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Turkey: Abolition of postponement of insolvency practice and recent concordatum organising

 

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The Law on Amending of Enforcement and Bankruptcy Law and Certain Laws nr. 7101 has been published on 15.03.2018 dated 30361 numbered Official Gazette and made certain legislative amendments on Enforcement and Bankruptcy Law numbered 2004.

The most important change made by the Law Nr. 7101 is the abolition of postponement of insolvency and conversion of concordatum practice into a more effective structure.

According to the preamble of the Law: the implementation of postponement of insolvency, which is in force since 2003, was no longer meeting the expectation. Although certain amendments have been made in respective issue in 2016, they failed to satisfy in practice.

In addition, the following reasons have been stated on preamble of the Law related to abolition of postponement of insolvency practice:

  • lack of right to speak of Creditors (locus standi),
  • everlasting process between Court and Debtor,
  • difficulties on adjudication.

In accordance with the concordatum practice, as a new regulation, it is deemed appropriate to conclude a mutual agreement between Debtor and Creditor with negotiation and acceptance of the agreement by Court.

Due to the abovementioned reasons, it can be said that Share Capital Companies and Cooperatives can apply for concordatum hereafter instead of postponement of insolvency. According to article 285 of the Bankruptcy and Enforcement Law, Debtor, who cannot pay its’ debts at the due date (or if there is risk of failure of payment) can apply to concordatum in order to be able to pay the debts and escape from bankruptcy by declaring a due date or making a reduction. Any creditor, who has right to file an insolvency, may request to commence of concordatum process against Debtor by justified letter of application. Concordatum requesting party is obliged to pay advance on concordatum expenses that are determined on the tariff, which has entered into force by Ministry of Justice.

Another important amendment is that the Commercial Courts of First Instance shall be the competent courts on concordatum demands as from this change. Considering the abrogated provisions, Enforcement Courts have been determined as to competent court.

In accordance with the abrogated provision, documents, to be submitted to court on concordatum request, have been determined as limited on Law and it has been considered as inadequately. According to rearrangement, documents, to be submitted to court on concordatum request, consists of documents and tables that can clearly reveal the financial position of the Debtor Company. For instance, “submission of cash flow table” is one of the amendments on the new regulation.

Financial analysis, reports and its grounds, which are prepared by independent auditing firms authorized by Capital Markets Board or Public Oversight, Accounting and Auditing Standards Authority and indicating high probability of actualization of the concordatum offer, shall be submitted to Court in addition to request for concordatum (there is no such obligation for small businesses). Thus, is desired to provide the prevention of unjustified concordatum requests not to succeed.

In order to make the evaluations based upon daily data, there is a condition that the documents and tables, to be submitted to Court in addition to request for concordatum should pertain at least 45 days in advance.

As the new regulation, the concepts of “temporary concordatum period” and “definite concordatum period” has been put in force for the first time.

In case the court determines deficiency of the documents that to be included in the request for concordatum, it immediately decides the temporary period and take all the precautions for the keeping the assets of the Debtor. The Court shall appoint a temporarily concordatum commissar in order to closely examine the possibility of succession of concordatum with its temporary period decision (it can be appointed 3 commissar depending on the number of Creditors and the amount of claim). Temporary period is for 3 months. Upon the request of the Debtor or temporarily commissar, the Court can extend the temporary period utmost 2 months more. Decision of temporarily period is announced in trade registry gazette and official announcement portal of the Press-Announcement Association and reported to Directorate of Land Registry, Taxation Authority, Administration of the Custom and Postal Establishment, The Bank Association of Turkey, The Participation Bank Association of Turkey, local chamber of commerce, chamber of industry, stock market of moveable worth, Capital Markets Board and other required authorities. It is also stated on this announcement that Creditors may object to decision of concordatum period within a peremptory date of 7 days as from announcement.

The Court gives the decision of definite period during the temporary period. In order to make this decision, the Court invites the Debtor and concordatum requesting Creditor to the hearing. If it is understood that the concordatum can be succeeded, one year definite period shall be granted to the Debtor. In respect to Debtor that is subject to insolvency, in case the conditions (a. 292) stipulated at Law arise after the decision of definite period, upon written report by Commissar, the Court shall revoke its definite period decision and decide ex-officio to insolvency of Debtor. The definite period makes certain restrictions on the rights of the Creditors. The purpose here is, providing freedom of action to Debtor that is on concordatum period and providing Debtor to carry on its activities without pressure of the Creditors. During the definite period, it is not possible to commence to proceedings arising from the Law on Collection Procedure of Public Receivables; previous proceedings would stop; precautionary measures cannot be applied; prescription and final term would not process. However, it can be commenced legal proceedings by the way of attachment for privileged assets that is written on the 1st paragraph of Article 206.

Debtor, against to concordatum decision or Creditor demanding concordatum can appeal within 10 days as of the notification (other Creditors who object can appeal within 10 days from the declaration of ratification decision). Furthermore, it can be appealed to Supreme Court against Regional Courts of Justice within 10 days.

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wb_gestaoTurkey: Abolition of postponement of insolvency practice and recent concordatum organising