are made separately; not all losses can be excluded.

Is It Necessary to Wait for Year-End for Over-Indebtedness?

No. When signs that give rise to suspicion appear, an interim balance sheet is prepared on the two bases. The law grants management no general waiting period.

Does a Request for Composition with Creditors Entirely Remove Management's Responsibility?

No. A konkordato is examined under its own conditions. The legal consequences of an earlier delay, of the information provided and of management's acts during the process are assessed separately.

Sources

1. Turkish Commercial Code No. 6102 (Türk Ticaret Kanunu, TTK): in particular Articles 4–5/A, 88, 139, 375–377, 421, 473–475, 553–561, 603–607, 625, 633–634 and 644. Ministry of Justice current text.
2. Enforcement and Bankruptcy Law No. 2004 (İcra ve İflas Kanunu, İİK): in particular Articles 179, 285 et seq., 345/a and 347. Ministry of Justice current text.
3. Application Communiqué on TTK 376: Official Gazette 15.09.2018/30536, in particular Articles 5–14 and Provisional Article 1. Originally published official text; auxiliary text with amendments incorporated.
4. Amendment to the Application Communiqué on TTK 376: Official Gazette 26.12.2020/31346, in particular Articles 1–6. Official Gazette.
5. Amendment to the Application Communiqué on TTK 376: Official Gazette 10.10.2026/33396. Official Gazette; official announcement of the Ministry of Trade dated 10.10.2026.
6. Court of Cassation (Yargıtay) 11th Civil Chamber, 23.06.2025, E.2024/5934, K.2025/4434. Cancellation of a capital increase decision; full text via De Jure. Decision.
7. Court of Cassation (Yargıtay) 6th Civil Chamber, 08.05.2025, E.2025/805, K.2025/1899. Investigation of immovables and verifiable valuation in over-indebtedness; full text via De Jure. Decision.
8. Court of Cassation (Yargıtay) 6th Civil Chamber, 08.11.2023, E.2023/3428, K.2023/3766. Review of current over-indebtedness in konkordato proceedings; full text via De Jure. Decision.
9. Ecrin Baydak, “6102 Sayılı Türk Ticaret Kanununun 376 ncı Maddesinin Uygulanmasına İlişkin Usul ve Esaslar Hakkında Tebliğ’in Borca Batıklığa İlişkin Hükümlerinin Değerlendirilmesi” (An Evaluation of the Provisions on Over-Indebtedness in the Communiqué on the Procedures and Principles for the Application of Article 376 of Turkish Commercial Code No. 6102), Yeditepe University Faculty of Law Journal (Yeditepe Üniversitesi Hukuk Fakültesi Dergisi), 22(1), 2025, pp. 151–176; in particular pp. 157–164. Article and bibliographic record, full text.

Date of legislation and source check: October 14, 2026. De Jure decision links may require account access.