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Legal framework

Legislation

What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

Insolvency and restructuring proceedings are primarily regulated by the Execution and Bankruptcy Law 2004. The Commercial Code 6102 includes supportive provisions for bankruptcy postponement processes and director liability. The effects of insolvency and restructuring proceedings on contracts are generally regulated by the Code of Obligations 6098 and other special laws that relate to the relevant contract subject. The insolvency processes of banks, financial institutions and insurers are regulated by the special provisions of their own codes. 

Regulatory climate

On an international spectrum, is your jurisdiction more creditor or debtor friendly?

Creditor involvement in the insolvency and restructuring process and creditor effect on the process should be handled separately in each proceeding. However, in the framework of general practice and scholarly opinion, relevant legislation and proceedings tend to be debtor friendly. 

Sector-specific regimes

Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?

Special provisions for banks

Pursuant to Article 14/3 of the Law on Banks 4389, for banks failing to fulfil their obligations when due, management and supervision will be transferred to the Saving Deposits Insurance Fund (SDIF) and permission to execute banking transactions will be removed. A special bankruptcy proceeding is applied to those banks to which the permission to execute banking transactions has been revoked and which have been transferred to the SDIF. The bankruptcy of such a bank may be requested only by the SDIF.

Special provisions for insurers and pension companies Regulation of the Treasury is particularly important when dealing with insolvent insurers or pension companies. The Treasury and relevant ministers are involved in executing the proceedings.

Special provisions for financial institutions The insolvency process for financially distressed entities that are subject to Capital Market Law 6362 will be handled in the scope of the law. How the capital market council uses its authority in each case is important. 

Reform

Are any reforms to the legal framework envisaged?

As per Executive Order 669, issued in consequence of the coup attempt on July 15 2016, the postponement of bankruptcy proceedings – which was being frequently used by debtors in the reorganising process – is now prohibited. This ban allows debtors to apply for other available restructuring tools. However, the tools do not include sufficient timeframes to allow debtors to reorganise their activities and protect assets. In this respect, the current situation is leading to new expectations of legislation for debtors that desire to reorganise formally. However, no new legislation regarding a change to insolvency and restructuring proceedings has yet to be realised. 

Director and parent company liability

Liability

Under what circumstances can a director or parent company be held liable for a company’s insolvency?

In general terms, in order to be held liable there must be damage that can be attributed to the faulty acts of the relevant director and such a director must be responsible for any non-compliance with the articles of association or law, if such non-compliance is within his or her control. In this respect, directors cannot be held liable for damages incurred by the company, its shareholders or creditors where such damage is not caused by the faulty act of the relevant director or where such damage is beyond the relevant director’s control. 

Defences

What defences are available to a liable director or parent company?

As per Article 369 of the Commercial Code, directors must carry out their duties with the due diligence expected of a prudent businessperson. Directors should therefore prove that they exercise their duties with due diligence and in good faith. However, the term ‘prudent businessperson’ is interpreted broadly by the courts and in each case it should be evaluated whether there is damage that can be attributed to a faulty act of a relevant director where circumstance were beyond that director's control. 

Due diligence

What due diligence should be conducted to limit liability?

In order to avoid directors’ personal liability, directors should act diligently and with the utmost care while carrying out management duties.

Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

Security over immovable property In order to secure a debt, the most frequently applied method of ensuring an assurance is a mortgage imposed on the immovable property. A mortgage entitles the mortgagee to ensure the foreclosure of the mortgaged property that is registered with the land registry if the debt is not paid when due.

As per Article 881 of Civil Code 4721, any debt that is present or that has not yet arisen, but will probably arise, may be secured with a mortgage.

The amount of security should be indicated in Turkish lira. However, a mortgage may also be imposed in terms of foreign currency by the credit institutions conducting activity both in Turkey and abroad, in order to secure the loans extended in foreign currency or foreign limping standard.

Unless otherwise stipulated in the law (eg, Articles 892 and 893 of the Civil Code), an agreement regarding the mortgage should be executed by and between the mortgagee and the mortgagor in the presence of a deed officer in order to impose a mortgage. This mortgage should be registered with the land registry.

Security over movable properties pledge

As per Article 3 of the Movable Pledge in Commercial Transactions Code 6750, a pledge agreement can be executed by and between:

  • Turkish banks;
  • financial leasing companies;
  • factoring companies and Turkish public institutions authorised to lend or provide guarantees;
  • merchants;
  • craftsmen;
  • farmers;
  • producer organisations;
  • self-employed individuals; and
  • legal entities acting as lenders.

The pledge agreement must be executed in writing (before the Pledged Movable Registry or by having the signatures of parties approved by a notary) or in electronic form (signed with an electronically secured signature) and registered with the registry. Once registration is complete, the right of mortgage is deemed established.

Lien In terms of Article 950 of the Civil Code, a lien is a right entitling the creditor to retain, as security for its receivables, the movables and valuable papers pertaining to the debtor which are in its possession and which should be returned when the debt is paid, and to convert the same into cash by giving advance notice.

Retention of title  As per Article 764 of the Civil Code, a retention of title agreement and clause in a sale agreement can be effective only when the agreement is executed before the notary of the buyer’s residence and registered with the special registry of the relevant movable.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

The ranking of creditors claims is determined as per Article 206 of the Execution and Bankruptcy Law. Debts arising from liquidation and public debts arising from the assets of estates (eg, customs duty, building and land tax and inheritance and transfer tax) must be paid first. The mortgage and pledge right owner’s claims will be paid next. As per Article 206, other claims following the claims of the mortgage and pledge right owners are ranked as follows:

  • claims of employees, unpaid pension plan contributions and alimony receivables;
  • guardian and ward claims;
  • public debts and privileged claims accepted based on their own laws; and
  • all other claims (ordinary claims). 

Can this ranking be amended in any way?

The ranking stipulated in Article 206 cannot be amended. However, creditors may object before the court to rankings (including the rankings of other creditors) determined by the bankruptcy administration.

Foreign creditors

What is the status of foreign creditors in filing claims?

There is no specific provision on registration of foreign creditors’ claims. Therefore, foreign creditors can register their claims in the same manner as other creditors.

Unsecured creditors

Are any special remedies available to unsecured creditors?

There is no special remedy available to unsecured creditors. Unsecured creditors must register their claims with the bankruptcy estate. 

Debt recovery

By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?

In order to recover unpaid debts, creditors generally initiate obtaining precautionary attachment over properties of debtors or initiate an execution proceeding or lawsuit against the debtors. However, once a bankruptcy decision is rendered by the competent court, creditors can register their claims only with the bankruptcy estate. Creditors cannot initiate a separate execution proceeding against a debtor after the date of the bankruptcy decision.

Is trade credit insurance commonly purchased in your jurisdiction?

The use of credit insurance in practice is a growing trend. Creditors’ demand for credit insurance is also increasing as trade credit insurance products are generating positive outcomes and provide practical solutions to creditors.

Liquidation procedures

Eligibility

What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

As per the law, a bankruptcy decision can be rendered only against merchants or persons subject to merchant provisions. In this respect, the following are subject to bankruptcy pursuant to Article 18 of the Commercial Code:

  • collective companies;
  • commandite companies;
  • joint stock companies;
  • commandite companies with share capital;
  • limited liability companies;
  • cooperatives;
  • foundations and associations operating a commercial enterprise in order to achieve their goal; and
  • institutions and corporations established by the state, a special provincial administration, municipality, village or other public legal entity, for the purpose of being managed or commercially operated in accordance with the private law provisions pursuant to their own laws of establishment.

Procedures

What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

Bankruptcy by demand of creditor

A creditor may initiate proceedings through the execution office (indirect bankruptcy) or directly submit a petition demanding the bankruptcy of the debtor before the commercial court (direct bankruptcy) in the presence of the statutory conditions.

Indirect bankruptcy If the debtor does not pay the debt within the period specified in the bankruptcy payment order issued by the execution office and sent to the debtor, the creditor may submit a bankruptcy petition before the commercial court. The commercial court decides for depository injunction. Based on this depository injunction, the court will instruct the debtor to pay the debt within seven days. If, following the depository injunction, the debtor fails to pay (or does not deposit the equivalent of the whole debt), the commercial court will decide on the debtor’s bankruptcy at the first hearing following the depository injunction. In this respect, failure to pay the debt is sufficient for a bankruptcy decision.

Direct bankruptcy The creditor may directly initiate a bankruptcy lawsuit before the commercial court without sending a bankruptcy payment order to the debtor by initiating a proceeding before execution office based on the following reasons:

  • if the residential address of the debtor is unknown;
  • if the debtor evades its commitments;
  • if the debtor commits or attempts to commit fraudulent acts violating the rights of its creditors;
  • if the debtor conceals its assets during a proceeding through attachment;
  • if the debtor suspends the payment of its debts;
  • non-approval of the composition proposed by the debtor or the removal or full termination of the duration for composition;
  • full termination of the restructuring of a capital company or cooperative through mutual consent;
  • any failure in paying a receivable based on a judgment although the same is requested through an execution order; and
  • any occurrence where the assets of the capital companies and cooperatives cannot meet the liabilities.

If the commercial court determines the existence of the debt and the reason for bankruptcy as a result of the investigation, it will directly decide for the bankruptcy of the debtor without rendering the depository injunction for the debtor.

Bankruptcy by demand of debtor A debtor may submit a petition before the commercial court requesting bankruptcy to the extent that it is unable to pay its debts. This bankruptcy request is not compulsory as per law.

However, debtors are obliged to request their bankruptcies as per law in the following cases:

  • If a creditor initiates a proceeding through attachment against the debtor and if this results in the disposition of half of the assets pertaining to the debtor and the remaining assets are insufficient to meet the other debts that may become due within one year, then the debtor must promptly disclose its insolvent status and request bankruptcy before the commercial court.
  • In cases where the assets of a capital company or cooperative do not meet its liabilities, the persons entitled to represent the capital company or cooperative (board of directors in joined stock companies) should request bankruptcy of the capital company or cooperative, pursuant to Article 376 of the Commercial Code. Failing to do so may result in imprisonment of between 10 days and three months. 

How are liquidation procedures formally approved?

Bankruptcy decisions are rendered by the commercial courts. The commencement of liquidation is stipulated in the decision with the date and hour. The bankruptcy office is notified of the decision. The bankruptcy office automatically notifies the land registry, trade registry, customs and postal administrations, the Banks Association of Turkey, local chambers of commerce, chambers of industry, stock exchanges, the Capital Market Board and other necessary authorities. The bankruptcy office also publishes the decision in:

  • a national newspaper with circulation in excess of 50,000;
  • a local newspaper at the debtor’s centre of main interest; and
  • a trade registry gazette.

What effects do liquidation procedures have on existing contracts?

As a general rule, agreements are not terminated automatically on the bankruptcy of one party. The law states that the following exceptional agreements are deemed to be terminated on the bankruptcy of one party:

  • usufructuary lease agreements;
  • attorney agreements;
  • commission agreements;
  • agency agreements;
  • life annuity agreements;
  • ordinary partnership agreements; and
  • current account agreements.

In other agreements, commencement of bankruptcy liquidation may have important effects aside from termination and this should be evaluated in terms of each agreement. For example, pursuant to the Code of Obligations, in an agreement burdening mutual debts, if a party goes bankrupt, the other party should refrain from fulfilling its obligations until its performance is secured. Therefore, in such agreements, if a bankruptcy administration does not provide security, the other party can terminate the agreement. In this respect, bankruptcy administrations are entitled to continue the agreements which are in favour of the bankruptcy estates, but they are not obliged to do so. 

What is the typical timeframe for completion of liquidation procedures?

The Execution and Bankruptcy Law allows for a six-month period for completion of liquidation procedures. However, this may be extended by the execution court. In practice, liquidation processes may be lengthy and the liquidation period is extended annually.

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

Liquidation is ordinarily executed if the debtor’s assets meet the liquidation costs. Ordinary liquidation is managed by the bankruptcy administration, which consists of three persons appointed by the execution court from the six nominees nominated by each creditor in the first creditors’ meeting. The powers and responsibilities of the bankruptcy administration are limited to those stated in the Execution and Bankruptcy Law. In this respect, the authority and company responsibility for unstated matters remain under the Execution and Bankruptcy Law. Bankruptcy administration should be separately authorised by creditors to sell the assets by way of negotiation rather than auction.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

The courts are involved in appointing the bankruptcy administration, hearing complaints against transactions of the bankruptcy administration, closure of liquidation and hearing requests for the termination of bankruptcy decisions.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

Creditors cannot initiate a new proceeding against the debtor during the bankruptcy liquidation. However, the secured creditors may continue the selling process of the pledged property. As per the law, creditors are entitled to:

  • nominate the bankruptcy administration;
  • authorise the bankruptcy administration to sell by way of negotiation;
  • decide on the composition offer of the bankrupt and suspend the liquidation;
  • decide on the continuation of litigations;
  • object to the rankings determined by the bankruptcy administration; and
  • complain about the transactions of the bankruptcy administration.

Creditors may also continue the litigations that are not followed by the bankruptcy administration. 

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

Directors and shareholders of the debtor are obliged to show the debtor’s assets to the bankruptcy office and comply with its requests. The authority and responsibilities of directors and shareholders continue only for the matters over which the bankruptcy administration has no power or responsibility. Shareholders can also request the termination of the bankruptcy decision when the debts are paid.

Restructuring procedures

Eligibility

What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?

Ordinary composition Any debtor may prevent its bankruptcy by declaring ordinary composition (bankruptcy preventive composition), allowing the debtor to restructure its debt by concluding a composition agreement.

Post-bankruptcy composition The bankrupt debtor may propose a composition during the bankruptcy liquidation.

Postponement of bankruptcy Only over-indebted capital companies or cooperatives within the framework of the improvement project to be submitted by the company to the court may request the postponement of bankruptcy. Creditors of those entities are also eligible to request a postponement of bankruptcy. As per Executive Order 669, issued in consequence of the coup attempt on July 15 2016, during the state of emergency, postponement of bankruptcy applications are prohibited.

Restructuring of capital companies and cooperatives through mutual consent The Institution for the Restructuring of Capital Companies and Cooperatives through mutual consent has been arranged for the restructuring of the debts of large business entities. However, banks and insurance companies cannot file an application with the institution in the capacity of a debtor.

Time extension in extraordinary cases In extraordinary cases, and especially during periods of economic crisis, the government may decide that provisions regarding time extensions in emergency cases apply to affected debtors for a specific period. 

Procedures

What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?

Ordinary composition

The debtor may apply for ordinary composition by producing its balance sheet and income statement before the execution court. If the court is convinced that the success of the project is probable and will cause no loss on the part of the creditors, it will provide the debtor with a maximum three-month term for composition and will appoint one to three commissars.

No executive or bankruptcy proceeding can be made and the previously initiated proceedings will be stopped, except the foreclosure of pledged property for the receivables obtained through the pledge of movables and immovables, and the proceedings of seizure for the employees’ receivables against the debtor during the term given for the composition. If the decision to affirm the composition is not issued within the term, the court may, with due regard to the report of the commissioner with justification, suspend the proceedings previously initiated against the debtor or not initiate new proceedings for the period following the conclusion of the composition term.

During this period, the debtor may conduct its activity under the supervision of the commissar. Thereafter, the commissar will call the creditors and the creditors will decide whether to accept or reject the composition.

For the acceptance of the composition, both the majority of the creditors (ie, a majority exceeding half of the informed and written creditors) and the receivable majority (ie, the receivables of the informed and written creditors should exceed at least two-thirds of the total receivable amount) should be guaranteed and the requirement of depositing a security should be fulfilled. The privileged creditors and the pledgees are not included in this calculation.

If the creditors accept the proposed composition, this proposed composition will be affirmed by the commercial court. The debtor will pay its debts pursuant to the affirmed composition.

Post-bankruptcy composition The same majority in the ordinary composition is required for the acceptance of the post-bankruptcy composition. However, in this case, the proposal will be made to the bankruptcy administration and no duration is given or commissar appointed. The encashment will be postponed until the commercial court decides on affirmation. The court will affirm the composition if necessary requirements have been met and will inform the bankruptcy administration when the decision is finalised. If the request for affirmation is rejected, the bankruptcy administration will continue the transactions for the liquidation in bankruptcy following receipt of a notice in this respect.

Postponement of bankruptcy The debtor or any creditor may request the postponement of the debtor’s bankruptcy by providing the court with an improvement project indicating the objective and real sources, including investment of new cash capital. The following requirements apply:

  • The debtor requesting the postponement of bankruptcy should be over-indebted;
  • The improvement project should be serious and persuasive;
  • There should hope of improvement; and
  • The debtor should not have made use of the extraordinary duration.

The information and documents should also be submitted to the court (eg, a list indicating the payment terms and amounts of existing debts, addresses of creditors, inventories according to the features of the industry as well as their waiting period and amount, the latest balance sheet and income statement submitted to the tax office and trade registry certificate of the company or cooperative) proving that the improvement project is serious and persuasive.

The duration for the postponement of bankruptcy can be a maximum of one year. This may be extended for a further year where it is found appropriate by the court, taking into consideration the reports given by the trustee.

Following the decision for postponement, no proceeding (including proceedings relating to public receivables) can be commenced against the debtor and the previously initiated proceedings will be automatically stopped.

During the postponement, a proceeding may be initiated through the foreclosure of pledged property due to the receivables obtained based on an immovable pledge or it will be possible to proceed with the previously initiated proceedings. However, any protective measures cannot be taken and the sale of pledged property cannot be realised due to such proceedings. In this case, the interest will accrue during the term of postponement and a security should be provided for the interests that cannot be met by the current pledge.

However, a proceeding through seizure may be conducted for employees’ receivables as provided for in the first sentence of Article 206 of the Execution and Bankruptcy Law.

The bodies of the debtor will maintain their duty and authority under the supervision of the trustee within the framework to be determined by the court. The rights and obligations of the debtor arising from the agreements executed before the decision of postponement will remain in effect. A decision taken for the postponement of bankruptcy will not prevent the continuance of the previously initiated lawsuits or the initiation of a new lawsuit during the term of postponement, except the bankruptcy lawsuit.

During a state of emergency, postponement of bankruptcy applications are prohibited.

Restructuring of capital companies and cooperatives through mutual consent If an eligible capital company or cooperative reaches an agreement with the majority of its creditors with whom negotiations are conducted, that are affected by the project and have receivables at a certain rate, it may file an application before the commercial court.

It is sufficient to reach an agreement with only the creditors affected by the project. It is also possible for the debtor to create receivable classes among the creditors with similar receivables. In this case, each creditor category should accept the project based on a large majority as stipulated by law. The necessary majority will be deemed to have been acquired if the restructuring project is accepted by more than half of the creditors that are affected by the project and constituting at least two-thirds of the creditors participating in the voting. If the project contains more than one creditor class, each creditor class should have accepted the project based on the necessary majority within its own class. The debtor that has filed the application should also indicate that the amount to be acquired as a result of the project by each creditor that has rejected the project will be equal to the amount to be acquired as a result of the liquidation in bankruptcy.

The restructuring project to be submitted to the Commercial Code should stipulate the following:

  • the conditions governing the creditors affected by the project and the manner in which equality will be ensured among the creditors with similar receivables;
  • the effect of the project on the agreements to which the debtor is a party;
  • whether the debtor will apply for sources of financing (eg, loans), if deemed necessary for the restructuring of the debts;
  • the methods which may ensure the applicability of the project, such as:
    • the transfer of the debtor’s undertaking in whole or in part;
    • a merger with another company or companies;
    • determination of the persons who are going to take part in the management of the debtor’s undertaking;
    • extension of the maturity date of the debts; and
    • any change in the interest rates and issue of movables;
  • how and by whom the implementation of the project will be controlled following the decision of approval; and
  • the fact that the receivable of any creditor that has rejected the project will be subject to equal treatment with similar receivables in terms of quality, unless the relevant creditor explicitly accepts an amount that is less than that stipulated for its own class in the project.

The court that received the application will promptly take any measures it may deem necessary with regard to the activities of the debtor until the date on which the final decision regarding the application is taken. Further, the debtor may refer to the new financing instruments during this interim period.

The approved restructuring project and its conditions prevail over any and all agreements executed with the creditors that are affected by the project.

Time extension in extraordinary cases If the debtor in failing to fulfil its commitments determined by the government, by no fault of its own, hopes to pay all its debts at the end of the time period, the execution court may grant an extension not exceeding six months to the debtor.

Although a proceeding may be conducted against the debtor during the time extension given in extraordinary cases, these proceedings will not result in conservation, encashment or bankruptcy as long as the extension continues to be in effect. 

How are restructuring plans formally approved?

Approval of any restructuring plan submitted within the framework of each of the stated procedures must be formally approved by the competent court. The courts generally exercise their due diligence through reports of appointed trustees or commissars and expert reports.

What effects do restructuring procedures have on existing contracts?

In accordance with Article 309/r of the Execution and Bankruptcy Law, any contract terms that may affect the application of the restructuring project will not be applied against the debtor. However, this provision is stipulated only under the Institution for the Restructuring of Capital Companies and Cooperatives through Mutual Consent Provisions. Thus, Article 309/r cannot be applied to other reorganisation institutions. However, as an exceptional case, if the agreement between the parties and the acts to be performed pursuant to this agreement conflict with the measures included in the improvement project submitted to the court by the debtor, a decision should be taken to evaluate the effect of the contractual acts on the debtor.

What is the typical timeframe for completion of restructuring procedures?

Each restructuring procedure has its own timeframe. Although any formal restructuring application should be handled quickly by the courts, the timeframes may be extended due to heavy workloads.

Court involvement

What is the extent of the court’s involvement in restructuring procedures?

In almost every restructuring procedure, debtors are subject to the supervision of the court. Courts are also entitled to grant protective measures for debtors’ assets in most scenarios. Restructuring plans are approved by courts.

Creditor involvement

What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?

Restructuring procedures mostly allow debtors to enjoy automatic stays as a preventive measure granted by the courts. However, in each procedure the term of stay of the proceedings may vary. Debtors should therefore make their projections for each scenario.

Under what conditions may dissenting creditors be crammed down?

In debt restructuring procedures (eg, composition and restructuring), dissenting creditors may be crammed down where the necessary majority and other conditions are met.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in restructuring procedures?

In restructuring procedures directors and shareholders retain their status. However, in most scenarios, the transactions and decisions of the directors are subject to trustee or commissar approval. 

Informal work-outs

Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?

Out-of-court restructuring procedures are not recognised in legislation. However, in practice, debtors actively execute confidential and flexible private negotiations and debt restructuring agreements that are more advantageous than the formal proceedings. 

Transaction avoidance

Setting aside transactions

What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?

The voluntary acts of disposal performed and the donations granted by the debtor during the two years before the commencement of the bankruptcy liquidation, except the ordinary and usual gifts, are subject to setting aside.

The following transactions carried out by the debtor during the year before commencement of bankruptcy liquidation are subject to setting aside:

  • pledges imposed by the debtor for the purpose of securing an existing debt, except where the debtor has previously undertaken to give security;
  • payments made through any means other than money or usual means of payment;
  • payments made for an overdue debt; and
  • annotations given to the land registry for the purpose of strengthening personal rights.

Any and all transactions that are carried out by a debtor whose property holding is insufficient to cover its own debts for the purpose of causing damage to its creditors may be cancelled in cases where the debtor’s financial position and intention to cause damage are known or expected to be known by the other party to the transaction, provided that a proceeding is initiated against the debtor through attachment or bankruptcy within five years of the date on which the transaction is realised.

Transactions relating to the three categories above can be challenged by:

  • the bankruptcy administration;
  • creditors with insolvency certificates; and
  • creditors that undertake litigation under Article 245 of the Execution and Bankruptcy Law.

Operating during insolvency

Criteria

Under what circumstances can a company continue to conduct business during an insolvency procedure?

During the restructuring process, a debtor can continue to conduct business. However, once the bankruptcy liquidation is commenced a decision on continuation of trade should be rendered in order to conduct business. 

Stakeholder and court involvement

To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?

During the restructuring process, directors can continue with their duties, subject to the supervision of the court and approval from the court-appointed trustee or commissar. During the bankruptcy liquidation, once a continuation of trade decision is rendered, only the directors appointed by the bankruptcy administration can continue to serve.

Financing

Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?

During the restructuring process, debtors can restructure and consolidate their debts and obtain new ones. However, during the bankruptcy liquidation, bankrupt companies cannot obtain credit or take out additional secured loans.

Employees

Effect of insolvency on employees

How does a company’s insolvency affect employees and the company’s legal obligations to employees?

Bankruptcy decisions do not automatically terminate employment contracts. The bankruptcy administration may decide to continue all or some of the existing employment contracts following the continuation of the trade decision. However, in the absence of such a decision and when security has not been demonstrated by the bankruptcy administration, employees can unilaterally terminate the employment contract. 

Cross-border insolvency

Recognition of foreign proceedings

Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?

Turkey has no special provisions regulating and responding to the needs arising from the complexity of cross-border insolvency proceedings. Instead, any question arising from each cross-border case is handled according to concepts such as reciprocity and territoriality of bankruptcy, and execution or recognition of foreign judgment processes as defined in the International Private and Procedural Law 5718. 

Winding up foreign companies

What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?

Only Turkish branches and affiliations of foreign companies are subject to bankruptcy in Turkey. 

Centre of main interests

How is the centre of main interests determined in your jurisdiction?

The centre of main interest is determined by the trade registry location of the debtor. However, any creditor may challenge this presumption. 

Cross-border cooperation

What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?

Although the European Convention on Certain International Aspects of Bankruptcy (due to be referred to as the Istanbul Convention) was signed in 1990, it has not drawn sufficient interest and has not entered into force. In this respect, Turkey has no special provisions regulating cross-border cooperation with foreign courts in insolvency proceedings. The general approach of the courts sees that requests of foreign administrations or courts must go through the enforcement and recognition process.