Turkish corporates have increasingly utilised international debt markets in the last decade, particularly in the infrastructure and energy sectors. These corporates are now under pressure due to recent political instability and depreciation of the Turkish lira. Restructuring candidates in 2014 have included Yuksel, the construction company which was last in discussions with bondholders and local lenders mid-year. Below we take a look at key legal issues for loan traders in Turkey.

Transfer of loans: permitted via transfer of agreement, assignment of rights, or novation: An assignment of rights must be in writing. Borrower notification is required otherwise a borrower payment to the assignor in good faith is an effective discharge of its payment obligation. The original debt is not extinguished so the benefit of any Turkish law governed accessory security rights passes to the new lender.

Transfer of agreement under a tripartite agreement (in the same form as the original loan agreement) between the transferor, transferee and remaining party. The original debt is not extinguished so, again, the benefit of any Turkish law governed accessory security rights passes to the new lender.

Transfer by novation (i.e. the discharge of the original debt and creation of a new debt between the new lender and remaining party) will on the other hand have the effect of extinguishing the Turkish law governed security.

Post Transfer Requirements: there are no Turkish law legislative requirements for a transfer/assignment to be effective.

Security: the benefit of the Turkish law governed security generally passes to the new lender automatically upon assignment of the related debt. Upon a novation any ancillary security is extinguished with the debt and must be re-established.

Security is usually enforced by foreclosure (e.g. via public auction or private sale –although the latter has not been tested in Turkish courts).

Tax: Withholding tax (0% for banks and 10% for non-banks): applies to non-resident entities receiving Turkish-source interest (subject to any reduction under a double tax treaty).

Stamp duty (at 0.948%): applies but bank lenders are exempt.

Resource Utilisation Support Fund ("RUSF"): applies at 3% on loan interest (for TRL-denominated loans) or at 3% (<1 year term), 1% (<2 year term), 0.5% (<3 year term) of the principal amount for non-TRL-denominated loans.

VAT (at 18%): applies to loan interest if the non-resident lender is not a financial institution (a bank or entity whose core business includes lending).

Banking and insurance transaction tax (5% on any gains derived from transfer of a loan to a foreign lender): applies to any non-resident bank or entity whose core business includes lending which has a permanent establishment in Turkey.

Trust/Agency and parallel debt structures: agency is recognised and regulated in Turkey and the agent must act according to the provisions of the relevant law.

Trusts and parallel debt structures are commonly used in the Turkish market (in English law governed transactions, accompanied by Turkish law security documents), however they have not been tested in Turkish Courts.

Banking licence requirements: a non-resident entity that creates or purchases a loan to a Turkish entity does not require a banking licence provided the loan is advanced from lender to borrower via a bank account at a bank/brokerage firm in Turkey.

Subordination: subordination is typically contractually created in the Turkish market via an assignment of future receivables of the “subordinated creditors” to the unsecured creditors, however this has not been tested in Turkish Courts, and Turkish law ranks subordinated creditors pari passu with unsecured creditors.


  1. ESFIL and ESFG Update: Espirito Santo Financière S.A. (“ESFIL”) and Espirito Santo Financial Group S.A. (“ESFG”) were both declared bankrupt (en faillite) (under cases 2014/541 and 2014/542 respectively) by the Luxembourg Commercial Court (Tribunal d'Arrondissement siégeant en matière commerciale) on 10 October 2014 and Me Laurence Jacques was appointed as the bankruptcy estate receiver (curateur) in relation to both entities. The first filing deadline for claims against ESFIL and ESFG was 27 October 2014. This was not a hard deadline and claims may be filed after this date.

    Holders of bonds issued by ESFIL and/or ESFG (or guaranteed by ESFG) should accelerate their notes (if not automatic under the bond documentation) and provide evidence of their holdings in order to file a claim, which will be in French (the original executed document is required). The relevant bond documentation must be carefully considered to determine timing of any default, whether any related acceleration is automatic or must be triggered, the rates of interest or default interest that may apply, and whether any trustee is required to file on behalf of noteholders.

    Click here for the filing procedures issued by the Luxembourg bankruptcy receiver of ESFIL. The first hearing at which the court appointed judge and the bankruptcy receiver will verify claims will be held on 11 November 2014 at Cité Judiciaire, 7 rue du St Esprit, 1st floor in Luxembourg. The second hearing for debate on rejected claims will be held on 28 November 2014.

  2. Rio Forte and ESI Update: Rio Forte Investments S.A.’s (“Rio Forte”) and Espírito Santo International S.A.'s (“ESI”) applications for controlled management (gestion contrôlée) were rejected on 17 October 2014.

    Rio Forte has appealed against the decision. Until the determination of the appeal no deadline has been set for filing claims. Noteholders may wish to notify that they are a creditor and also to accelerate their bonds.

    ESI was declared bankrupt (en faillite) (under case 2014/593) by the Luxembourg Commercial Court (Tribunal d'Arrondissement siégeant en matière commerciale) on 27 October 2014 and Me Alain Rukavina and Me Paul Laplume have been appointed as bankruptcy receivers (curateurs).

  3. ESF Portugal Update: Espírito Santo Financial (Portugal) S,G.P.S., S.A. (“ESF Portugal”), which is in a Special Process of Revitalizing (case number 1794/14.1TYLSB) under the Portuguese Insolvency and Corporate Recovery Code, has now been declared insolvent in a judicial decision issued on 27 October 2014 (although not yet published). Ms. Graça Cunha will act as insolvency administrator. Creditors who have not already submitted claims in the Special Process of Revitalizing have 30 days (from the date of publication in Citius) to file their claims. A creditors general meeting will be held on 16 December 2014.

    Creditors of ESF Portugal may have a right to file a parallel claim against ESFG under Article 501 of the Portuguese Companies Code (“PCC”) which provides that a directing company (in the cases of subordination relationships) or the parent company (in the cases of total control where the parent company wholly owns all the shares of the subsidiary – ex vi article 491 of the PCC) are legally deemed responsible for all liabilities (e.g. contractual liabilities) incurred by the wholly-owned subsidiary. The claim therefore arises under Portuguese company law since ESFG is the Parent of ESF Portugal. To file a claim, the creditor must provide a translation of its ESF Portugal claim in English, as well as the original executed ESFG claim form in French.

    CWT continues to assist clients with claims filings and Espírito Santo trade transactions in conjunction with Luxembourg and Portuguese counsel.


  1. Apcoa Parking AG: On 29 October 2014 the London High Court refused to sanction Apcoa Parking’s scheme of arrangement, and so it will need to be modified before being sanctioned by the Court – the refusal was principally due to concerns as to the imposition of fresh liabilities under the scheme as well as the limitations on parties concerning potential legal action in other jurisdictions. A revised scheme addressing these issues will be submitted to the Court soon. Following the Court’s announcement, it was announced that agreement was reached with the main holdout creditor (FMS Wertmanagement) on an issue regarding participation in a new bank guarantee facility, and that instead of participation being mandatory Apcoa will now agree that creditors can opt out. It is hoped that this will now lead to the scheme being sanctioned.
  2. Royal Imtech N.V.: (“Imtech”) completed its debt reduction programme on 27 October 2014 with a circa EUR 600 mm rights issue and the EUR 255 mm sale of its information/communications division, together with implementation of new debt documentation (with lowered interest and extended maturity). Having addressed its financial position Imtech will now work towards completing its turnaround programme.
  3. BrisConnections Finance Pty Limited: (“Brisconnections”) and its group companies, which operate a 45-year toll road concession between Brisbane's central business district and the Brisbane airport, were placed into voluntary administration and receivership on 19 February 2013. BrisConnections' debt, including its AUD 3,560,000,000 term loan and the related swap debt, is being actively traded in anticipation of a potential asset sale process in January 2015.
  4. Saur Hime: A block of French water services group Saur’s loans and a EUR 6m piece of its equity came to the market in October. Holding d’infrastructures des métiers de l’environnement (“Hime”) and its group companies completed a restructuring in June 2013.

Pursuant to the terms of the conciliation protocol entered into on 30 June 2013 between Hime, its creditors and shareholders, Hime’s indebtedness was reduced to 900m. Additionally, a new money facility in the amount of EUR 200m was made available to Hime and Saur.

Thank you to Paksoy, local counsel who assisted us with this Trade Alert.