According to the latest data released by the Banks Association of Turkey (BAT), as of May 2021 and for the term between October 2019 and May 2021, the number of companies, organised by sector, for which financial restructuring agreements have been conducted are listed as:
A Framework Agreement is an agreement to be signed by and between the creditor institutions, the debtor and its insurers by using a format text approved by the Board of Directors of the BAT in due consultation with the Participation Banks Association of Turkey and the Union of Financial Leasing, Factoring and Financing Corporations.
The mission of the parties is defined as ensuring that the debtors, who are believed to contribute added value to the economy and who temporarily fail in their financial debt repayments, are able to continue their economic operations and fulfil their debt repayment obligations to the financial sector and to other creditors, including public sector ones, under reasonable conditions and within the prescribed period of time to be determined by the creditor institutions.
The following restructuring agreements have been concluded as per the above referred-to data.
As can be seen from the announced data, financial restructuring has become a preferred legal tool in the Turkish market, and most of the applicant companies operate in the manufacturing and construction sectors.
Concordats and Bankruptcy Applications
Although there is no officially announced data on the number of concordat and bankruptcy applications, according to several articles published in various newspapers; a total of 2,052 companies across Turkey were given a period decision within the scope of the concordat. The number of joint-stock companies, limited liability companies and collective companies which initiated bankruptcy filings within the last three years is 1,213.
COVID-19 and Currency Fluctuations
Due to the COVID-19 pandemic and as per the restrictions regulated by the Amendment of the Tax Procedure Law and Some Other Laws (Law No 31470), applications and legal actions regarding execution and bankruptcy proceedings, precautionary attachment decisions for the receivables based on bills of exchange and the proceedings related thereto were ceased between 30 April 2021 and 31 May 2021, which was the full lockdown term in Turkey.
Currency fluctuations and COVID-19 may be considered as primary factors increasing the number of restructurings, concordat applications and bankruptcies.
Under Turkish law, the collection of receivables, bankruptcy and restructuring procedures are mainly governed by the Execution and Bankruptcy Law (Law No 2004) (EBL).
The postponement of bankruptcy provisions, enabling an insolvent company or person to avoid declaring bankruptcy if and to the extent that its financial situation is improvable, was abolished by the Law Regarding Amendments on the Execution and Bankruptcy Law and Certain other Laws (Law No 7101) (ACL) amending the EBL.
Thereafter, recent significant changes were made to the EBL with The Amendment of the Execution and Bankruptcy Law and Certain Laws (Law No 7327, which includes provisions especially for the concordat process. The Amendment of the Execution and Bankruptcy Law and Certain Laws includes regulations especially regarding the concordat process to clarify some uncertain practices, such as:
Detailed regulations regarding financial restructurings/reorganisations and liquidations/insolvencies are also included in the Turkish Commercial Code (Law No 6102) (TCC).
The Amendment Communiqué on the Procedures and Principles Regarding the Implementation of Article 376 of the TCC (Communiqué No 31346) (Amendment Communiqué) obliges filing of insolvency under certain conditions in the case of a loss of capital. For further information, please see 2.3 Obligation to Commence Formal Insolvency Proceedings.
The Banking Law (BL) (Law No 5411) states provisions with regard to the insolvency of banks; and the Turkish Criminal Code (TCrC) (Law No 5237) regulates certain crimes concerning bankruptcy such as fraudulent bankruptcy and reckless bankruptcy.
Under Turkish law, bankruptcy, concordat, amicable restructuring and liquidation are the available insolvency and restructuring regimes.
Bankruptcy may be requested as follows.
The most common type of restructuring is concordat. Concord restructuring is proposed by the debtor or a creditor to compromise certain liabilities in accordance with a plan. The key aim is to present a probable success through a concordat plan, with no intention to cause any damage or loss to the creditors. The restructuring can be implemented in three different ways: (i) as the ordinary concordat, (ii) the concordat in bankruptcy, and (iii) the concordat through asset abandonment. Some restrictions are imposed on creditors enforcing their rights over companies under a temporary period and a precise period of concordat. During the temporary and precise period of concordat, no proceedings may be filed against the company and any proceedings previously initiated are suspended. Prescription periods and statutes of limitation shall be suspended.
Concerning the concord restructuring, if the court does not approve the concord or cancels the concord period, it will decide on the bankruptcy of the debtor upon the report of the concord commissar. Creditors may apply to the court for the termination of the concord restructuring if it is found that the debtor acted in bad faith in having the restructuring proposal approved or that the debtor breached the provisions of the concord.
With restructuring by compromise, corporations continue their existence despite their deteriorated financial situation by agreeing on a certain payment plan and project with their creditors.
With respect to liquidation, a voluntary liquidation resolution can be granted by the general assembly resolution of a company, and a compulsory liquidation arises when a court grants a liquidation decision.
Pursuant to Article 178/3 of the EBL, in the event that half of the debtor’s assets are confiscated and the remainder is not sufficient to pay the debtor’s outstanding debts and debts that will become due within one year, the debtor is obliged to declare insolvency and file a request for its own bankruptcy. As per Article 179 of the EBL, in the event it is determined that the company is in a state of indebtedness as per its interim balance sheet, the bankruptcy of the company shall be announced without any filling of execution proceedings.
Article 376 of the TCC, also known as technical bankruptcy, provides that compulsory measures should be taken by the companies in the case of a loss of capital and insolvency. In accordance with Article 376 of the TCC:
In addition, notifying the court of insolvency is among the inalienable and indispensable duties of the board of directors of joint-stock companies.
Article 553 of the TCC states that members of the board of directors and officers and liquidation officers are liable for the loss incurred due to their negligence and breach of duties arising out of Turkish law or the articles of association of the company.
It is also worth noting that the board of directors and liquidation officers may face imprisonment if they fail to file an application for the bankruptcy of the company by indicating that the assets of the company are not sufficient to cover the debts. If the authorised individuals of a company fail to apply for bankruptcy, they will be punished with imprisonment for up to three months upon a complaint filed by one of the company’s creditors.
There are three forms of bankruptcy: (i) ordinary execution by way of bankruptcy, (ii) special bankruptcy proceedings for negotiable instruments, and (iii) direct bankruptcy.
Where the debtor is among those subject to execution proceedings through bankruptcy, the creditor first applies to the execution office and files a bankruptcy proceeding. The payment order shall:
Bankruptcy may be demanded from the Commercial Court if no objection is raised within the time period stipulated in the payment order.
Appeal does not hinder a bankruptcy decision and the formation of the bankrupt’s estate.
Upon commencement of the bankruptcy proceedings, all the attachable assets of the bankrupt party shall constitute an “estate”, wherever they may be, and shall be allocated toward payment of claims. All the assets that enter the possession of the debtor until the end of the bankruptcy proceedings shall be added to the estate. Interest shall continue to accrue on the claims that fall under the bankrupt’s estate. Bankruptcy proceedings shall commence with a judgment, and the commencement date of proceedings shall be specified in such judgment. The bankruptcy office shall notify the decision to those authorities recognised by the law, such as the Title Deed Register, the Trade Registry, the BAT, stock markets, and the Capital Market Board.
After the distribution of the monies, the bankruptcy office shall submit a final report to the court that has given the bankruptcy decision. Following recognition by the court that the bankruptcy proceedings have been completed, it shall decide for the closing of the bankruptcy proceedings and such closing shall be announced.
Bankruptcy lawsuits can be directly filed before the Commercial Court, by the creditor in the presence of certain conditions specified by the EBL such as:
Insolvency is not a pre-condition for commencing voluntary or involuntary proceedings. Having said that, the company's indebtedness exceeding its assets is a reason for bankruptcy specifically indicated for capital companies and co-operatives.
The existence of a debt shall be legally sufficient to file an execution proceeding through bankruptcy. The scope and status of the assets shall not have any effect on initiating the proceeding. Execution proceeding through bankruptcy can be filed only against merchants. In the bankruptcy lawsuit which may be filed by the creditor after the failure of the debtor to pay the debt subject to a payment order and the execution proceeding, the court grants a decision for bankruptcy if the debtor whose debt is determined through a trial process fails to pay the debt within the period granted by the court, regardless of their being indebted.
Indebtedness and insolvency are one of the reasons indicated in the EBL as a condition for the filing of a direct bankruptcy lawsuit.
As per Articles 177 and 178 of the EBL and Article 376 of the TCC, insolvency is a requirement for a debtor’s request for its own bankruptcy.
There are specific restructuring and insolvency regimes applicable to banks, insurance companies, and other financial institutions regulated by various laws such as:
With the new financial restructuring programme (Financial Restructuring Programme) implemented by the Banking Regulation and Supervision Agency (BRSA) since 2018 and the Provisional Article 32 of the BL (PA 32), the out-of-court restructuring process has been widely accepted and implemented in Turkey. The implementation period of PA 32 of the BL was extended for additional two years with a Presidential Decision dated 15 July 2021.
Certain debtors may apply for the financial restructuring process with a commitment letter and relevant information in the format specified in the Annex of the Framework Agreement. Debtors with large-scale financial obligations (an aggregate principal financial debt equal to or more than TRY100 million) and with small-scale financial obligations (aggregate principal financial debt is under TRY100 million) will be able to apply for the restructuring with the terms and conditions indicated in the Framework Agreements prepared by the BAT with the mutual understanding of financial institutions and banks.
The following points are regulated within the PA 32:
As verified by the data provided by the BAT and stated in 1.1 Market Trends and Changes, financial restructuring has become the more preferred method, particularly following the financial effects of the COVID-19 pandemic.
The advantages of financial restructuring are considered as less procedural and more flexible, and the acceptance of debt before a court is not compulsory. It is important that the concordat and financial restructuring can be harmonised, and a joint application can be more beneficial.
If a company is not able to pay its debts, its receivables are not enough to recover its debts, or if the company is under the threat of indebtedness, that company may request an amicable restructuring or apply to its major creditors to benefit from the Framework Agreement.
Creditors and debtors may choose, subject to the approval of the court, one or more interim auditors with the necessary qualifications, knowledge and experience, who will personally undertake the management and administration of the activities of the debtor or supervise these activities until the decision regarding approval or rejection of the restructuring project is given. The court may also directly appoint one or more interim auditors if the creditors and the debtor have not chosen interim auditors or agreed on certain names, but the circumstances necessitate the appointment of interim auditor(s).
It is also possible for the court to appoint a project auditor whose authority shall be limited to supervising certain projects and regularly reporting the status of the same to the creditors.
Standstills and Waivers
Necessary measures – such as extending the maturity dates of the loans, renewing the terms of the loans, providing additional loans, reducing or giving up (partially or completely) the principal, interest, default interest, delay penalties and dividends and any other receivables arising from the loan relationship and reducing collateral – can be taken within the scope of financial restructuring.
The creditors will not, during the standstill period, take action to enforce security, make demands or speed up loans or other debt claims, bring legal proceedings against the company and, possibly, not exercise rights of set-off.
Pursuant to paragraph 6 of the PA 32, the transactions within the scope of the Framework Agreement are exempt from certain taxes and fees.
The provisions in the contracts classifying the restructuring and/or the application of the debtor to restructuring as a default and/or a breach of the contract shall not be applicable.
If the restructuring is eventually not accepted by the court, the measures given by the court shall be terminated, and the pending lawsuits and proceedings shall continue.
The Role of Creditors
Creditors are classified as per the types of their receivables and more than one class of creditors may be involved in restructuring. The classification is based on a number of principles such as:
In terms of large-scale application, that is for debts above TRY100 million, the Creditor Institutions Consortium, which is an organ consisting of foreign credit institutions and international institutions and other creditors, will be constituted. For small-scale applications, the institution including the top three creditors that accept the application of the debtor are constituted.
It is not obligatory to make additional facilities available to a debtor under the Framework Agreement. However, if at any time deemed fit and necessary after the signing of the Agreement, any one or more of the Creditor Institutions may individually make additional facilities available to the debtor in compliance with the provisions of the Agreement.
Additional collateral must be established in favour of all creditors unless the creditors which will not benefit from the collateral approve the grant of such collateral to other creditors.
In the case of a large-scale financial restructuring agreement, the approval of creditors who will not benefit from the collateral will not be sought if additional collateral will secure any additional loan to be granted to the debtor.
Creditors are obliged to act with good faith in the restructuring process and refrain from transactions aiming to harm other creditors’ rights.
The debtor is also prohibited from executing transactions aimed at providing a benefit to one or some of its creditors. For further information, please see 11.1 Historical Transactions.
Simulated contracts are bound to be declared void, and the debtor should refrain from transactions aimed both at reducing the debtor's assets and creating additional debt in the register.
The provisions and restrictions set by the Protection of Personal Data Law (Law No 6698) regarding disclosure of information and the BL regarding secrecy rules must be fully observed.
With respect to restructuring to be implemented through the Financial Restructuring Programme, it is obligatory to restructure all receivables by all the creditor institutions in the event an agreement with a debtor under a Framework Agreement is signed by the majority of the creditors constituting at least two thirds of the total receivables.
A cram-down mechanism may be agreed and implemented with the consensus of the creditors and debtor in an amicable restructuring. In the absence of such an agreement, it is not easy to effectively use this mechanism particularly in the presence of borrowers consisting of both local and international bank creditors.
A mortgage can be created as security for any kind of debt, present, future or contingent, by registering a mortgage over a real property with the records of the relevant Title Deed Register where the real property subject to the mortgage is registered. The perfection of a mortgage requires a mortgage agreement to be entered into between the mortgagor and mortgagee at the Title Deed Register and, thereafter, registration of the mortgage with the same.
Mortgages can be registered in first and continuing degrees. The degree indicates the rank of the mortgage and the amount of the security created under the relevant mortgage. The rank and the security amount of a degree are determined in the mortgage agreement. However, if the amount of the security is determined and registered once, it cannot be increased without the consent of the mortgagees, which have been registered in the subsequent degrees.
A mortgagee’s rights depend upon the degree in which they has been established, and this is naturally of particular importance in relation to foreclosure proceedings. Initially, the first-degree mortgagee receives its receivables in an amount equal to the security amount written in that degree from the proceeds of the foreclosure proceedings. If there remain any proceeds, the second-degree mortgagee receives the remaining part up to an amount equal to the security amount in the second degree. Payment of the foreclosure proceeds continues in such manner.
Mortgages registered in different degrees shall not be treated pari passu.
Where mortgages of different degrees have been created over the same real property and one of them is paid off or de-registered, the mortgagee next in order of priority is not entitled to move up to the vacant place in the register, unless the mortgagor and the mortgagee have agreed in the mortgage agreement that the mortgagee at the subsequent degree would move to higher degrees. This system granting the mortgagees at the subsequent degrees to move automatically to the higher degrees in case of de-registration of the prior degrees is known as the "Free Degree System".
A mortgage registered over a real property constitutes an encumbrance over the real property subject to mortgage, yields, rents, and all buildings thereon including the integral parts and accessories. In the event that additional construction is made after the registration of the mortgage, the later constructed buildings will automatically and without any amendment to the mortgage agreement or re-registration with the Title Deed Register, become subject to the mortgage. However, the moveable assets in the real property, other than the ones registered with the declarations column in the records of the Title Deed Registry as an accessory, shall not be subject to mortgage.
In Article 850 of the Turkish Civil Code (TCiC), three types of immovable pledges are regulated as (i) “mortgages” to secure personal receivables, (ii) "mortgage bonds", and (iii) "annuity bonds" for circulating land value.
A movable pledge is a type of pledge established on movable property, animals, rights, or receivables to secure a receivable.
Physical possession of such movables is required to be transferred to the pledgee to perfect the pledge.
In respect to a pledge over a moveable, which is legally required to be registered with a private registry, such pledge is required to be registered with the relevant registry and in such cases physical possession of the moveable is not required to be transferred to the pledgee.
Due to lex commissoria prohibition, any kind of provision with respect to the transfer of title of a moveable in case of default is null and void under Turkish law.
Pledge of vehicles and animals
Delivery is not a requirement provided that the registration of the pledge to the registry is required. Publicity is ensured by the registration in the registry for such a movable.
Pledge on rights and claims
A pledge over present and future revenues and/or receivables can be created by entering into a written pledge agreement between the pledgor and pledgee. Such a pledge agreement is not required to be registered with any register or authority; however, the debtor of the revenues and/or receivables is required to be notified of the pledge. A pledge over a bank account is possible and requires completion of the same procedure. Notification to the debtors is not a condition in respect to the perfection of the revenue lien but rather a condition for payment by each debtor to the pledgee.
Pledge on company shares
Pledge over the shares of a company can only be established by entering into a written pledge agreement and, in order to ensure the legal validity and enforceability of the pledge over the shares, physical possession of the pledged shares is required to be delivered to the pledgee, save as to further provisions in the Articles of Association of the company whose shares are subject to the pledge. If no share certificate representing the shares of the shareholders has been issued, then execution of a pledge agreement and annotation of the pledge in the share book of the company will suffice.
Pledge over bank accounts
An account pledge may be created and perfected by entering into a written account pledge agreement without registering it with any register or authority but via notification to the account bank.
Pledge on Commercial Enterprise
Under Turkish law, in order to create a pledge over a moveable, physical possession of such moveable is required to be transferred to the pledgee in order to perfect the pledge. However, in the case of a commercial enterprise pledge, pursuant to the Commercial Enterprise Pledge Law (Law No 1447), a pledge agreement is required to be entered into between the pledgor and pledgee in ex officio form and be registered with the Trade Registry where the commercial enterprise subject to the pledge is registered.
A pledge registered over a commercial enterprise constitutes an encumbrance over the trade name and commercial title, the machinery, equipment, tools and transportation vehicles that are donated to the operation of the commercial enterprise as of the date of registration of the pledge; and intellectual property rights such as licences, trade marks, models, drawings, etc.
However, one or more of the instruments other than the trade name, commercial title and the moveable operational installations, can be exempted from the pledge.
In addition to the aforementioned securities (most commonly used in Turkish commercial life), there are some other securities that might be issued by a debtor in favour of its creditor as a security for the payment and performance of its obligations such as a letter of guarantee from a bank or an assignment of receivables with security purposes.
The pledgee, whose debt is not paid, has the right to initiate execution proceedings pursuant to the EBL and to demand that the pledged property be sold and turned into cash through an auction. The procedure that the creditor must follow in order to obtain the receivable varies depending on the type of creditor’s pledge.
Under Turkish law, the pledgee is required to initiate judicial foreclosure proceedings. The lex commissoria provision prohibits inserting any provision in the pledge agreement enabling the pledgee to become title owner of the pledged property in case of default. Due to the lex commissoria principle mentioned in 4.1 Liens/Security, the creditor may not gain the title of the property automatically; however, they may enter the auction sale to be conducted by the execution office and purchase the property.
Foreclosure of pledged property in relation to a non-performing loan shall be conducted by an execution office and certain legal requirements (notification process, valuation expertise for the property, etc) have to be followed.
The provisions requiring the pledgee to file a foreclosure proceeding is not a mandatory provision of Turkish law regarding the pledge over shares, and if the parties agree to do so in the pledge agreement, the pledgee may foreclose the pledge over the shares privately without requiring a judicial proceeding.
In the event of the debtor's bankruptcy, all existing assets and rights of the debtor are included in the bankruptcy estate, and as a rule, the properties, claims, and rights to be acquired by the bankrupt, until the closing of the bankruptcy, are also included in the bankruptcy estate.
Pursuant to the Article 185 of the EBL, except for the pledges established by third parties for the debt of the debtor, the pledged properties are also included in the real estate with the priority right of the pledgee since the pledgee will first collect its receivable after the sale of the pledged property and the deduction of the sale cost from the sale price.
Even if the debt that has been secured with a pledge is among those subject to bankruptcy, the creditor may only proceed by way of foreclosure of the pledge; however, in the case of insufficiency of the pledge amount, proceeding through bankruptcy or attachment shall also be possible.
In the event that a bankruptcy decision is granted against the debtor during the execution proceedings for the liquidation of the pledge, the pledgee shall continue the proceedings against the administration of bankruptcy.
Receivables of preferred creditors are taken into consideration first by the bankruptcy office.
The liabilities of the bankruptcy estate are determined by a schedule of ranking.
In the first rank are the receivables of the employees, including severance and notice pay arising from the employment relationship and accrued in the year before the opening of the bankruptcy together with the severance and notice pay they earn due to the termination of the employment relationship due to bankruptcy. Also included are the debts of the employers to the foundations and institutions which have been established to form provident funds or other aid institutions for the employees and in order to perpetuate such. All sorts of alimony receivables arising from family law which had accrued for the year before the opening of the bankruptcy are also counted in the first rank.
In the second rank are the receivables of the persons whose properties are entrusted to the debtor because of parentship and appointed guardianship.
In the third rank are the receivables which had been determined as preferential receivables.
In the fourth rank are unprivileged claims.
All the creditors in a category must be satisfied before creditors in the following category are paid. If the remaining money is not sufficient for the unprivileged receivables, it will be distributed between those creditors in proportion to their receivables.
The expenses of the bankruptcy administration have priority over insolvency receivables.
It is legally not possible for the bankruptcy administration to subordinate the order of priority.
Provided that the bankruptcy administration accepts the creditors’ claims and includes them in the rank of creditors, unsecured trade creditors’ claims are met in accordance with the principles explained in 5.1 Differing Rights and Priorities.
The secured and unsecured creditors will have influence in decision-making processes such as the second creditors’ meeting, which decides whether the bankruptcy administration shall continue its work, claims of ownership, whether the suspended lawsuits shall continue, and the sale of certain goods by bargaining. Likewise, any creditor may delay proceedings through filing objections and lawsuits against the liquidation transactions.
Please note that preliminary attachment decisions are classified as temporary measures granted by courts in the event there is a clear possibility that the claimant has a risk which cannot be removed in the future if such interim measure has not been granted.
The creditor of a “money debt” which has not been secured with a pledge and has not matured yet, may preliminarily attach the (i) movable or immovable assets held by the debtor or a third party, (ii) receivables, and (iii) other rights.
A preliminary attachment order shall be given in the following two circumstances:
Since the debtor may have potential damages arising from such interim measures which shall be applicable until the completion of the trial process, Turkish courts usually request security from the claimant to grant a preliminary attachment. There should be very strong legal arguments supported by evidence in order for a Turkish court to grant a preliminary attachment decision preventing the rights of the counterparty.
The receivables that are pledged, are granted the right of priority over the sales amount.
New-money claims may have priority depending on the terms of the restructuring project and payment plan. Provided that the secured creditors have agreed to terms granting priority rights to new-money claims, new-money claims may even have priority over the secured creditors.
Further information in relation to priority claims in restructuring and insolvency proceedings is provided in 5.1 Differing Rights and Priorities.
Concordat is an agreement ensuring the payment of the debtor’s ordinary debts within a certain period of time in line with the offer, as a result of the acceptance of the project by the majority of the creditors and the approval of the court.
Concord and Amicable Restructuring
The main types of restructuring are concord restructuring and amicable restructuring.
Concord restructuring is proposed by the debtor or a creditor to comprise certain liabilities in accordance with a plan. The key aim is to present a probable success through a concordat plan, with no intention to cause any damage or loss to the creditors. The restructuring can be implemented in three different ways: (i) as the ordinary concordat, (ii) the concordat in bankruptcy, and (iii) the concordat through asset abandonment. Some restrictions are imposed on creditors enforcing their rights over companies under a temporary period and a definitive period of concordat. During the temporary and precise period of concordat, no proceedings may be filed against the company and any proceedings previously initiated are suspended. Prescription periods and statutes of limitation shall be suspended.
Concerning the concord restructuring, if the court does not approve the concord or cancels the concord period, it will decide on the bankruptcy of the debtor upon the report of the concord commissar. Creditors may apply to the court for the termination of the concord restructuring if it is found that the debtor acted in bad faith in having the restructuring proposal approved or that the debtor breached the provisions of the concord.
Concerning the amicable restructuring, if the restructuring project is successful, the debtor will continue to operate. If the company breaches the terms of the restructuring, the company should seek to agree with creditors and to have an amendment approved by the court to the restructuring proposal. In the absence of an agreement, the court may decide on bankruptcy.
The concordat commissar invites all creditors to negotiate the debtor's principal reduction, interest reduction, maturity, or other payment offers within the definitive period.
If the debtor's project is accepted with a majority of more than two thirds in terms of the amount of receivables, the pledgee(s) who did not conclude an agreement with the debtor shall be subject to the longest maturity of the agreements made with the other pledgee(s), by applying the pre-default interest rate agreed in the contract between the parties, from the date of the concordat request.
Every pledgee whose payment has not been made in accordance with the agreement may apply to the court against the approval decision and may request the termination of the project regarding the pledged claim from the court.
The concordat process, including the negotiation section, operates under supervision of the court.
Ordinary concordat may be examined under five headings as set out below.
Concordat by request
Any debtor unable to pay its due debts or in danger of not being able to pay on the due date may request a concordat in order to restructure its debts or avoid possible bankruptcy. The request shall be presented to the court with the concordat preliminary project, the list of the creditors, the amount of debt, and the privileged status of the creditors.
Temporary period decision
The court will immediately grant the temporary period decision upon the submission of the required documents by appointing a temporary concordat commissar in order to examine the chances of success of the concordat. The temporary period is three months which may be extended for a maximum of two months upon request. The temporary period provides coverage for the results of a definitive period.
The temporary period decision is announced in the Trade Registry Gazette and the official announcement portal of the Press Advertisement Institution and notified to the necessary third parties by the court.
Definitive period decision
If it is understood that the concordat project is likely to be successful, a one-year definitive period is given by the court. The court invites the debtor and, if any, the creditor(s) requesting the concordat to the hearing so that a decision can be made about the definitive period. A board of creditors may be established by the court together with the definitive period decision or within the definitive period. In this case, creditors from different rankings are represented in a fair manner on the creditors’ board.
Transactions regarding the meeting of creditors
Within the definitive period, the creditors are invited to declare their receivables within fifteen days from the date of the announcement made by the concordat commissar. The concordat commissar also invites the debtor for the submission of its statement about the claimed receivables. The debtor may accept, reject, or partially reject the claimed receivables. The concordat commissar invites the creditors for a further meeting to discuss and negotiate the concordat project after the preparation of the same. The report with respect to the financial status of the debtor shall be provided to creditors in this meeting. The debtor is obliged to attend this meeting.
Approval of the concordat
In principal, the approval of the concordat project depends on the fulfilment of the following conditions as per Article 305 of the EBL.
If the court finds the concordat project insufficient, necessary corrections may be requested. The approval decision is announced by the court and notified to the relevant authorities and third parties.
The debtor will continue its activities and business during the restructuring process. Agreements bearing perpetual liabilities may be terminated by the debtor if such agreements create a risk for the successful completion of the concord/restructuring. There are also certain restrictions on performing a set-off. The court may decide that certain transactions are valid only with the permission of the commissar or if the commissar should carry out the operating activity in lieu of the debtor.
The restructuring shall not create a just legal ground for third parties to terminate their contracts with the debtor. Contracts excepting concordat request as a breach of the contract or just cause for termination or triggering the payment of the debt shall not be applicable. The principal behind these restrictions is ensuring a free environment for the debtor to continue its business without being under pressure from creditors.
With respect to amicable restructuring, the restructuring project’s terms will override all agreements executed with creditors affected by the project.
There are some restrictions on the rights of the creditors within the definitive period such as (i) not being able to take execution proceedings against the debtor and the execution proceedings that have already been started being suspended, and (ii) interim injunction and precautionary attachment decisions not being applied. Exceptionally, execution proceedings regarding secured receivables and securities may be initiated or continued during the definitive period; however, the pledged goods cannot be preserved and sold.
Unless the approved concordat project contains a contrary provision, interest will cease to accrue on any unsecured receivables as of the definitive period.
The debtor cannot establish a pledge, be a guarantor, transfer the permanent assets of the company and perform gratuitous disposal of assets without the permission of the court. Before the court grants its permission for these transactions, the opinion of the concordat commissar and the board of creditors shall be obtained by the court.
The decisions concerning the insolvency are adopted by a qualified majority of creditors; in this regard, the creditors with major receivables will have influence in the decision-making process. A creditors’ meeting is the most authorised organ for determining the principals and directions of liquidation. The resolutions of these meetings are binding not only on the creditors, who attend the meeting but on all of the creditors.
The most important duty of the first meeting of creditors is to nominate candidates to bankruptcy administration. Apart from this, urgent decisions for liquidation of bankruptcy shall also be taken.
The second meeting of creditors decides on whether the bankruptcy administration shall continue to its work, claims of ownership, whether the suspended lawsuits shall continue, sale of certain goods by bargaining, etc.
Creditors who have not approved the concordat will have the opportunity to claim their receivables against the persons jointly responsible for the debt as if the concordat could not be made. This situation will be valid only for the creditors who do not consent to the concordat.
As mentioned in 6.1 Statutory Process for a Financial Restructuring/Reorganisation, the pledgee who did not conclude an agreement with the debtor shall be subject to other arrangements.
In the restructuring process, the debtor is required to obtain the consent from the commissar and the competent court if it wishes to sell its assets or even the entire business during the concordat.
A payment to the creditor cannot be made on the following occasions:
The share prices or the capital share which has not been paid, cannot be subject to any set-off and deduction transaction.
There is no specific regulation on this subject under Turkish law. Having said that, the creditors of a corporate group and the corporate group may agree on a private agreement aiming a combined restructuring.
Although the bankruptcy completely abolishes the power of disposition of the debtor, as a rule, the debtor's power of disposition remains in the concordat.
According to Article 297 of the EBL, as discussed in 6.2 Position of the Company, the permission of the concordat commissar is required for some transactions as a condition of validity and the concordat commissar has supervisory duties. In the event that the debtor violates Article 297 of the EBL regarding the consequences of the definitive period for the debtor or the warnings of the concordat commissar, the court may cancel the debtor’s power of disposition over its assets or may decide to reject the concordat request and initiate the bankruptcy.
Please see 6.7 Restrictions on a Company’s Use of Its Assets, for information.
Please see 4.1 Liens/Security.
Debts concluded with the permission of the concordat commissar, after the temporary period decision, including loans given by credit institutions, are not subject to concordat terms in the ordinary concordat.
Under Article 297 of the EBL, the debtor cannot establish a pledge without the permission of the court as of the definitive period. For further information, please see 6.2 Position of the Company.
Under Article 302/6 of the EBL, the court decides whether litigious receivables or receivables subject to delay conditions or indefinite maturity shall be considered for the calculations and the participation ratio of them to the calculations.
In accordance with Article 308/b of the EBL, creditors, whose receivables are objected to, may file a lawsuit in this regard. The court confirming the concordat may grant a further decision to reserve the litigious receivables at bank account until the finalisation of the concordat. Creditors who have not filed lawsuits cannot demand payment and the deposited amount shall be returned to the debtor’s estate.
Moreover, as indicated in 6.1 Statutory Process for a Financial Restructuring/Reorganisation, the debtor may question and challenge the claims made by creditors in the meeting.
Please see 6.1 Statutory Process for a Financial Restructuring/Reorganisation for information.
The definitive period and temporary period decision only have consequences for the execution proceedings that have been or will be initiated against the debtor. Third parties guaranteeing the debt cannot benefit from the concordat period.
Please see section 6.5 Trading of Claims against a Company.
The debtor has to pay its debts subject to the concordat in accordance with the concordat conditions at the time of the payment plan. Otherwise, the creditors of the concordat may apply to the court for the annulment of the concordat. This situation shall be possible as a result of the partial termination of the concordat. If the concordat is terminated completely, the court shall decide on bankruptcy.
According to lex comissoria, the pledgee cannot have ownership of pledged assets. Payment of the debt by the debtor or turning pledged assets into cash is essential.
Equity owners may retain ownership under a composition agreement, subject to the restrictions of such agreement.
Please 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.
Under the TCC, a company may request its own bankruptcy from the competent court under certain conditions or the liquidation of the company can be commenced upon a general assembly resolution. Thereafter the assets of the company shall be sold, the debts shall be paid to the extent possible and eventually the company shall be terminated.
As per Article 166 of the EBL, the bankruptcy proceedings will start with the notification of the bankruptcy decision to the bankruptcy office. Further information notices are sent by the bankruptcy office to various official bodies such as the land registry office and the Trade Registry. The bankruptcy decision is also announced in the newspapers and in the Trade Registry Gazette.
When the liquation decision is taken by the general assembly under the TCC, this decision is registered and announced in the Trade Registry by the board of directors and the company enters the liquidation process.
The liquidation ends with turning the assets of the partnership into cash, collecting the receivables, distributing the net assets remaining as a result of the payment of the debts to the shareholders and deletion of the trade name from the registry.
During the liquidation, the legal personality of the company continues. The purpose of the partnership automatically turns into the purpose of liquidation. As a rule, the partnership cannot engage in any new transactions and activities. The phrase “In Liquidation” is added to the trade name. During liquidation, the duties and powers of the company’s organs become limited to the transactions that cannot be performed by the liquidator.
The method of liquidation shall be determined by the bankruptcy office. According to Article 208/3 of the EBL, the bankruptcy office has to decide whether the liquidation will be ordinary or simple, within two months at the latest, following the notification of the bankruptcy decision. The bankruptcy office may encounter three situations after the estate in bankruptcy book is kept.
In bankruptcy proceedings, the purchaser would follow strict procedural rules with regard to the realisation of assets. Although there may be exceptions, the usual process shall include a value assessment and public auction phases and the property shall be sold to the highest bidder.
Assets in the bankruptcy estate are sold by the bankruptcy administration after the second meeting of creditors. However, the bankruptcy administration may sell certain assets immediately in the event such assets will be costly to preserve or will lose their value.
Both in restructuring and insolvency proceedings, the purchaser acquires the assets free and clear of any claims and liabilities.
Security cannot be released without creditor consent.
Pledged assets are turned into cash as soon as possible and after deducting the preservation and selling costs, the pledged creditors are given rights in advance, in accordance with Article 185 of the EBL.
With respect to pre-packaged sales, unless decided otherwise by the general assembly, the bankruptcy administration can perform the sale of the active assets of the company by way of negotiation. If the subject of the sale constitutes a wholesale of a significant amount, then a general assembly resolution is required.
The creditors are invited to the meeting with the announcement of the ordinary liquidation. In this meeting, which is called the first meeting of creditors, the members of the bankruptcy administration are elected and urgent decisions are made for the liquidation of the bankruptcy. The authorisation of the second meeting of creditors is broader, and the second meeting of creditors may decide on all matters regarding the bankrupt's estate.
Turkish courts do not recognise insolvency judgments of other jurisdictions granted for a Turkish entity. A decision given for a foreign entity may be enforced in Turkey following the enforcement and recognition process.
Turkish courts will only enforce a final judgment of a foreign court if the relevant judgment is not against public policy rules of Turkey and does not fall into the exclusive jurisdiction of the Turkish courts. The merchant against whom enforcement is sought should not raise any objection before the Turkish courts to the effect that they were not duly summoned to, or represented at, the foreign court or that the judgment was rendered in their absence in violation of the laws of the foreign country.
Under Turkish law, compulsory execution is accepted to be an absolute authority granted to the state within the boundaries of that country and is construed as a consequence of the state’s exercise of its sovereignty. Accordingly, the authority of the bankruptcy bodies is an issue of public policy and is within the exclusive jurisdiction of the Turkish courts.
Judicial powers are vested in and exercised by the courts where the registered addresses of the subject entities are in relation to insolvency filings. The competency of the court pertains to the matter of public order and is exclusive.
Foreign Debtors in Turkish Insolvency Proceedings
As a consequence of the principle of territoriality and the above traditional notion of the Turkish Civil Procedural Law, a debtor incorporated elsewhere shall not be subject to an insolvency proceeding in Turkey. The branch office of a foreign entity may be subject to insolvency proceedings in Turkey limited with its assets.
Depending on the type of its presence and provided that the foreign debtor has assets in Turkey, it may be subject to restructuring proceedings.
The International Private and Procedural Law
The International Private and Procedural Law (Law No 5718) (IPL) is the principal law with respect to the recognition and enforcement of foreign judgments.
Article 50 of the IPL sets forth that enforcement of foreign court judgments regarding civil suits, which have become final in accordance with the laws of the relevant foreign country, is subject to an enforcement judgment to be issued and granted by the competent Turkish court.
According to Article 54 of the IPL, the competent Turkish court shall grant enforcement judgment subject to the following conditions.
For a foreign judgment to be recognised or enforced, it should be a final and binding judgment. A judgment is considered final and binding where it would have precluded the unsuccessful party bringing fresh proceedings in that foreign jurisdiction for the same subject matter against the same party.
As a further note, the party requesting enforcement in Turkey should file a certified copy of the judgment bearing an annotation regarding its finality and confirmed by an apostille.
As per Article 54 of the IPL, a judgment of a court established in a country other than Turkey may not be enforced in Turkish courts unless;
Turkey is a party to several international treaties and has entered into bilateral treaties for the reciprocal recognition and enforcement of foreign judgments and judicial assistance in respect of commercial and civil matters with several countries.
The UNCITRAL Model Law on Cross Border Insolvency or the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments have not been adopted by Turkey.
Turkey is a party to the following international conventions and, accordingly, the co-ordination in cross-border cases could be arranged as per the terms of the same:
Please see 8.1 Recognition or Relief in Connection with Overseas Proceedings and 8.2 Co-ordination in Cross-Border Cases.
In any suit or action against a Turkish counterparty in Turkish courts, a foreign party, as a foreign plaintiff, may be required to deposit security for court costs (cautio judicatum solvi), unless the plaintiff is considered to be a national of one of the contracting states of the Convention Relating to Civil Procedure made at The Hague on 1 March 1954 (ratified by the Republic of Turkey by Law No 1574) or a national of a state that has signed a bilateral treaty with Turkey duly ratified, containing, inter alia, a waiver of the cautio judicatum solvi requirement on a reciprocal basis.
Please see 8.1 Recognition or Relief in Connection with Overseas Proceedings for further information.
The statutory officers shall be as follows:
Liquidation officers are the legal representatives of companies in liquidation. Liquidators are held personally and severally liable for the damage they will cause by acting in violation of the TCC and articles of association. While the right of recourse to the partners in terms of tax originals is reserved, the liquidators’ responsibility is limited to the distributed amount. The liquidation officers may be liable against:
The duties of the official liquidator are specified in the TCC. They include:
The principal duty of the bankruptcy administration is to complete the payments to the creditors by considering the interests of the bankruptcy estate and to properly report on all transactions and all requests/statements. The summary of further duties is stated below:
The concordat commissar has to fulfil its duties personally, and prepare a report of all the transactions. The concordat commissar is obliged to treat all concordat parties equally. The concordat commissar cannot disclose the secrets of the debtor without a legal obligation and a justification.
The main duties of the concordat commissar may be listed as follows:
One or more liquidation officers, who will carry out the liquidation process, may be appointed by the general assembly of the company or by the court. The liquidation officer(s) may be chosen among shareholders or third parties; however, at least one of the liquidation officers must hold Turkish citizenship and reside in Turkey.
According to Article 223/1 of the EBL, the bankruptcy administration consists of three individuals. At the first meeting of creditors, six candidates with sufficient knowledge and experience are selected to be presented to the execution court. Four of these candidates are selected by those who constitute the majority according to the amount of the receivables, and the other two are selected by those who constitute the majority in terms of the number of creditors. The bankruptcy administration has no legal personality. However, the authority of the bankruptcy administration to represent the bankruptcy estate cannot be transferred to another individual. The execution court oversees the bankruptcy administration. When necessary, the court dismisses the bankruptcy administration and makes a new election from previous candidates.
After the definitive period decision, one or more Turkish citizens with the necessary knowledge and experience are appointed as the concordat commissar by the commercial court which has examined the concordat request. Since the decision regarding the appointment of the concordat commissar is an ex parte proceeding decision, an appeal can be made against this decision. In addition, the debtor and the board of creditors may request the dismissal of the concordat commissar for justifiable reasons from the court.
As per the terms of the Regulation Regarding Concordat Commissars and the Board of Creditors, the commissar should have 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 of five years of professional experience. Those individuals who have been dismissed from a profession or the civil service and banned from public service could not be appointed as a concordat commissar.
The members of the board of directors should:
If the members of the board of directors do not fulfil their obligations arising from law or the articles of association, the directors are liable to the company, the shareholders, and the creditors of the company for the losses incurred. In addition to these, there are also special liability cases such as tort liability and liability stemming from false statements regarding the capital of the company.
Examining the books and records of the company, proposing measures when necessary, calling the general assembly, issuing an interim balance sheet, negotiating with creditors, and requesting bankruptcy are among the non-transferable duties and authorities of the board of directors and the members of the board shall be liable for the damage they have caused to the company, shareholders, and creditors in the event of a breach in their obligations. The board of directors can avoid responsibility by proving that they have fulfilled their duties with due care and attention.
As explained in 2.3 Obligation to Commence Formal Insolvency Proceedings, Article 376 of the TCC, which regulates the compulsory measures that companies must take in case of loss of capital and insolvency, also assigns a special duty to the members of the board of directors.
Along with legal responsibility, the directors also have criminal responsibilities such as failing to apply for bankruptcy despite knowing that the company is in a state of indebtedness.
In the event that the records, financial statements and balance sheets of a company are found to be false, incorrect, fraudulent, deceptive or misleading, the board of directors shall be liable for damages sustained as a result of such and similar non-compliances.
In addition, as per Article 333/a of the EBL, individuals who have management authority in companies and do not pay the debts of the commercial enterprise partially or completely with the intention of harming the creditors, shall be sentenced to imprisonment and fines in the event of damage if these transactions and actions do not constitute another crime, and upon the complaint of the creditor.
In accordance with Article 513 of the TCC, in the case of the company's bankruptcy, the members of the board of directors are obliged to return the money that they received in return for their services under a profit share or similar scheme, where these exceeded the market price. The payments should have been within the last three years prior to the announcement of bankruptcy.
As mentioned in 10.1 Duties of Directors, members of the board of directors are liable for damage that the company, its shareholders, and the company’s creditors incurred if they violate their obligations arising from the law and the articles of association through their own fault. Any creditor of the company and/or the statutory officers may request damages from the board in such a case, provided that the compensation shall be payable to the company.
There is no limitation on the debtor's assets and rights before the bankruptcy is initiated. Therefore, sometimes debtors may perform dispositive transactions in cases where there is a possibility of a bankruptcy decision or a judgment that they had the intention to smuggle assets from creditors or through suspicious transactions, even if there is no such intention. These dispositive transactions of the debtor are valid as there are no restrictions in this period. If the creditors cannot receive their receivables from the debtor's other assets, the creditors may file an action for annulment in order to cancel the suspicious dispositive transactions made by a debtor before bankruptcy in order to smuggle assets from its creditors.
The debtor’s pre-insolvency transactions can be challenged within the hardening periods.
The one-year hardening period applies to:
These transactions should have been made within one year prior to the bankruptcy of the debtor or the attachment of its assets in order for these transactions to be annulled.
The two-year hardening period applies to donations or gifts.
The five-year hardening period applies to transactions made by the debtor with one of its creditors with the aim of harming its other creditors provided that the creditor with whom the transactions are made is aware of the insolvency and the aim of the debtor at the time of the transaction.
Upon the decision of the court granted for the cancellation of the transaction, the assets subject to the decision shall again be involved to the debtor’s assets. The rights of a third party who has acquired title for an asset of the debtor in good faith shall be protected and the transaction shall not be cancelled.
There is no limitation on the debtor's assets and rights before the bankruptcy is initiated. Therefore, sometimes debtors may perform dispositive transactions in cases where there is a possibility of a bankruptcy decision about them or with the intention to smuggle assets from creditors or through suspicious transactions even if there is no such intention. These dispositive transactions of the debtor are valid as there are no restrictions in this period. If the creditors cannot receive their receivables from the debtor's other assets, the creditors may file an action for annulment in order to cancel suspicious dispositive transactions made by a debtor before bankruptcy in order to smuggle assets from its creditors.
As explained the 11.1 Historical Transactions, the debtor's dispositive transactions subject to cancellation are divided into three groups as per the EBL.
The look-back periods are periods of prescription and therefore they are taken into account ex officio.
The bankruptcy administration files actions for annulment as the legal representative of the bankruptcy estate. If filing an action for annulment by the bankruptcy administration is considered unnecessary at the second or subsequent meetings of creditors, the right of filing a lawsuit may be given to the creditor or creditors who request it. Furthermore, the annulment lawsuit shall be filed against the third-party individual who benefitted from the dispositive transaction.
Corporate Restructuring and Rescue
The postponement of bankruptcy provisions enabling an insolvent company or person to avoid declaring bankruptcy – if and to the extent that its financial situation is improvable – was abolished in 2018, and the Turkish bankruptcy regime has been significantly amended with the presentation of the new concordat, which opens a new chapter in restructuring and insolvency.
There was significant criticism regarding entities abusing the postponement of bankruptcy mechanisms to freeze their liabilities by manipulating the situation around their financial difficulties. Although concordat was a legal restructuring method regulated by Turkish Law before, it is now less complex and is more widely used by corporations following the fundamental changes.
The recent changes of the exchange rate and financial problems, particularly those arising from COVID-19 as well as global financial issues, has definitely had a huge impact on the volume of insolvency filings and the rising wave of concordat requests.
The new concordat
A concordat is a restructuring agreement allowing debtors certain beneficial payment conditions by preventing bankruptcy in many cases. The concordat is a court-led process consisting of five principal stages: Application to concordat, temporary period, definitive period, creditors’ meeting and the court’s examination and approval of the concordat.
There are three types of concordats are as follows.
Debtors who are unable to pay their debts at the due date or who are in danger of failing to pay in due time may apply for a concordat. The application should be made with a project clearly indicating the proposed payments, the methods to liquidate the debts and how the necessary financial resources shall be obtained or used. The debtor should inform the court of all its assets and liabilities, cash flow, interim balance sheets, and revenues. The project should be realistic as the court will consider the chances of success. The court generally considers whether the project is feasible, proposed in good faith, in the best interests of creditors, and fair for both parties.
The court will take all necessary measures to protect the debtor's assets by restricting the authority of the debtor to, for example, establish a pledge or a guarantee. The court may grant its approval of such transactions after obtaining the view of the concordat commissar and the creditors' board.
The court may approve the concordat after reviewing the project or reject the same by requesting amendments. It should be noted that the court will grant a decision for bankruptcy if the concordat application does not meet required conditions.
Framework Agreements on Financial Restructuring
The critical legislation regarding restructurings in Turkish Law is the Regulation on the Restructuring of Debts in the Financial Sector (Regulation) introduced by the Banking Regulatory and Supervisory Agency (BRSA) to facilitate successful financial restructuring in the Turkish market.
The restructuring regulated by the Regulation is different from ordinary contractual restructuring since the framework agreements envisaged under the Regulation (Framework Agreement) set out the terms of the restructuring. The Framework Agreement entered into force with the BRSA’s approval. The Turkish Banks Association subsequently amended the framework financial restructuring agreement for large-scale debtors and the framework financial restructuring agreement for small-scale debtors in July 2021.
The purpose of the Framework Agreement is defined as allowing the debtors, who are believed to contribute added value to the economy and who temporarily fail in their financial debt repayments, to continue their economic operations and fulfil their debt repayment obligations to the financial sector and to other creditors, including the public sector, under reasonable conditions and within the prescribed period of time to be determined by the creditor institutions, by also taking into consideration the fund-raising capabilities of such debtors.
The Framework Agreement includes the terms and conditions of the restructuring, minimum qualifications to be sought in the borrowers, scope and value of receivables to be restructured, events of default under the Framework Agreement, and termination and its consequences. It is possible to extend the term of the loan(s); renew the loans of the borrower; grant additional loans to the borrower; write off receivables; and authorise the sale, disposal or full or partial write-off of the debt.
The Framework Agreements have created a productive environment for many financial restructurings in the Turkish banking sector by allowing borrowers to focus on their businesses and providing banks with a credible platform for reliable restructurings. The Framework Agreements and the restructurings under the Regulation have undoubtedly provided important support to both borrowers and the financial sector.
The Impact of COVID-19
Whilst the COVID-19 pandemic continues to have major effects on companies and business life, many businesses have adjusted quickly to online commerce and remote working.
Having said that, business results suggest that the pandemic had already caused massive damage among all types of businesses just several weeks after its onset. Although the Turkish government stepped in with many financial measures, the available government aid was not sufficient to assist many of the companies.
As we begin to understand and adjust to the “new normal” caused by the COVID-19 pandemic, there have been significant judgments handed down by the Turkish courts in recent months with respect to concordat requests. Although it is noteworthy that there are also a significant number of cases resulting in the bankruptcy of companies, concordat continues to occupy a pre-eminent position as a central means of restructuring and the principal legal tool used to escape bankruptcy.
It is clear that the legal and economic effects of COVID-19 will continue for some time across Turkey. Accordingly, it is likely that bankruptcy applications will increase, as also stated in the OECD Economic Survey 2021-Turkey. Business bankruptcies, which increased by 10% year-on-year in August 2020, are likely to increase by more than 30% in 2021 as per an international study projection. Economic recovery may, however, be achievable if businesses can effectively use concordat and restructuring agreements.
Practical Aspects of Cross-Border Insolvency Proceedings
The dual impact of globalisation and technological innovation, and the increase in the number of disputed matters during the past years as a result of the global economic turndown, require legislation in the international insolvency field. In a typical insolvency of an international entity, different sets of creditors assert claims over different assets by complying with different rules in many jurisdictions.
Since the creditors’ goals are united in seeking to obtain as much value as possible from the insolvent entity, the globalised marketplace requires a global insolvency proceeding.
Having said that, under Turkish law, there is no provision regulating and responding to the needs arising from the complexity of cross-border insolvency proceedings.
The UNCITRAL Model Law on Cross Border Insolvency or the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments have not been adopted by Turkey.
Moreover, developing a workable and practical cross-border insolvency proceeding by reconciling universality (accepting and managing all assets of the debtor at one forum so that the equal and fair treatment is provided to all creditors), and territoriality (accepting the exclusive jurisdiction on insolvency and bankruptcy demands and principles) seems challenging since Turkey, like so many other countries, treats many issues regarding insolvency and bankruptcy as matters of public policy principle.
As a rule, Turkish courts are not permitted to review the substance or merits of a foreign judgment and will not refuse to enforce it on the basis that it contains an error of fact or law. Although Turkish courts are legally prohibited from reviewing the substance or merits of a foreign judgment, a Turkish court will not recognise or enforce a foreign judgment if to do so would be contrary to Turkish public policy.
It may be possible to establish a legal ground for the recognition of the effects of local insolvency procedures in one jurisdiction in another through international treaties.