Legal Status of Company Assets During Liquidation in Turkey (Corporate, Property, and Creditor Perspectives)

Liquidation is the corporate law “endgame.” When a company in Turkey enters liquidation (tasfiye), the central purpose of the legal regime is to convert the company’s remaining value into money and distribute it according to legally recognized priorities. For shareholders, liquidation determines whether any residual value remains after debts. For creditors, liquidation is about enforceability, ranking, and the ability to reach assets. For directors and liquidators, it is a procedure that demands strict compliance, because procedural errors can generate liability and disputes.

A common misunderstanding is that liquidation instantly ends the company’s existence or automatically freezes all legal relations. In Turkish practice, liquidation is typically a process during which the company continues to exist—but with a changed purpose. Its purpose shifts from pursuing business growth to realizing assets, settling debts, and distributing remaining value. This shift has important consequences for the legal status of company assets, the company’s capacity to transact, and creditor rights.

This article explains the legal status of company assets during liquidation in Turkey in a transaction-oriented way: what happens to ownership, how asset disposal is managed, how pledges and mortgages behave, what creditors can expect, and what risks arise in practice.

1. What Happens to the Company’s Legal Personality?

In liquidation, the company typically retains legal personality until liquidation is completed and the company is removed from the trade registry. However, its corporate purpose changes: the company acts only to the extent required by liquidation.

This matters for assets because:

• ownership of assets generally remains with the company during liquidation,
• but disposal of assets is guided by liquidation objectives,
• and management powers are reorganized around liquidators.

In other words, the company is still the owner, but it is no longer a normal operating entity.

2. Ownership of Company Assets During Liquidation

A crucial point: liquidation does not automatically transfer ownership of company assets to shareholders. Assets remain part of the company’s estate until:

• creditors are paid (or adequately provided for),
• liquidation steps are completed,
• and only then can remaining assets or cash be distributed to shareholders.

Shareholders’ rights are therefore residual: they come last after creditors, and only if there is surplus.

3. The Liquidation Estate and Asset Protection Logic

During liquidation, the company’s assets form a liquidation estate that should be preserved and realized. The legal system aims to prevent value leakage, including:

• disguised distributions to shareholders,
• transfers that harm creditors,
• and selective payments that violate ranking principles.

Therefore, asset management in liquidation is governed by a duty-based framework: liquidators must act prudently, keep records, and protect creditor equality.

4. Disposal of Assets: Selling, Collecting, Converting to Cash

Liquidation necessarily involves asset disposal. Typical activities include:

• selling movables and immovables,
• collecting receivables,
• terminating or assigning contracts where possible,
• resolving disputes and claims,
• converting inventory to cash.

However, the ability to dispose of assets can be affected by:

• restrictions in contracts (consent requirements),
• regulatory constraints (licenses and permits),
• third-party rights (leases, retention of title),
• and encumbrances (pledges, mortgages).

Liquidators typically prioritize realizations that maximize recoverable value rather than immediate “fire sales,” unless the asset is rapidly depreciating.

5. Pledges, Mortgages, and Security Interests During Liquidation

A major issue for liquidation is how secured credit behaves. Security interests generally remain attached to collateral:

• mortgages remain on real estate,
• pledges remain on movables or shares,
• and the secured creditor’s position is determined by perfection and priority.

Liquidation does not automatically erase security interests. Instead, secured creditors typically have rights linked to the collateral and its proceeds, subject to procedural rules.

Practical implication: secured creditors often remain structurally stronger than unsecured creditors in liquidation, but their recovery still depends on collateral value, enforceability, and priority disputes.

6. Creditor Rights and Ranking in Liquidation

In liquidation, the distribution logic is not “first to demand gets paid.” It is governed by legal ranking and procedural fairness. Key issues include:

• identification and verification of creditor claims,
• handling contested claims,
• applying priority rules (secured vs. unsecured, statutory preferences where applicable),
• and ensuring that payments follow proper order.

From a lender’s perspective, the critical question is whether the lender’s security is “litigation-resistant”: clearly documented, properly perfected, and priority-safe.

7. Contracts, Employees, and Ongoing Operations

Liquidation does not always mean operations stop immediately. Some companies continue limited operations to preserve value:

• finishing projects,
• selling inventory normally,
• maintaining assets to prevent loss,
• collecting receivables efficiently.

Contract termination, employee issues, and ongoing obligations must be managed carefully because:

• improper termination can create new liabilities,
• operational disorder can reduce recoveries,
• and disputes can delay completion.

8. Common Risks and Disputes in Liquidation

8.1. Hidden Encumbrances and Title Problems

Assets might be leased or owned by third parties. If the company does not own the asset, it cannot realize it for creditors. This is a common recovery surprise.

8.2. Fraudulent Transfers and Avoidance Challenges

Creditors may challenge transfers made before or during liquidation if they appear to harm creditor equality. Transactions at undervalue or transfers to related parties are particularly vulnerable.

8.3. Asset Undervaluation

If assets are sold in a distressed “fire sale,” proceeds may be far below economic value. Disputes can arise over valuation methods and sale process integrity.

8.4. Priority Litigation

Competing creditors may dispute ranking, especially if registries are inconsistent or collateral descriptions are vague.

9. Practical Checklist for Stakeholders

For shareholders:

• assume residual position; plan for “zero until proven surplus”
• ensure transparency to avoid personal liability accusations.

For secured creditors:

• confirm perfection evidence and registry consistency,
• monitor collateral condition and sale strategy,
• prepare for priority disputes with documentation.

For buyers of liquidation assets:

• verify title and encumbrances,
• check whether assets are subject to pledges, mortgages, or third-party ownership,
• demand registry-proof transfer evidence.

For liquidators:

• maintain records and follow statutory process,
• avoid preferential or undervalue transfers,
• protect creditor equality and maximize estate value.

Conclusion

During liquidation in Turkey, company assets remain owned by the company and form a liquidation estate dedicated to paying creditors before shareholders receive anything. Security interests continue to burden assets, and creditor ranking shapes distribution. The practical success of liquidation—measured as value preserved and disputes avoided—depends on disciplined asset management, clear documentation of security and ownership, and careful adherence to procedural rules. For investors and lenders, the key is not only having rights on paper, but having rights that withstand liquidation scrutiny.