• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren

AMENDMENTS TO THE CODE OF ENFORCEMENT & BANKRUPTCY AND TO SOME OTHER LAWS

The Law No. 7101 on the Amendments to the Code of Enforcement and Bankruptcy and Some Laws (the “Law”) was adopted by the General Assembly of Turkish Grand National Assembly on 28.02.2018 and was published in the Official Gazette on 15.03.2018. The Law amends several laws, particularly the Code of Enforcement and Bankruptcy, Notification Law, Law on Fees, Code of Civil Procedure, International Arbitration Law and Turkish Commercial Code. According to the amendments brought by the Law:

 I.               Amendments to the Code of Enforcement and Bankruptcy

 Abolishment of Bankruptcy Protection and New Rules on Concordatum Procedure

As known, application for bankruptcy protection was suspended with the Decree Law No. 669, issued within the scope of the State of Emergency. The Law abolishes bankruptcy protection, in its entirety. As an alternative to this procedure, the Law provides the opportunity to request concordatum to those debtors who would like to avoid bankruptcy.

As a matter of fact, the concordatum procedure had already been regulated under the Code of Enforcement and Bankruptcy No. 2004; however, the Law brings important amendments to the said provisions.

When to Apply for Concordatum

Pursuant to the new rules, any debtor who cannot pay their matured debts or have the risk of defaulting on payment may apply to the Commercial Court of First Instance and request concordatum. Similarly, any creditor who is eligible to request the bankruptcy of a debtor may also request a decision of concordatum for that debtor from the court.

The concordatum may also be requested, for only once, during the bankruptcy process should the debtor had been declared bankrupt. 

The Concordatum Period

If the court determines that the request/application for concordatum has the necessary supporting documents and information, the court will firstly grant a temporary period and appoint a concordatum trustee. The temporary period is 3 (three) months and it may be extended for a maximum of 2 (two) months.

During the temporary period, the court will grant its decision regarding the definitive period. The definitive period is the actual 1 year concordatum period, which will only be granted to the debtor provided that the court believes that the concordatum will be successful. The definitive period may be extended for maximum 6 (six) more months.

Status of Creditors and the Receivables

During the definitive period, no enforcement proceeding may be initiated against the debtor, including the proceedings initiated as per the Law No. 6183 on Procedures for Collection of Public Receivables, the enforcement proceedings which had been previously initiated will be suspended and no preliminary injunction/attachment may be applied. As regards the receivables secured with pledge, no confiscation by enforcement office or sales transaction may be performed for pledged goods during this period. The contracts which the debtor is a party to shall be in force during the definitive period and they shall not be terminated because of the concordatum. Unless otherwise agreed in the concordatum project, no interest will be accrued for the receivables, except for the ones secured with pledge.

Following the decision for temporary and definitive period, unless otherwise allowed by the court, the debtor shall not establish pledge, provide surety , transfer or enjoy the immovable and the permanent equipment of the business, or engage in gratuitous transactions. Otherwise, the transactions will be deemed void.

The concordatum trustee shall supervise all transactions of the debtor and shall submit interim reports to the court.

An important amendment brought by the Law is that, a board of creditors may be established, provided that the board does not exceed 7 (seven) creditors. The board of creditors may supervise the activities of the concordatum trustee and may present opinions to the court, if necessary.

The concordatum trustee shall perform an inspection on the assets of the debtor and a concordatum project shall be prepared. The project shall be submitted to the creditors for approval. While the required majority was previously 1/2 (half) of the recorded creditors and 2/3 (two thirds) of the total receivables of the debtor; the Law now provides that the majority shall be (i) 1/2 (half) of the recorded creditors, (ii) 1/4 (one fourth) of the recorded receivables and (iii) 2/3 (two thirds) of the total receivables of the debtor.

The creditors who do not consent to the concordatum will have the opportunity to seek the liability of the parties who are jointly liable with the debtor.

It is not allowed to appeal against the temporary or definitive concordatum decisions. However, the decisions regarding the approval of concordatum may be appealed.

Receivables Secured with Pledge 

The Law brings a new provision regarding the negotiation with the creditors whose receivables are secured with pledge and restructuring of the debts. Within this scope, the debtor may, provided that it is stated in the initial project, request restructuring of their debts, which have been secured with pledge.

 
II.            Amendment to the Law No. 6183 on Procedures for Collection of Public Receivables

As per the amendment provided in the Law, the public receivables arising from the rights in rem of the assets, such as the custom duty or tax on building and land, shall be collected only after the receivables secured with pledge. In other words, the receivables secured with pledge will be collected first, prior to the public receivables. 

III.          Amendment to the Law No. 7201 on Notification

While the Notification Law previously governed that the joint-stock companies, limited liability companies and the limited partnerships divided into shares shall use electronic notification, the Law extended the obligation of using electronic notification to more entities, including  attorneys, public notaries, mediators and experts.

The electronic notification procedures will be operated through the National Electronic Notification System which had been established and operated by the Post and Telegraph Organization JSC.

The new regulation shall be effective as of 01.01.2019. 

IV.          Amendment to the Turkish Commercial Code No. 6102

For the purpose of rapidity and effectiveness of the litigation process, the commercial disputes the value of which do not exceed TRY 100,000 shall be carried out as per the simplified procedure governed under the Code on Civil Procedure No. 6100. 

V.             Amendment to the Law No. 4686 on International Arbitration

As per the new rules, the lawsuits for setting aside of arbitral awards may be filed before the the Court of Second Instance. If assistance of the court would be needed during the arbitral process, then the civil courts of first instance or the commercial courts of first instance will be competent, depending on the essence of the dispute.  

VI.          Amendment to the Code on Civil Procedure No. 6100

According to the new rules, for the purpose of rapidity and effectiveness of the litigation process, in those cases where the simplified rules of procedure are applicable, the court appointed experts shall file their reports with the court within 2 (two) months after their appointment, instead of 3 (three) months. 

Practice Areas:
#Litigation
Other Articles