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Legal Alerts

August 3, 2016

Bankruptcy Postponement Applications Suspended

Legal Alerts
Dispute Resolution

Recent Development

On July 31, 2016, the Turkish government introduced a decree law suspending all applications for bankruptcy postponement during the state of emergency. The 90-day state of emergency was declared by the government on July 21, 2016 following an attempted military coup.

Bankruptcy postponement is essentially a reorganization bankruptcy, a type of bankruptcy protection. The applicant company, being in an insolvent state, proposes a reorganization plan to improve its financials. If the court approves the plan, a postponement period is granted in which creditors are prevented from pursuing debt collection. There has been a growing tendency among struggling companies to file for bankruptcy postponement in order to benefit from the automatic stay issued by the courts upon receiving the application. The stay also provides a temporary relief to financially distressed companies by blocking their creditors’ debt collection attempts. Due to the fact that bankruptcy postponement has been continuously exploited as a means of debt avoidance, it has recently attracted much criticism.

The decree law banning new applications for bankruptcy postponement does not address whether pending applications will be affected. A strict construction of provisions that introduce a ban or an exception to the general rule is required; therefore, pending applications for bankruptcy postponement should be excluded from the recent ban.

Conclusion

Companies will not be able to file an application for bankruptcy postponement; any applications filed during the period of emergency will be dismissed by the courts.