What is the zone of insolvency?
The zone of insolvency is the financial state of a company that is approaching insolvency — unable to meet its obligations as they come due or balance-sheet insolvent — but not yet formally bankrupt. In this zone, directors’ fiduciary duties expand: in many jurisdictions, duties run not only to shareholders but also to creditors, with potential personal liability for trading whilst insolvent.
In Türkiye, the Türk Ticaret Kanunu (Articles 376–377) and the Enforcement and Bankruptcy Law impose specific duties when assets fall below 50% of capital, including board notification, capital restoration plans and bankruptcy filing. U.S. Delaware law similarly imposes “deepening insolvency” considerations on directors.
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Director conduct in the zone
Turkish law gives the zone of insolvency concrete edges. TTK art. 376 prescribes a staged protocol: when half the capital is lost, the board must call the general assembly with remedial proposals; at two-thirds, the assembly must recapitalise or the company dissolves; on indications of insolvency (borca batıklık), the board must prepare an interim balance sheet and, where liabilities exceed assets at fair values, file for bankruptcy — with personal liability exposure for directors who delay. Practical board discipline in the zone: contemporaneous minutes of every financing alternative considered, fresh solvency snapshots before significant payments, related-party transactions only at demonstrable arm’s length, and counsel in the room — because the question later asked is never whether the company failed, but what the board knew and did while it was failing.