On 15.03.2018 Amendments to Enforcement and Bankruptcy Law has been introduced by Law No. 7101 and published in the Official Gazette. The most significant changes are as follows:
- Composition proceeding has been rearranged and
- Postponement of bankruptcy proceeding has been abolished.
Amendments are based on the revisions made on the Swiss Debt Enforcement Law in 2013. The legislator aims for a more efficient restructuring model by regulating essential concepts like automatic stay, ipso facto clauses, creditors committee, priority of creditors financing the debtor in composition proceeding period, conditions for financial analysis of a project, involvement of creditor classes (secured and unsecured creditors) and court involvement.
The changes are highlighted below:
Postponement of Bankruptcy (POB) proceeding has been abolished. The abolishment of POB proceeding can be described as a reform in the restructuring practice. POB proceeding was nearly the only tool that has been used by debtors since 2002. However POB proceeding has been suspended for the duration of the state of emergency and no new application could be made since 2015. Now, with the amendments, POB proceeding is abolished and instead replaced with composition proceeding revised nearly in line with modern restructuring concepts. Hereinafter POB proceeding will be referred to as an era that created too much debate on restructurings where it is extremely in favour of debtors.
Insolvency Specialist Courts. Even though there is no court in Turkey named as Insolvency Court just yet; the amendments have made the first steps towards the “Insolvency Court” concept. In accordance with the amendments, the first three courts of commercial courts have been designated as the insolvency and composition specialist courts in major cities of Turkey.
Provisional Moratorium concept has been introduced. Following the application of a debtor for the composition proceeding, the court shall grant a provisional moratorium for 3 months if the documents attached to the application are complete. Provisional moratorium period can be extended to 5 months and is followed by the definitive moratorium which will last up to 24 months.
Automatic stay upon application. All debt enforcement proceedings are stayed and no new enforcement proceeding can be commenced during moratorium except for the secured debts and debts owed to the employees.
Regulation on ipso facto clauses. As the amendments introduced, ipso facto clauses shall not be applicable following the application of a debtor for the composition proceeding.
Statutory right to terminate the agreements preventing the aim of the restructuring project to succeed. A statutory opportunity has been given to the debtors to terminate the agreements preventing the aim of the composition proceeding to succeed, by obtaining the approval of the court.
Strengthened position of New Financings during the moratorium. Any approved debt by the administrator during the moratorium shall not be subject to composition conditions, must be secured by the debtor as a condition for the approval of its composition and will have priority over all other creditors upon bankruptcy of the debtor.
Introduction of the creditors’ committee. During definitive moratorium, the court may appoint a creditors’ committee which is entitled to supervise and advice the administrator and request the change of the administrator.
Security conditions have been eased. One of the approval conditions of an accepted composition was to provide sufficient security for all the debts in the previous law term. Now, the amendments have significantly eased the security condition in favour of the debtor. For the approval of the composition, the debtor is only responsible for providing security for the claims of employees and the debts that arise during the moratorium with the approval of the administrator.
Negotiation with Secured creditors and debt restructuring. Apart from the Swiss Debt Enforcement Law, the amendments have introduced an in-court procedure to be concluded during the moratorium and given the debtor an opportunity to include secured debts in the same composition proceeding. The negotiations with secured creditors will take place separately and for a successful debt restructuring, the debtor shall conclude individual agreements with secured creditors representing at least 2/3 of the total amount of debt.