Major Amendment Of Concordat Mechanism In Turkey
According to Article 4 of Decree numbered 669 and dated 31 July 2016, postponement of bankruptcy has been revoked from Turkish legislation as a matter consisted under state of emergency regulations in Turkey, following the attempted coup on 15 July 2016.
On 15 March 2018, an ominous bill[1] amending the Enforcement and Bankruptcy Law (the “Amendment Law”) has been published in the Official Gazette and amended the “concordat” mechanism drastically.
Theoretically, the previous concordat mechanism was an agreement to be executed between the debtor and its creditors in order to suspend the debtors’ payments under supervision of the court. The aim is to protect the debtor from possible legal actions, which might be might be (A) filing a lawsuit, (B) or initiating a debt collection procedure, (C) seizure of its receivables from third parties and/or assets and properties, (D) sale by auction of assets and/or properties and etc. by its creditors as to suspend payments and not turn to possible bankruptcy.
The previous legislation stipulated the validity of this agreement on the creditors’ approval. Although in reality, the debtor is not in a financial position to pay its debts and most possibly have already suspended them. On the other hand, the creditors have overdue receivables and not being able to collect them. As this is a typical definition of “disagreement”, most of the time, the creditors and the debtor could not reach any agreement on the approval of concordat and this lead the concordat to become a nearly a deserted legal mechanism in Turkey.
With the Amendment Law, the creditor’s approval of the concordat submission is no longer a legal requirement. Any debtor, who duly filed a concordat submission, is granted with major legal protections.
Please find below a full list of legal protections given under concordat submission:
- No debt collection procedures for the unsecured debts (including public debts) can be initiated by the creditors against the debtor,
- Any and all debt collection procedures (including public debts) initiated before duly filed concordat submission shall be stopped and no further legal action can be taken,
- Debt collection procedures for the secured debts can be initiated by the creditors but no auction can take place,
- Any injunctive reliefs or provisional seizures cannot be applied,
- No interest can be accrued for the approved[2] concordat projects,
- Any assignment of receivables shall be deemed null and void as long as the receivable is assigned before the concordat submission but borne within concordat,
- No legal auction can take place in order to liquidate the properties and/or assets of the debtor whatsoever,
- Contract terms stipulating concordat as a cause of termination shall not be applicable,
- Any and all other legal precautions and protections that will serve to the purpose of the concordat can be taken,
- The debtor can no longer give pledges, be surety to third parties debts, cannot transfer certain or entirety of its commercial enterprise, cannot sell majority of its commercial assets, cannot make major donation as of the start of concordat
The aforementioned legal protection periods in segregated into three different stages, namely (A) interim respite phase, (B) definitive respite phase and (C) extended legal protection phases, and can last up to a period of 29 months maximum.
Considering the fact that concordat became a mechanism, which will allow major legal protections to debtors based on an ex parte submission, it can be expected that this will have a major impact on Turkish economy within the near future.
Av. Mahmut Barlas
Published :
Categories: Banking & Finance, Capital Markets, Dispute Resolution, Financial Restructuring