Over-indebtedness within the scope of Turkish Commercial Code article 376/3

Over-indebtedness is regulated in Article 376/3 of the Turkish Commercial Code (TCC) and aims to protect the rights of creditors and ensure that the company management constantly monitors and evaluates the company's financial situation. Over-indebtedness represents the most advanced of the financial difficulties that are regulated in Article 376 of the TCC and have legal consequences. In comparative law, over-indebtedness has been discussed as an issue that needs to be removed or updated in connection with corporate rescue and restructuring practices. Over-indebtedness concerns more than one area, such as commercial law, accounting and insolvency law. Article 376/3 of the TCC requires the preparation of two types of interim balance sheets for the determination of over-indebtedness: one is prepared based on going-condern values and the other is prepared based on sales prices. The determination of over-indebtedness requires the determination of the real value of the assets, and holistic valuation is important at this point. In addition, the capitalization of goodwill should also be taken into account in order to accurately reflect the real value of the assets and the company's current debt-coverage capacity. The principles for preparing interim balance sheets for over-indebtedness should be determined according to the purpose of the relevant provision. In this context, it differs from the principles for preparing annual balance sheets. The provision of Article 376/3 of the TCC foresees the bankruptcy of over-indebted companies, while also aiming to prevent bankruptcy by providing tool to help these companies recover. There are various methods foreseen in the law or evaluated in the doctrine for the purpose of improving over-indebted companies and preventing their bankruptcy. In this study, the concept of over-indebted is examined within the framework of the purpose of the relevant provision and the principles for preparing interim balance sheets required for determining insolvency are investigated. In addition, the effectiveness of simultaneous implementation of capital reduction and capital increase, subordination and capital advance payment methods in eliminating over-indebtedness are discussed.