• Recent Developments on the Enforcement and Bankruptcy Law and Concordat
  • April 8, 2018
  • Introduction
    A significant part of the recent legislative amendments to improve the investment environment are made to Enforcement and Bankruptcy Law ("EBL") numbered 2004. The amendments made within the scope of Law numbered 7101 on the Amendments in Enforcement and Bankruptcy Law and Certain Laws1 ("Law numbered 7101") and the Law numbered 7078 on the Ratification of the Statutory Decree on Certain Regulations within the Scope of State of Emergency with Alterations2 ("Law numbered 7078") shall be addressed.
    Regulations Regarding Suspension of Bankruptcy and Concordat
    A concordat aims to protect both the debtors in poor financial standing, as well as their creditors. In the event that a debtor and a creditor agree on a concordat, the debtor clears his/her debts by paying the debt in line with the agreement stipulated under the concordat. Therefore, a concordat may be defined as a reconstruction agreement between the debtor and his/her creditors3.
    The most significant amendment stipulated by Law numbered 7101 is the abrogation of suspension of bankruptcy and reformation of the provisions regarding the concordat. In the preamble of the amendment, creditors' disability of being influent in the process regarding suspension of bankruptcy, a debtor's and the court's active role in the process of suspension of bankruptcy and problems occurring during adjudication in this respect are specified as the reasons behind the abrogation of the suspension of bankruptcy4. Accordingly, the reformation of the provisions which take into consideration the problems stated, above, intend to render the concordat, which consists of an agreement between the creditor and the debtor and court's approval regarding this agreement, a more efficient and functional institution. In this respect, the procedures and principles regarding preparation and acceptance of the concordat project are covered by this law.
    Within this framework, the objective is the continuance in the debtor's commercial activities, as well as the contractual relations during the term of the concordat. It is clearly regulated that even if the parties agree that the contract will be terminated, or that the debt will mature in case of a concordat, this contractual provision shall not apply.
    The most remarkable amendment is the change of the competent court on concordat transactions. Whereas the enforcement courts were formerly the competent courts to hear the request of concordat prior to Law numbered 7101 coming into force, the commercial courts of first instance are now determined as the competent courts pursuant to Law numbered 7101.
    Law numbered 7101 defines the term "temporary term of concordat," and it is stipulated that the temporary term of a concordat, which bears the same legal consequences with the definitive term of a concordat is, in principle, three months, and may be extended for two more months. Furthermore, in the event that the concordat may be accomplished, in particular situations, the one year definitive term granted to the debtor may be extended up to six months. In this manner, the concordat term is limited to a maximum of 23 months, including the extended temporary term and the definitive term. It shall be noted that the regulation stipulates that should the financial condition of the debtor of the concordat turn to the positive, the term of the concordat may be abolished under Law numbered 7101.
    With respect to the provisions regarding an ordinary concordat, the court ruling on the definitive term of a concordat may establish a board of creditors, limited to seven creditors, to whom no payment will be made. The board of creditors may be established with the decision on the definitive concordat, or at a time deemed appropriate within the definitive term, provided that the opinion of the commissar is taken. In this respect, the duties of the commissar of the concordat and the board of creditors are regulated under Law numbered 7101.
    Law numbered 7101 stipulates that the foreclosure proceedings of the pledged property may be commenced or continued for the receivables ensured by the pledged property during the definitive term, but the pledged property may not be attached or sold. Law numbered 7101 regulates the appeal procedure of the decision of the concordat. Accordingly, the debtor or the creditor who has demanded the concordat decision may appeal to the Regional Court of Appeal within 10 days as of the notification of the decision, while the 10-day appeal period commences as of the announcement of the confirmation decision for the other creditors. The decision of the Regional Court of Appeal may be appealed within 10 days to the Court of Cassation. That being said, the decisions that uphold the request of the definitive term of the concordat, and which reject the request of the removal of the term, may not be appealed.
    It shall be noted that pursuant to Law numbered 7101, the provisions that were in force at the time of the request of suspension of bankruptcy and the concordat shall continue to apply to the pending requests upon the date the Temporary Article 14 of the EBL came into force.
    Possibility of Selling Goods and Rights that Constitute the Entirety as a Whole
    Another regulation in favor of the creditors stipulated under Law numbered 7101 is related to the goods and rights that constitute a commercial and economic entirety. In this respect, goods and rights constituting a commercial or economic entirety, or which appear to yield a higher income when sold as a whole, shall be converted into money as a whole.
    Amendment in the Priority Order of the Receivables
    Pursuant to the Law, the priority order of the receivables under Article 206 of the EBL is also altered. In this regard, the Law stipulates that only after the receivables that are ensured by pledged property are covered, certain public receivables, such as customs duties, shall be paid on a priority basis as to other receivables.
    Shortening of the Terms Regarding Liquidation of Bankruptcy
    As the liquidation of bankruptcy takes a long time in practice, the term of deciding on whether the liquidation shall be made according to the regular or the simple procedure after the notification of the decision of bankruptcy is reduced from three months to two months. Thus, it is stipulated that the liquidation will be completed within a shorter period5. In addition, three months' principal term and three months' extended term stipulated for preparation of the alignment list are reduced to two months in order to prevent prolonging of the liquidation in the bankruptcy6.
    Amendments Regarding the Matters that are Subject to Administrative Jurisdiction
    Pursuant to Law numbered 7078, matters that are subject to an administrative jurisdiction application to the enforcement proceeding without a court ruling is impossible. In the same line, according to the temporary Article added to the EBL through the above-mentioned Law, the enforcement officers shall dismiss the enforcement proceedings without a court rule on the matters that are subject to administrative jurisdiction that were commenced prior to the date of entry into force of the related article, as per the request, and this decision shall be notified ex officio to the creditor. Under the related regulation, the creditor may apply the complaint procedure within seven days as of the notification date of the decision of dismissal, and may file a lawsuit before the administrative courts within thirty days as of the finalization of the decision. Proceedings cannot continue until the finalization of the decision on the dismissal of the request or approval of the complaint. Law numbered 7078 regulates that the actions of annulment of objection, or removal of objection on the proceedings without a court ruling, shall be dismissed upon request upon the reason of having no basis to render a decision on the matter. Accordingly, proceedings and litigation costs, in addition to the counsel's fee, shall be paid by the parties, and the file of proceeding shall be returned to the execution office. Upon the finalization of this decision, the proceedings regulated under subparagraph 1 of the related Article shall be followed.
    Conclusion
    In order to improve the investment environment, significant amendments have been made through EBL numbered 2004. The most vital alterations made within this context are the abrogation of the institution of the suspension of bankruptcy, reorganization of the institution of concordat in a more effective manner, definition of the temporary concordat term, regulation of the duties and authorities of the concordat commissar and the board of creditors, enabling the sale of goods and rights as a whole that constitute an economic entirety, or which appear to yield a higher income when sold as a whole, shortening of certain periods on the liquidation of bankruptcy, and the changes on the provisions of the execution proceedings on the subjects under the scope of administrative jurisdiction.
    1 Official Gazette (OG), No. 30361, March 15, 2018.
    2 OG, No. 30354, March 8, 2018 (bis).
    4 Preamble of the Law No. 7101, p. 4.
    5 Preamble of the Law No. 7101, Article 5.
    6 Preamble of the Law No. 7101, Article 8.