Insolvency 2020

Last Updated November 20, 2020

Turkey

Law and Practice

Authors



Hergüner Bilgen Özeke Attorney Partnership is Turkey’s leading independent business law firm. Since its establishment in 1989, the firm has provided legal guidance to its clients on all aspects of international business law and is known as the firm that brought the "full-service law firm" concept to Turkey. The firm represents major multinational corporations, international financial institutions, agencies and other notable clientele in corporate, dispute resolution and commercial, and finance and projects areas. The Hergüner team is composed of approximately 140 individuals with a variety of educational and professional backgrounds. An 80-member legal team, 14 of whom are Hergüner partners, are involved in cases that require a full grasp of Turkish and cross-border jurisdictions, as well as different cultures and languages.

Turkey has seen a continuous increase in bankruptcy and concordato proceedings. According to a declaration made by the Minister of Trade of the Republic of Turkey and governmental data, 1,401 companies applied for concordato in the last eight months of 2018 and 979 of these companies declared concordato as of 27 December 2018. As the data compiled from the Trade Registry Gazette shows, the number of concordato cases reached 899 in 2019 and 201 of the companies that declared concordato during 2018 and 2019 requested bankruptcy. On the other hand, the Global Insolvency Outlook 2019 published on 9 January 2019 by Euler Hermes, one of the leading firms in the area of credit insurance, stated that there were nearly 15,400 insolvency cases in Turkey during 2018.

As for 2020, the Euler Hermes Global Insolvency Outlook 2020 report indicated that a 5% rise in the number of insolvencies was expected. As per the statistics published in the daily Cumhuriyet newspaper on 28 August 2020, 309 companies requested to be declared bankrupt (28 of these requests were rejected), 157 companies requested concordato, 2,192 companies were granted a temporary relief term and 1,523 companies were granted a definite relief term, by the end of July 2020.

Although it was expected that the COVID-19 outbreak would lead to an additional increase in insolvencies, the Minister of Trade announced that only 31 of approximately 100,000 established companies were registered to initiate bankruptcy at the peak of the pandemic. However, an increase in the number of bankruptcy declarations is still expected in 2021 due to COVID-19.

The main statutory regime governing the liquidation and insolvency of business entities is the Enforcement and Bankruptcy Law No 2004 (EBL), which entered into force on 4 September 1932 and has been amended from time to time. The EBL includes provisions regarding the enforcement of monetary claims in Turkey, the enforcement of secured monetary claims and bankruptcy, as well as concordato proceedings.

With the decree law dated 31 July 2016 and numbered 669, requests for postponement of bankruptcy were prohibited during the state of emergency after the attempted coup d’état in Turkey. Subsequently, the Turkish bankruptcy regime went through a fundamental change on 15 March 2018 with Law No 7101 amending the Enforcement and Bankruptcy Law and Some Other Laws, which abolished the postponement of bankruptcy concept and reinstated an updated version of the long-standing and already-existing “concordato” in its place.

It is also noteworthy to mention that there has been a plan to revolutionise the Turkish enforcement-bankruptcy system and make fundamental changes to the EBL for years. Studies on a new judicial reform package in this regard are currently being carried out, which President Erdoğan called attention to in his speech before the Turkish Grand National Assembly on 11 November 2020.

Further provisions relating to financial restructurings, reorganisations and liquidations/insolvencies are set forth in the Turkish Commercial Code No 6102 (TCC), which are elaborated upon in further sections.

Furthermore, there are specific provisions governing the insolvency of the banks under the Banking Law No 5411.

The EBL and the Turkish Criminal Code No 5237 (TCrC) contain provisions regarding bankruptcy and debt-collection felonies, such as:

  • fraudulent bankruptcy (Article 161 of the TCrC);
  • reduction of assets to the prejudice of creditors (Article 331 of the EBL);
  • causing insolvency by one’s own actions (Article 332 of the EBL);
  • obtaining personal benefits in bankruptcy and concordato transactions (Article 333 of the EBL);
  • misleading authorised persons in concordato and non-compliance with restructuring conditions (Article 334 of the EBL); and
  • failure to deliver the assets of the bankrupt to the bankruptcy administration (Article 336 of the EBL).

Under Turkish law, there are bankruptcy proceedings as well as restructuring proceedings such as concordato.

Concordato is a voluntary type of restructuring for debtors suffering from financial distress that requires agreement between the debtor and its creditors certified by the commercial court, where the creditors usually waive some of their rights of claim and/or a term extension is given to the debtor for the payment of its debts. Thereby, a process that benefits the creditor is agreed to, since the objective of the composition process is to achieve reorganisation and continuity of the business (for further information, see 6.1 Statutory Process for a Financial Restructuring/Reorganisation).

A voluntary type of bankruptcy proceeding can commence if the debtor directly requests from the competent court to be declared bankrupt if the debtor is unable to pay its current debts due to insufficient sources/liquidity problems.

Liquidation, which also constitutes another type of voluntary formal insolvency proceeding under Turkish law, is explained under 7.1 Types of Voluntary/Involuntary Proceedings.

Article 376 of the TCC sets forth the obligations related to the technical bankruptcy concept (also called the balance sheet insolvency concept) for capital companies, which occurs when the shareholders’ equity has eroded, regardless of the company’s ability to pay its debts as they become due.

Technical bankruptcy is deemed to have occurred once the ratio between a company’s share capital (plus statutory legal reserves) and its shareholders’ equity drops below a certain level according to its latest annual financial statements. The technical bankruptcy of a company may ultimately lead to the declaration of bankruptcy as per the EBL, unless the company fulfils certain procedural requirements and recapitalisation obligations prescribed under the TCC.

If there are indications leading to a belief that the company is insolvent, the board must prepare interim balance sheets based on (i) the principle of the continuity of the company and (ii) the value of the current assets of the company recalculated at their fair market value. Unless the balance sheets confirm that the assets of the company are sufficient to cover its liabilities, the board of directors is required to inform the competent commercial court and request that the company be declared bankrupt. If the board of directors fails to take any action, then the creditors may also apply to the court for the company to be declared bankrupt. If the competent court renders a decision declaring the company bankrupt, the liquidation process is triggered.

As per Article 178/3 of the EBL, if half of the debtor’s assets are encumbered by certain creditors through attachment proceedings and the remainder of the assets are not sufficient to pay its debts that are or will become due within a year, the debtor is obliged to request from the competent court to be declared bankrupt.

Under Turkish law, bankruptcy proceedings can be initiated by creditors through enforcement proceedings or direct bankruptcy procedures.

The “direct bankruptcy procedure” may be commenced upon either the request of the creditor or the request of the debtor. The EBL enables creditors to directly request from the competent court that the debtor be declared bankrupt, provided that one of the following conditions is met, as per Article 177 of the EBL:

  • the debtor does not have a permanent place of residence;
  • the debtor absconds so as to evade the fulfilment of his or her obligations;
  • the debtor intentionally conducts or attempts to conduct certain fraudulent acts to the detriment of the rights and interests of its creditors;
  • the debtor conceals its assets during the enforcement proceedings;
  • the debtor suspends the payment of its debts; or
  • the debtor does not pay its outstanding debt that is recognised by an enforceable court order.

Bankruptcy proceedings may be triggered through the creditor’s initiation of enforcement proceedings. Under this scenario, the creditor applies to the competent execution office and requests the debtor to be declared bankrupt unless the creditor’s monetary claims that are due and payable are settled by the debtor. Upon the receipt of the creditor’s request, the execution office serves a bankruptcy payment order to the debtor. Unless the debtor fulfils the payment order, the creditor is entitled to apply to the competent court for the debtor to be declared bankrupt.

This bankruptcy request is announced by the commercial court, and within 15 days following the announcement of the bankruptcy request, other creditors may intervene or object to the bankruptcy lawsuit.

If the creditor intends to file and commence bankruptcy proceedings against its debtor, “insolvency” is not a definite requirement. The fact that the company’s liabilities exceed its assets is only a special ground for bankruptcy for companies with share capital and co-operatives, and when a special circumstance exists where the debtor is obliged to initiate the bankruptcy proceedings on its own motion; however, this does not constitute a general requirement for bankruptcy under Turkish law. Even if the debtor has sufficient assets, failure to pay the debts to the creditor may lead the debtor to be declared bankrupt if the creditor initiates bankruptcy proceedings.

Specific bankruptcy and insolvency regimes apply to banks and insurance companies, which are explicitly stipulated in the Banking Law No 5411 (eg, Article 106) and the Insurance Law No 5684 (eg, Article 10). In addition, the liquidation regime for insurance companies is particularly regulated under Article 23 of the Regulation on the Establishment and Working Principles of Insurance and Reinsurance Companies.

Furthermore, the Capital Markets Law No 6362 (CML) sets forth special provisions for bankruptcy and gradual liquidation.

Out-of-court restructurings have been recently popularised in Turkey due to the new financial restructuring programme adopted by the Banking Regulatory and Supervisory Agency (BRSA) in 2018 (“Financial Restructuring Programme”). The principles applicable to such restructurings were outlined in a regulation issued by the BRSA, and two framework agreements (for principal debts exceeding or below TRY25 million) were published for the purpose of serving as the common terms for restructuring agreements to be concluded with debtors within the scope of this programme.

If the debtors apply to such restructuring programme, with the consent of two thirds of their creditors, execution and bankruptcy proceedings may not be initiated by the restructured creditors towards such debtor during the term of the standstill period. Certain actions taken by creditor institutions within the scope of the ongoing execution proceedings as of the application date, such as lawsuits regarding the foreclosure of collateral process and the execution of a commitment to pay the debt in instalments, are not affected by the standstill period. After the financial restructuring has been completed, execution proceedings may not be initiated or resumed against the debtor as long as its obligations arising from the restructuring contracts are fulfilled, barring circumstances that would otherwise result in a loss of rights.

Concordato is a statutory debt restructuring scheme and it does not require a prior consensual restructuring process. The debtor, either by itself or upon a bankruptcy process, may apply to the court for concordato with a reasonable repayment programme. The debtors, provided that they meet the legal requirements for both the Financial Restructuring Programme and concordato, are free to choose the process they wish to participate in and may even partake in both simultaneously. The Financial Restructuring Programme is regarded as a more flexible and less procedural approach to debt restructuring and is more attractive in terms of reputation since it does not require an official declaration of debt before the courts. Banks and lenders are generally supportive of the financial restructuring process as it allows for the recovery of debts that would otherwise fall under the non-performing loan category, and therefore increases the banks’ liability to maintain statutory reserve for such debts.

An out-of-court restructuring under the Financial Restructuring Programme is typically concluded pursuant to the process set out in the applicable framework agreement. In this process, the debtor makes an application to one of its top three creditors in terms of debt, typically undertaking to refrain from utilising facilities from any new creditors, establishing any other encumbrances in favour of third parties over its assets, and entering into any agreement that differentiates its existing creditors. The debtor also provides short, middle and long-term action plans and detailed information on its finances alongside this application.

The restructuring may be made through a number of measures, such as:

  • postponement of the loan maturity dates;
  • novation of the loans; write-off of default interest receivables;
  • assignment or transfer of the loans in exchange for payment in kind, cash, or other receivables provided conditional on the collection of such receivables;
  • full or partial sale or disposal of debt in exchange for assets of the debtor or third parties; and
  • the execution of protocols with other banks or creditors.

The existing ranking of priority rights for secured creditors stays intact during this process and all of the remaining creditors are deemed to be pari passu creditors.

For debts above TRY25 million (ie, large-scale debts), a Consortium of Creditor Institutions (CCI) is formed by the debtor’s creditors to steer the restructuring negotiations. For smaller debts, a more simplified procedure is followed and the creditor institution that accepted the debtor’s application for financial restructuring leads the process.

After a debtor makes an application for financial restructuring under any framework agreement, and once this application is shared among the relevant creditor institutions, a “standstill process” automatically begins. During this period, which covers a reasonable negotiation period, the legal status of the parties with respect to each other and the assets, collaterals and shareholders of the debtor remain protected.

The injection of new money is typically provided through extending additional credit facilities to the debtor or through the shareholders of the debtor company extending equity. External financing under the Financial Restructuring Programme is subject to (i) the approval of the creditor institutions representing 90% of the total receivables of the CCI or (ii) the approval of at least two creditor institutions representing two thirds of the total receivables of the CCI. The cash generated from the security provided for such additional loans will be primarily allocated for the repayment of this additional loan. The consent of all existing secured creditors is required for super-priority liens or rights to be accorded to any new investors.

In general, the creditors are bound by the doctrine of good faith in out-of-court restructurings. All parties to the restructurings concluded under the Financial Restructuring Programme must also comply with the provisions of the Personal Data Protection Law No 6698 governing the disclosure of information, as well as the specific provisions set out in the Banking Law No 5411 regarding banking and customer secrets.

For restructurings concluded under the Financial Restructuring Programme, dissenting creditors who are signatories to the framework agreement are required to restructure their receivables if a restructuring agreement is signed by the majority of creditor institutions representing at least two thirds of the total amount of receivables. However, the CCI must unanimously agree to write off or convert any part of the principal debt subject to restructuring into equity participation.

Real Estate

There are three types of securities over real estate, which the Turkish Civil Code (TCiC) sets forth as numerus clausus. As per Article 850 of the TCiC, security over real estate can only be granted by mortgage assignments, mortgage certificates, or annuity bonds. A mortgage assignment must be created by deed in the official form and must be executed by the parties. The relevant title deed and mortgage deed must then be registered with the relevant title deed registry (Article 856 of the TCiC). A mortgage certificate enables a personal claim to be made against the debtor, where the debtor has a personal liability secured by a property lien. Since a mortgage certificate constitutes a negotiable instrument, it enables circulation for security purposes. Thereby, the debtor does not only have liability limited to the real estate but also has personal liability. On the other hand, an annuity bond is a property lien, indicating that a right to claim, which is established as an encumbrance on a real estate, is pledged. It can only be used to circulate the value of the real estate, meaning that it does not have a security function.

Movable Pledge

There is no single method that governs perfecting a security interest over the movable assets, and the relevant methods are explained below.

Movables Not Transferred to the Pledgee

Perfecting security over the movable assets of a commercial entity is governed by the Law on Movable Pledges in Commercial Transactions No 6750, which requires the execution of a pledge agreement in electronic or written form and must also be notarised and registered with the Movable Pledges Registry as a condition of enforceability. There are certain categories of movables excluded from the scope of the law, including movable properties subject to a separate registration requirement under other pieces of legislation, such as ships, trade marks, mining rights, and pledges over precious metals, aircrafts and motor vehicles.

Security Interest over the Shares

Perfecting security over the shares of a non-listed company requires the execution of a written pledge agreement (although not a legal requirement, it is always required in practice), the endorsement of the share certificates by the debtor company’s shareholders, and delivery of such to the lenders/their agent. The endorsement may be in the form of a pledge endorsement or blank endorsement. In the absence of physical shares (which is legally possible under Turkish law), executing a pledge agreement in written form will suffice to perfect the security. However, in practice, the lenders will usually (if not always) require the issuance of physical shares. Although it is neither a validity nor a perfection requirement, in most cases a share pledge is also registered with the shareholder of the company’s ledger for declaratory purposes.

Account Pledge

Perfecting security over a debtor’s accounts involves a simpler process including the execution of a pledge agreement and a pledge notification sent to the banks in which the accounts are held. While there are certain contradicting opinions in terms of the enforceability conditions concerning account pledges against the account-holding banks, notification to the banks has, in practice, become an indispensable part of the perfection stage.

The conditions under which the securities can be perfected are determined by the general principles of law and special provisions brought for each type of security. When an outstanding debt is not paid, the pledged creditor is granted the right to initiate enforcement proceedings by the EBL and to demand the pledged property to be sold through forced auction and be converted into money. Enforcement proceedings distinguish between the types of security granted. For instance, regarding mortgages, in terms of priority, the degree system adopted under Turkish law provides a priority ranking for mortgagees, holding a mortgage with a preceding degree over other mortgagees in subsequent rankings. However, for movable pledges, the priority of security rights over movable properties are determined in chronological order, save for security interests subject to the Law on Movable Pledges in Commercial Transactions No 6750, where the parties also have the option to adopt the degree system.

The lex commissariat rule (ie, preventing the lenders from claiming direct ownership over the secured assets) is applicable under Turkish law save for a limited number of predefined cases, including security agreements concerning capital market instruments in accordance with the CML. However, the rule does not prevent the lenders/their agents from taking part in the sale process and acquiring ownership of the secured property through public or private sale.

In the event that the debtor declares bankruptcy, all of the debtor’s assets will be included in the bankruptcy estate and the lenders will be required to register their status with the estate. The secured creditors, such as the lenders, have priority (after deducting the costs made to maintain and sell the assets secured) in terms of the recovery of receivables from the bankrupt estate. In 2018, there was a legislative change rearranging the priority order in favour of secured debtors who have priority in terms of collecting their debt even over the amounts owed to the state. There is no distinction in terms of the treatment of foreign and local creditors.

In addition, as per Article 45 of the EBL, the pledged creditors must first apply to liquidation of the pledge prior to applying to the court for declaration of the debtor’s bankruptcy.

In the case of general bankruptcy through enforcement proceedings, when a debtor declares bankruptcy, all of the assets owned by the bankrupt debtor form the bankruptcy estate. Creditors’ claims are satisfied through liquidation of the bankruptcy estate by the bankruptcy administration through public auctions. During the distribution of the sale proceeds of the bankrupt company’s assets (eg, immovables) collected through public auctions, certain receivables/creditors have statutory priority over other claims.

The highest in the pyramid is the preferential creditors, which consist of secured claims and the state’s preferential right to collect public receivables in connection with the property, where secured claims such as mortgages have priority over the mentioned public receivables. The aforementioned public receivables include customs duties, real estate taxes, or other debts owed to public entities in connection with the property.

Following the preferential creditors, privileged creditors are ranked based on the following:

  • receivables based on employment or family relations (first row);
  • claims arising from guardianship and trusteeship (second row);
  • those defined as privileged debts in specific laws (third row); and
  • all other receivables, provided that they participated in the attachment (fourth row).

After the privileged claims, non-privileged claims are ranked.

It is also noteworthy to mention that the succeeding creditors in the lower rankings will not receive any proceeds until the creditors in the previous ranking categories have been satisfied. Subsequently, the remaining amount will be distributed to the lower-ranked creditors in proportion to their receivables.

As explained above, secured claims are treated differently than unsecured claims in the liquidation process. While the pledged assets that belong to the bankrupt debtor become part of the bankruptcy estate, the pre-emptive rights of the pledged creditors arising from the pledge are reserved.

Unsecured trade creditors’ claims are satisfied in accordance with the principles explained above, provided that the bankruptcy administration accepts the existence of those receivables in the schedule of claims.

There are two legal remedies available in relation to the schedule of claims. If a creditor objects to the row given for his or her claim, the legal remedy available for the creditor is to file a complaint. The creditor can issue a complaint against the schedule of claims for mal-implementation by the bankruptcy administration with regard to the rules of enforcement law if the action taken is not appropriate for the event. If a creditor objects to the merits of the decision regarding the acceptance and partial acceptance of its claim or some other creditor’s claim or some other creditor’s row, the legal remedy available is action for the objection against the schedule of claims.

Pre-judgement attachments are available under Turkish law to assure that unsecured creditors’ claims are satisfied. With a court decision, a sufficient amount of the debtor’s assets that cover the debt may be confiscated temporarily beforehand.

Under Article 257 of the EBL, a pre-judgment attachment may be granted for due debts if the debt is unsecured. The conditions of the court to grant pre-judgment attachments for undue debts are subject to the following conditions:

  • the debtor does not have a permanent place of residence; or
  • the debtor is concealing his or her assets, absconding or making preparations to abscond so as to evade the fulfilment of his or her obligations.

The creditor needs to have a prima facie case on the conditions given above for a pre-judgement attachment to be granted.

Under Turkish law, priority claims are classified into two main categories: (i) unsecured claims and (ii) secured claims. Unsecured claims are further categorised as (i) privileged unsecured claims and (ii) unprivileged unsecured claims. The first three rows of unsecured claims consist of privileged unsecured claims and the fourth row consists of unprivileged secured claims. Secured claims come above all four categories of unsecured claims. See 5.1 Differing Rights and Priorities for further information.

Concordato is a restructuring agreement between debtors and creditors that becomes binding upon the court’s acceptance.

Both creditors and debtors may initiate the composition process. Most importantly, in order to apply for concordato, a debtor is not required to be deep in debt or insolvent or to meet the conditions for bankruptcy. In other words, the process is independent from the amount of debt at stake. According to the EBL, irrespective of whether or not they are merchants, all individuals and legal entities that have difficulty paying their debts on their maturity or that carry the possible risk of default may eliminate such risk by making an application to the competent court with supporting documents and requesting composition.

In essence, the entire composition process may be summarised in five stages:

  • application for composition;
  • temporary relief;
  • definitive relief;
  • creditors' meeting; and
  • court examination and approval of composition by the court.

Application Stage

By submitting a preliminary composition project along with the necessary documents indicating the debtor’s financial status, the creditors and credit status of the debtor, and certain other documents demonstrating the targeted result of the restructuring process, a debtor may apply for composition before the Commercial Court of First Instance located at its headquarters or residence address. The composition project mainly consists of paying debts through an extended payment plan or at a discount. Since being subject to bankruptcy is not a prerequisite for requesting composition, the composition process has become an appealing option for many debtors as it enables financially depressed debtors to sustain their businesses while spreading their debt into long-term payments.

Temporary Relief

Following the debtor’s application, if the court determines that the required documents have been submitted in full, the court will grant the debtor a temporary term of three months, which may be extended for a maximum of two months under certain conditions. During this period, the court will take the measures it deems appropriate to protect the debtor’s assets. The court will also appoint a trustee or three trustees, depending on the amount of receivables and the number of creditors, to monitor and manage the restructuring process, observe whether the debtor can resolve its financial difficulties by virtue of composition, and negotiate the recovery project with the creditors.

A decision granting the temporary relief term will be announced in the Trade Registry Gazette and in the noticeboards of the Press and Release Association, and the temporary relief period will be notified to the relevant authorities so that other creditors may object to the restructuring proceedings, participate in negotiations, and vote in the restructuring project. The composition trustee(s) chairs the creditors' meeting and accordingly prepares a report on the financial status of the debtor.

Definitive Relief

Once the composition project has been approved at the creditors' meeting, the composition trustee will submit the report to the court. Following a review of the composition trustee’s report, if the court determines that the debtor can resolve its financial difficulties by way of composition in the temporary term, then it will grant a definitive term of one year to negotiate and finalise the composition project, which may be extended for up to six months under certain conditions, and will approve the composition. Otherwise, the court will dismiss the request for composition, declare the debtor bankrupt, and notify the relevant authorities. If the debtor is not subject to bankruptcy, then the court will simply dismiss the request for composition.

During the definitive relief term, the court may establish a committee of creditors if it deems such appropriate. See 6.3 Roles of Creditors.

Creditors' Meeting

The composition trustee will invite the creditors for a meeting to negotiate the composition project after preparation of the composition project and notification of claims has been completed. For the composition project to be accepted, both the majority of the claims and creditors should be satisfied.

Court Examination and Approval of Composition by the Court

The composition trustee submits all of the documents related to the composition and the reasoned report indicating whether the composition project has been accepted and approved to the court. After the court receives the documents from the composition trustee, it has to decide whether or not to approve of the composition within the definitive relief term.

The payment plan becomes effective upon the approval of the composition. In other words, until this date, the debtor is under no liability to make payments to its creditors.

During the composition process, all ongoing execution proceedings must be suspended immediately, decisions for preliminary injunction and preliminary attachment cannot be applied, and no new execution proceedings may be initiated, including those opened to collect public receivables. During this period, lawsuits may still be initiated against the debtor and ongoing lawsuits will not be suspended. Unless stated otherwise in the certified restructuring project, no interest may be accrued from outstanding receivables in the restructuring project as of the date of the definitive relief decision.

Creditors may not terminate third-party agreements that have significant importance with respect to continuation of the debtor’s activities solely on the grounds that the composition process has been initiated. In this respect, as per Article 296/I of the EBL, any contractual provision annulling the contract or giving the counterparty the right to terminate the contract with just cause or rendering the debt due and payable in case of a request for composition by such non-terminating party shall not be applicable. This Article intends to provide continuance of the debtor’s activities to increase the chance of realising the composition project and fulfilling the debtor’s commitments on a going concern basis.

The court must take all of the necessary measures to protect the debtor's assets, and the EBL does not stipulate any limits on those measures. Once approved, the composition project and protective measures will be binding on all of the debtor’s creditors. As a result, the composition mechanism allows debtors to put their businesses back on track without pressure from creditors to collect their receivables and without having to face financial and operational collapse. However, on the other hand, unlimited protective measures may sometimes jeopardise the creditors’ rights and result in excessive application or abuse of such measures.

During the definitive relief term, if the court deems appropriate, it may establish a committee of creditors to (i) observe and assist the composition trustee(s) in the restructuring process, (ii) inspect and supervise the debtor’s activities, and (iii) issue periodic reports regarding the restructuring process together with the composition trustee. Such committee will allow for fair representation for creditors of different types of receivables. However, the committee has no binding authority and its role is limited to sharing its views on the creditors with the composition trustee and the court to protect the interests of the creditors. This committee may also request replacement of the composition trustee.

With regard to the pledged creditors, different regulations have been set forth concerning the negotiation process of the composition and restructuring of the pledged claims as per Article 308/h of the EBL.

Any creditor who dissents to the composition reserves all of its rights to raise claims against other persons who are jointly liable with the debtor.

In the reconstruction of the pledged claims, in the event that the proposals of the debtor have been accepted with a two-thirds majority of the votes, the creditors who dissent are subject to the agreement concluded with the other pledged creditors with the longest deferral.

As a rule, claims against a company may be traded during definite relief. However, as per Articles 200 and 294 of the EBL, exercise of this right is subject to some restrictions. The creditor cannot trade his or her claims with the debtor if:

  • the creditor becomes the creditor of the debtor after the announcement of temporary relief;
  • the creditor acquires the title of debtor after the announcement of temporary relief; or
  • the creditor’s receivable arises from a bearer instrument.

Likewise, in the event that joint-stock companies, limited liability companies and co-operatives are granted relief, the unpaid portion of share certificates or subscribed but unpaid capital cannot be exchanged with the debts of these companies.

There are no regulations provided under Turkish law covering this issue. However, within the scope of out-of-court restructuring, there are no obstacles to progressing this way.

Although bankruptcy completely removes the debtor’s power of disposition, in principle, this power remains in concordato proceedings. However, the debtor can only continue its business under the supervision of the composition trustee. The court may also decide that some transactions conducted by the debtor are only valid with the permission of the composition trustee.

The debtor cannot establish a pledge, and cannot transfer, restrict or gratuitously dispose the real estate and the permanent installation of the enterprise, even partially. If the debtor engages in any of these transactions, the transaction will become invalid. In the event that the debtor violates this regulation or does not comply with the warnings of the composition trustee, the court may revoke the debtor’s power of disposition or reject its proposal and declare the company’s bankruptcy.

See 6.7 Restrictions on a Company’s Use of Its Assets.

See 4.1 Liens/Security.

As per Article 308/c of the EBL, debts concluded with the consent of the composition trustee, including the loans granted by the credit institutions, are not subject to concordato provisions under an ordinary composition process. The same rule applies to counter-performance in continuous debt relations where the debtor becomes a party by acknowledging the execution of the counter-performance with the consent of the composition trustee.

Creditors are invited through an announcement to be made in accordance with Article 299 of the EBL to make a notification claiming their receivables within 15 days of the date of the announcement. Upon the notification made by the creditor, the composition trustee checks the balance sheet of the company subject to concordato to determine the existence and the amount of the notified receivable. If the notified receivable appears on the balance sheet, then the composition trustee registers the claim. On the contrary, if it does not appear on the balance sheet, the composition trustee asks for the debtor’s statement regarding these receivables before registering them. Such notified receivable may be objected to and challenged by the debtor. In such event, the objected receivables will become “contested”. The issue of whether these receivables will be included within the quorum of concordato will be decided by the competent commercial court that conducts the concordato proceedings.

The composition trustee submits a file regarding the receivables contested to the commercial court, and upon an examination made within the scope of Article 302/6 of the EBL, the court decides whether the receivable should be included in the quorum of concordato. In the event that the commercial court denies the existence of the receivable, the creditor can file a lawsuit within one month of the date of the concordato approval’s announcement as per Article 308/b of the EBL.

This issue is dealt with under 6.1 Statutory Process for a Financial Restructuring/Reorganisation.

Composition only applies to the debtor’s legal field. Third parties who are guarantors of the debtor’s debt cannot benefit from the terms and legal consequences of the composition. Therefore, creditors, regardless of the type of guarantee given, may continue the execution processes that they initiated against a third party and in addition to initiating new proceedings.

As per Article 100 of the Turkish Code of Obligations (TCO), if the debtor is not late on paying interest and expenses, it may be entitled to deduct the partial payments from the principal debt and a contrary contract would be invalid. However, in bankruptcy and concordato proceedings, the aforementioned article of the TCO does not apply and the amount collected after liquidation is proportionally divided among the principal, interest and expenses.

If the debtor fails to pay its debts on time in relation to a creditor arising from the composition, that creditor may apply for termination of the composition agreement for his or her claim by reserving all rights arising from the composition.

An equity owner can retain its ownership under a composition agreement, subject to the restrictions of such agreement.

For voluntary/involuntary proceedings other than liquidation, see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership, 2.3 Obligation to Commence Formal Insolvency Proceedings and 2.4 Commencing Involuntary Proceedings.

Regardless of whether the entity to be closed/dissolved/liquidated is foreign invested or domestically invested, the process is subject to the provisions of the TCC. As per the TCC, the liquidation process can be voluntary (as a result of the company’s general assembly decision) or compulsory (as a result of a court order). The process regarding dissolution is as follows.

  • If the decision to liquidate a company is taken by the management of the company during a general meeting, a liquidator must be appointed to represent the company during the process. The name and details, along with a decision of liquidation, must be registered at the Turkish Trade Registry. The general meeting has the power to dismiss the liquidator and can decide on the level of power it has in this process.
  • For compulsory liquidation, the court must appoint a liquidator and has the power to dismiss it if necessary.
  • The liquidator should provide both a balance sheet and an inventory statement and must show these documents in a general meeting, where the documents must be approved. If the documents receive approval, the liquidator can begin the process.
  • The liquidator checks the documents and notifies all creditors of the liquidation process. It then decides on the specific terms if depositing the claims.
  • The creditors then submit their claims, and if it is not completed in due time, the amount necessary to cover their claims is deposited to an administrative authority appointed by the liquidator.
  • An intermediary balance sheet and reports regarding the liquidation status must be detailed and presented at the annual general meetings.
  • The assets remaining after covering all of the claims can be divided among the shareholders, up to their contribution to the company’s capital.
  • A last general meeting is then convened and the last balance sheet, a report regarding the termination of liquidation, and its results are presented by the liquidator.
  • The decision is then registered at the Trade Registry and the name of the company is permanently deleted from the Registry.

The duration of the liquidation process may vary according to the complexity of the structure and debts, but usually it can be completed within 12-18 months.

The second creditors' meeting deals with the sale of the assets of the bankrupt estate, except for emergency sales. As per Article 229 of the EBL, assets that will lose value or that will be costly to preserve may be sold without delay. Stock shares and goods with a price on the exchange or market may be converted into money immediately. Assets other than these exceptions can only be sold after the second creditors' meeting.

The purpose of the creditors’ meeting is to make decisions concerning the administration and liquidation of the bankruptcy estate. In principle, two creditors’ meetings should be held during the process.

The bankruptcy office will call the first meeting. The most important task at the first meeting is to elect the members of the bankruptcy administration, which will carry out the procedures necessary to liquidate the assets of the bankrupt company.

In the second creditors’ meeting, the creditors may decide whether they wish for the bankruptcy administration to continue in the office. During the second meeting, the creditors may also make any decisions they deem necessary in the interest of the bankruptcy estate. This meeting deals with any outstanding claims of ownership and the sale of the assets of the bankrupt estate.

The Turkish International Private Law and Procedure Code No 5718 (IPPC) is the main legislation that regulates the recognition and enforcement of foreign judgments. Article 50 of the IPPC stipulates that foreign judgments regarding civil law matters are enforceable as long as they are final under the laws of the foreign country. Under Turkish law, an “enforcement decision (exequatur)” rendered by a competent Turkish court is required for the execution of a foreign judgment in Turkey. The enforcement decision gives the foreign judgment legal effect, as if rendered by a Turkish court, while the “recognition decision” provides that foreign judgments should only be used as evidence against further claims.

There is no specific provision in the IPPL or other legislation regarding the recognition or enforcement of foreign bankruptcy proceedings. However, general legal provisions for the recognition and enforcement of foreign court decisions under the IPPL (Chapter II, Article 50, et seq) are applied to the enforcement of foreign bankruptcy/insolvency decisions. Article 50 of the IPPL provides that a foreign judgment must fulfil certain requirements in order for a Turkish court to render an enforcement decision without reviewing its merits.

  • The judgment must have become “final and binding”, with no recourse for appeal or a similar review process under the laws of the foreign country.
  • There must be de facto or de jure reciprocity between Turkey and the foreign country.
  • The subject matter of the judgment must not fall under the exclusive jurisdiction of the Turkish courts.
  • “Due process” must have been observed under the laws of the foreign country. As such, the person or entity against whom the enforcement of the judgment is sought must have been “duly served” or must have been made fully aware of the proceedings and must have been given the full opportunity to represent/defend himself/herself at the trial.
  • The judgment must not be incompatible with a judgment rendered by a Turkish court in a lawsuit between the same parties and relating to the same subject matter, or, in certain circumstances, with an earlier foreign judgment that satisfies the same criteria and is enforceable in Turkey.
  • The judgment must not be clearly contrary to Turkish public order.

According to Supreme Court practice, declarations of insolvency are a compulsory execution power of the state. Therefore, the intervention of another state to declare bankruptcy is not accepted. As a requirement for the principle of sovereignty, which is also referred to in Supreme Court decisions, if debt proceedings are realised within Turkey, the state can only seize the assets of the debtors that are under their own sovereignty.

Intergovernmental judicial assistance mechanisms are used for the collection of evidence in different countries, which are shaped within the framework of the principles of good faith and reciprocity. Technically, a state is not under any obligation to judicially assist another; however, as a rule, there are international conventions and bilateral agreements binding its parties and obligating judicial assistance. In this regard, there are two recognised international conventions:

  • the Hague Convention on Civil Procedure dated 1954; and
  • the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters dated 1970.

Given that Turkey is party to both of the aforementioned conventions, the competent Turkish liquidator/administrator and courts may co-ordinate and judicially assist foreign administrative agencies and courts if evidence should be gathered within the borders of Turkey.

The second part of the IPPL, which regulates the international jurisdiction of the Turkish courts, does not stipulate any provision regarding bankruptcy or concordato proceedings. Turkish courts may only declare companies incorporated in Turkey bankrupt and can only avail these incorporations of concordato proceedings.

For the recognition and enforcement of foreign judgments, see 8.1 Recognition or Relief in Connection with Overseas Proceedings.

Under Turkish law, foreign creditors are not dealt with in a different way in proceedings. One exception herein arises from the IPPL. As per Article 48 of the IPPL, foreign real and legal persons who initiate execution proceedings shall post a security for costs that is to be determined by the execution court to cover the judicial expenses and the damage of the other party. Foreign individuals and entities may be exempt from assurance in accordance with international conventions or bilateral treaties.

Under Turkish insolvency and restructuring law, there are different types of statutory officers dealing with particular proceedings. The statutory officer for concordato proceedings is the composition trustee, while the bankruptcy administration is the statutory officer for bankruptcy proceedings and the liquidator is the statutory officer for liquidation proceedings.

Composition Trustee

The composition trustee has a pioneering role in the process, and given the scope and content of its duties, the success of the process is directly related to the capacity, knowledge, competency and experience of the composition trustee. As per Article 290 of the EBL, which regulates the duties of the composition trustee, the trustee contributes to the completion of the concordato project, supervises the activities of the debtor, submits interim reports on matters requested by the court, informs the creditors’ committee regarding the composition process, and fulfils other duties assigned by the court.

Bankruptcy Administration

These persons are obliged to protect the bankruptcy estate, including the prompt sales of various portions of the assets as decided in the creditors’ meeting; to decide upon the persons claiming rights to the assets of the bankruptcy estate; to determine the creditors of the bankruptcy estate; and to liquidate the bankruptcy estate to satisfy its debts. Finally, this is the body requiring the court to rule for completion of the bankruptcy as per Article 254 of the EBL. The bankruptcy administration is the legal representative of the bankruptcy estate and is obliged to act in the best interest of the bankruptcy estate and liquidation.

Liquidators

Liquidators are obliged to take the necessary precautions as prudent businessmen and complete the liquidation at the earliest time possible in order to protect all of the property and assets of the company during liquidation. If the liquidator is in breach of its obligations arising from either the applicable laws or the articles of association by fault, it is liable to the company, its shareholders and its creditors for all damages incurred.

Composition Trustee

As per the Regulation on the Composition Trustee and Creditors’ Committee, the composition trustees must have at least an undergraduate degree from a four-year university or from an equivalent foreign or local institution as per the Board of Higher Education and a minimum five years of professional experience. They are also required to have Turkish citizenship. A composition trustee can be appointed for a maximum of five cases simultaneously, although, in practice, this rule is not always adhered to.

Bankruptcy Administration

As per Article 223 of the EBL, the bankruptcy administration is comprised of three persons responsible for administering and liquidating the bankruptcy estate, who are appointed by the execution court among the candidates that the creditors nominate.

Liquidators

According to the TCC, unless the liquidators are specifically determined in the articles of association of the company, they will be appointed in the general assembly. The liquidators may be appointed amongst the shareholders or third parties who are not shareholders of the company. The shareholders’ resolution regarding the liquidation of the company and the appointment of the liquidator should be registered with the relevant Trade Registry.

In practice, in order to avoid insolvency, the board of directors (BoD) calls for an extraordinary general assembly meeting so that the shareholders may decide on some measures to cure the insolvency situation, such as injecting cash into the company and/or converting any shareholder loans into capital. Generally, the TCC regulates the responsibilities of the members of the BoD under three major categories:

  • personal performance of duties;
  • duty of care; and
  • duty of loyalty.

On this basis, the BoD member(s) acting in fault, and, accordingly, incurring loss upon the company and/or the shareholders may be pursued by the shareholders and/or the company (in which case the shareholders would claim compensation in the name and on behalf of the company), and all of the BoD members would be jointly liable to the extent that the damage is attributable to them. Hence, the company and/or the relevant shareholder may pursue all of the BoD members at once in relation to the compensation claim.

In addition to these responsibilities, the TCC also imposes a specific duty on the BoD members when a company is considered to be in technical bankruptcy as per the provisions of the TCC as discussed above.

  • The BoD has an obligation to take certain actions in the event that the company’s share capital and legal reserves have been eaten away (eg, call for a general assembly meeting, apply to the court for the declaration of bankruptcy). The BoD’s failure to comply with these obligations and take necessary actions may lead to the liability of the BoD to be pursued by the shareholders on behalf of themselves or on behalf of the company. That said, the liability of the BoD would be deemed actionable if such immobility leads the company to incur loss due to the fault of the BoD and such loss and immobility would have a causal link between them. In other words, if the above measures are not taken by the BoD for any reason not arising out of the fault of the BoD, then the liability of the members could not be engaged.
  • The TCC does not set forth any specific liability clauses for non-performance of the duties of the BoD in cases of financial distress, but the liability is set forth under the EBL. Article 345/a of the EBL states that if the BoD fails to file for bankruptcy when it is obliged by law, its members may be sentenced to imprisonment for between ten days and three months upon the complaint of a creditor of the company.
  • The provisions of the TCC with regard to the criminal liability of the members of the BoD do not explicitly set forth the liability arising out of the duties that are not performed in cases of financial distress. That said, if the financial distress of the company arises out of an illegal loan out-take or discrepancies in the financial statements, such reasons may lead to the criminal liability of the members of the BoD under the TCC, resulting in the payment of administrative fines.
  • According to Article 513 of the TCC, the BoD members are under the obligation to return to the creditors of the company any dividend shares or any other payments that have an amount that is above the market price, and payments that should not have been paid if the balance sheet had been duly prepared. The request of the creditors will cover payments made within the three years prior to the bankruptcy date.
  • As per Article 333/a of the EBL, if the persons in charge of the management of the company do not pay all or some of the debts of the company with the intent to cause damage to the creditors, they will be sentenced to imprisonment for between six months and two years and will have 5,000 days of fines imposed on them. The crime can be committed wilfully or negligently. In that regard, if the persons in charge do not pay a debt when the company has the ability to pay at the time the enforcement decision becomes finalised, and if they fail to make the payment in order to cause damage to the creditors, then a crime will have been committed. BoD members should also refrain from any colourful transactions that will decrease the value of the company (eg, selling a valuable asset at a lower value to a group company to hide this asset from creditors).

As explained in 10.1 Duties of Directors, the BoD member(s) may be held liable as per Article 553 of the TCC. In the event of bankruptcy of the company, the creditors are also entitled to claim compensation to be paid to the company along with the shareholders. However, as per Article 556 of the TCC, these claims of the shareholders and creditors should primarily be asserted by the bankruptcy administration. Unless the bankruptcy administration files and initiates a lawsuit in this regard, the shareholders or creditors may directly file a lawsuit.

As a rule, the debtor can perform any transaction on its assets before the bankruptcy decision. However, the debtor may have acted in a malicious manner for the purpose of concealing assets from the creditors. In such a case, the creditors have the right to annul the transactions performed by the debtor before the bankruptcy decision by initiating an action for annulment of the transaction. Any creditor whose claim is not satisfied from the debtor’s assets can request annulment of the transaction and the assets subject to the transaction can be used to satisfy the creditors as if they still belong to the debtor.

The transactions that are subject to annulment are listed as follows:

  • disposition of assets free of charge (look-back period is two years);
  • transactions listed in Article 279 of the EBL (look-back period is one year); and
  • transactions with an intent to harm the creditors (look-back period is five years).

If the act of annulment of the transaction is accepted, and if the transaction is declared void, the assets subject to the transactions are included within the bankruptcy estate.

Transactions can only be annulled if they have been concluded in a specific time limit. The look-back period differs from one year to five before seizure, insolvency due to lack of property, or opening bankruptcy, depending on the type of transaction subject to the annulment, as explained in 11.1 Historical Transactions.

As a rule, the bankruptcy administration files actions for annulment. If the bankruptcy administration is reluctant to file the case, then the action can be filed by the creditor. The respondent of the case is the third person who benefitted when the transaction was performed, not the debtor.

Hergüner Bilgen Özeke Attorney Partnership

Büyükdere Caddesi 199
34394 Istanbul
Turkey

+90 212 310 18 00

+90 310 18 99

info@herguner.av.tr www.herguner.av.tr
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Trends and Developments


Authors



Hergüner Bilgen Özeke Attorney Partnership is Turkey’s leading independent business law firm. Since its establishment in 1989, the firm has provided legal guidance to its clients on all aspects of international business law and is known as the firm that brought the "full-service law firm" concept to Turkey. The firm represents major multinational corporations, international financial institutions, agencies and other notable clientele in the corporate, dispute resolution and commercial, and finance and projects areas. The Hergüner team is composed of approximately 140 individuals with a variety of educational and professional backgrounds. An 80-member legal team, 14 of whom are Hergüner partners, are involved in cases that require a full grasp of Turkish and cross-border jurisdictions, as well as different cultures and languages.

Concordato in Its Revised Form

The Turkish bankruptcy regime changed drastically on 15 March 2018 after the issuance of a legislative change in Official Gazette No 30361 that abolished the postponement of bankruptcy concept (which had been in force since 1 January 1957 and had been heavily used since 2003) and reinstated an updated version of “concordato” instead. Concordato, in its revised form, quickly regained popularity in Turkey following the enactment of Law 7101 amending the Enforcement and Bankruptcy Law and Some Other Laws (“Law No 7101”).

Originally, postponement of bankruptcy was designed to be used as a last resort for debtors who might go bankrupt. However, in the past, it was mostly used by debtors as an excuse to delay their payments to creditors instead. As a result, this procedure was strongly criticised for being used against the will of the legislator. Statistically, its success also proved low, as most debtors still ended up bankrupt and many creditors were left with nothing, even after years of waiting for this hopeless process to finalise. So, after realising that postponement of bankruptcy was not delivering its expected outcome, Law No 7101 abolished the bankruptcy postponement procedure and introduced new provisions to the composition process. Most of these new provisions were derived from the insolvency laws of Switzerland due to the practical problems that stemmed from the bankruptcy postponement procedure. For this reason, compared to bankruptcy postponement, composition is regarded as a more efficient process.

Who can apply for concordato?

Both creditors and debtors may apply for concordato. It is important to note that a debtor is not required to be deep in debt or insolvent, or to meet the conditions of bankruptcy in order to apply for composition. In other words, the process is independent from the amount of debt at stake.

As per the Turkish Commercial Code, individuals and legal entities that are deemed merchants, commercial companies, or public entities involved in commercial activities are subject to bankruptcy. However, under the composition process, irrespective of whether or not they are merchants, all individuals and legal entities who have difficulty paying their debts on their maturity or that carry the possible risk of default may apply for concordato with supporting documents.

Still, this lowered admissibility level may unfortunately trigger manipulation and may be abused by debtors in an attempt to use composition as a tool to suspend their liabilities in bad faith.

Concordato is not a lawsuit

Contrary to common belief, concordato is not a lawsuit but rather an agreement between debtors and creditors that becomes binding once it is accepted by the court. However, even though concordato is an ex parte proceeding (ie, a legal proceeding brought by one party in the absence of, and without representation of or notification to, the other party – thus, not an adversarial proceeding), if the courts do not pay attention to this matter, in practice, some procedural problems may arise. For example, intervention requests made by creditors might get accepted by courts even though intervention is not an option for ex parte proceedings. Moreover, intervening parties may even try to apply for an appeal, which is also not possible under the composition process.

Another aspect of this potential problem is that in ex parte proceedings, the principle of “ex officio research” (ie, the adjudication principle where the judge collects evidence rather than the parties) is utilised, whereas this burden lies with the parties in adversarial proceedings. Therefore, during the composition process, judges should take a more active role bearing in mind this principle in order to prevent any possible delays. The correct legal approach should be adopted and enforced in order to prevent confusion from the outset of the process.

Trends

Following the entry into force of Law No 7101, there has been an immediate increase in requests for composition by debtors who are unable to pay their debts. Some of the applicant companies are among the biggest in their respective sectors.

The spectrum of the sectors in which applicants are active is very broad and includes the food, agriculture, textile, shoes, fuel, jewellery and car rental industries. As an alternative to the composition mechanism, some companies have opted for an out-of-court restructuring negotiation process, particularly with financial institutions, for postponement of their payments through an extended payment plan or payment of their debts at a discount or with some other financial benefits to the debtor. This alternative method mostly rescues companies from the possible risk of bankruptcy and relieves companies during the non-payment period, which is usually set forth in restructuring agreements and allows companies to increase their liquidity.

COVID-19 and its impact on the composition process

Within the scope of the measures taken during the COVID-19 pandemic, the legal statute governing the limitations on composition was suspended until 30 April 2020 with the Amendments to Certain Laws No 7226 dated 25 March 2020 published in Official Gazette No 31114. Moreover, on 30 April 2020, the president of the Republic of Turkey issued the Decree to Extend the Suspension Period to Prevent the Loss of Legal Rights (the “Decree”), under which, the suspension of the statute of limitations in legal proceedings was extended from 30 April 2020 to 15 June 2020.

The above-mentioned time limits are interpreted very broadly in order to prevent any loss of legal rights and to prevent the spread of COVID-19. Therefore, both procedural time limitations and time limitations regarding material issues are deemed included in the legislation.

Considering that concordato is a very tightly regulated process in which time is of the essence, the impact COVID-19 has on each stage of the composition process significantly affects the outcome of the process and causes controversies.

To begin with, it is disputed whether new applications for composition could be made during this period. While some scholars assert that it was not possible to do so, others claim that there were various legal interests for debtors and it was therefore still possible to apply for composition. In practice, commercial courts were likely to accept applications for composition during the period from 22 March 2020 to 15 June 2020 based on the second interpretation.

Moreover, it can be easily said that for ongoing processes, both temporary and definitive relief periods came to a halt between 22 March 2020 and 15 June 2020. Even if the court granted an extension, this extension period will be calculated by adding the remaining part of the initial period starting from 15 June 2020. For instance, if a debtor had 35 days remaining in its definitive period and the judge granted a six-month extension, the first 35 days will be calculated starting from 16 June 2020. Once that calculation is made, the new final date for the definitive period is 20 July 2020. After this date, the six-month extension period is added, so the final definitive period for this debtor will end on 20 February 2021. Furthermore, concordato trustees were to continue performing their duties during this term in order to prevent the debtor from acting against the protective measures established by the commercial court. As a natural result, the fees for the concordato trustees will also be paid during this period.

As for the period between 22 March 2020 and 15 June 2020, the situation was in the debtor’s favour, considering that even execution proceedings for the collection of employee receivables and pledged receivables could not be initiated between these dates (considering that these were the two exceptions to the general rule that creditors cannot initiate execution proceedings or continue with the execution proceedings that have been initiated against the debtor during the relief period). Furthermore, all other legal periods related to the composition process came to a halt and creditors' meetings could not take place during this time. When in doubt, it should be kept in mind that the main purpose behind these regulations is to prevent any loss of legal rights and to prevent the spread of COVID-19.

Still, the most confusing issue is the situation for debtors whose court examination or approval of composition by the court took place just before the COVID-19 pandemic. Keeping in mind that even though the composition process has been completed and the debtors are obliged to uphold their end of the bargain, it is certain that COVID-19 will have detrimental effects for some debtors considering the economic crisis the world is going through, particularly for the sectors that were much more affected than others. Therefore, if we accept that concordato is a strict procedural process, many debtors might have to apply for composition once more very soon. Thus, authorities should discuss adapting composition in order to mitigate the debtors’ possible risk of non-performance within the scope of the COVID-19 pandemic. Otherwise, we will keep encountering debtors who need to apply for composition over and over again and the composition process will not yield the expected definite solution for the matter at hand.

Hergüner Bilgen Özeke Attorney Partnership

Büyükdere Caddesi 199
34394 Istanbul
Turkey

+90 212 310 18 00

+90 310 18 99

info@herguner.av.tr www.herguner.av.tr
Author Business Card

Law and Practice

Authors



Hergüner Bilgen Özeke Attorney Partnership is Turkey’s leading independent business law firm. Since its establishment in 1989, the firm has provided legal guidance to its clients on all aspects of international business law and is known as the firm that brought the "full-service law firm" concept to Turkey. The firm represents major multinational corporations, international financial institutions, agencies and other notable clientele in corporate, dispute resolution and commercial, and finance and projects areas. The Hergüner team is composed of approximately 140 individuals with a variety of educational and professional backgrounds. An 80-member legal team, 14 of whom are Hergüner partners, are involved in cases that require a full grasp of Turkish and cross-border jurisdictions, as well as different cultures and languages.

Trends and Development

Authors



Hergüner Bilgen Özeke Attorney Partnership is Turkey’s leading independent business law firm. Since its establishment in 1989, the firm has provided legal guidance to its clients on all aspects of international business law and is known as the firm that brought the "full-service law firm" concept to Turkey. The firm represents major multinational corporations, international financial institutions, agencies and other notable clientele in the corporate, dispute resolution and commercial, and finance and projects areas. The Hergüner team is composed of approximately 140 individuals with a variety of educational and professional backgrounds. An 80-member legal team, 14 of whom are Hergüner partners, are involved in cases that require a full grasp of Turkish and cross-border jurisdictions, as well as different cultures and languages.

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