Recent Development
The Law on the Amendments to the Code of Enforcement and Bankruptcy and Certain Laws (“Law No. 7101”) was published on the Official Gazette on March 15, 2018.
Background
As a result of the studies conducted by the Coordination Council for the Improvement of the Investment Environment, the Law No. 7101 was introduced to the Turkish Parliament.
The Law No. 7101 amended the Notification Law, the Law of International Arbitration, the Commercial Code, and most importantly, the Code of Enforcement and Bankruptcy.
The most significant amendments to the Code of Enforcement and Bankruptcy are the
abolishment of the suspension of bankruptcy procedure and new provisions to the composition (”konkordato”) procedure.
What’s New?
The suspension of bankruptcy procedure, which was introduced as an alternative to insolvent stock corporations and cooperatives, is abolished by the Law No. 7101. The Temporary Article 14 of the Law No. 7101 stipulates that the ongoing requests for suspension of bankruptcy and composition would be resolved per the law in force on the request date.
Stock corporations and cooperatives may request composition instead of the suspension of bankruptcy procedure to pay their debts in an extended payment plan or at a discount, and to eliminate possible bankruptcy risk.
The Law No. 7101 introduced a new concept called ”temporary time” which will have the same effects as the peremptory term. In case the court determines that the required documents for the composition application are correctly submitted, the court grants debtors ”temporary time”. Subsequently, the court appoints a trustee in composition for the examination of whether the debtor can resolve the financial difficulties by way of composition. Temporary time can be three months at the most; under certain circumstances, it may be extended for an additional two months.
If the courts determine the debtor can resolve the financial difficulties by way of composition in the temporary time, it will grant the debtor a peremptory term of one year. If there is no need for the appointment of a new trustee, the previous trustees carries out their duties.
The trustee makes the necessary transactions for the composition’s approval. Once the composition project is prepared, the trustee convenes the creditors to discuss the project; if the quorum stipulated in the Law No. 7101 is met, the project is assumed to be accepted. The court examines and approves the accepted project. A trustee may be appointed for the execution of the project. If the court does not approve the project, it dismisses the request for composition and notifies the relevant authorities. Additionally, if there is a cause for bankruptcy, the court decides the debtor’s bankruptcy ex officio.
The statutory period of three months as of the notification of the bankruptcy decision to decide whether liquidation is to be ordinary (”adi tasfiye”) or simple (”basit tasfiye”) is shortened to two months with the Law No.7101. Similarly, the legal period of three months as of the formation of bankruptcy office (”iflas idaresi”) and registration of receivables with the bankrupt’s estate (”iflas masası”) is shortened to two months.
Conclusion
The Law No. 7101 made several amendments to the Code of Enforcement and Bankruptcy and certain Laws. Most importantly, the suspension of bankruptcy procedure is abolished on the grounds that creditors do not have a say in this procedure because the procedure occurs between debtors and courts; and that debtors abused the procedure. In place of this procedure, the Law No. 7101 allows the composition procedure, which is based on an agreement between debtors and creditors, and the court’s confirmation of the agreement.
