In 2018, the Turkish regulatory landscape welcomed the concept of “financial restructuring” as a lifeline for distressed businesses that play a vital role in employment generation and contribute positively to the economy. According to data released by the Banks Association of Turkey, as of September 2022, a total of 357 corporate debtors, with a collective outstanding payment burden approaching Turkish Lira 115.9 billion, have availed themselves of financial restructuring.
The process of financial restructuring is governed by a set of terms and conditions outlined in framework agreements published by the Banks Association of Turkey and approved by the Banking Regulation and Supervision Agency (BDDK). Two distinct framework agreements are in place to cater to the diverse needs of debtors: the large-scale framework agreement, designed for debtors with financial liabilities exceeding Turkish Lira 25 million, and the small-scale framework agreement, catering to debtors with financial obligations less than Turkish Lira 25 million.
Notably, Turkish banks and financial institutions, which are the primary sources of loans in the Turkish market, have committed to both the Large Scale and Small Scale Framework Agreements. Transactions and documents signed within the ambit of financial restructurings enjoy exemptions from certain taxes and charges, including stamp tax, Resource Utilization Support Fund (KKDF), and Banking and Insurance Transaction Tax (BSMV). The opportunity to seek financial restructuring is extended to Turkish resident companies beyond the banking sector, including capital markets institutions, insurance and reinsurance companies, financial leasing companies, factoring companies, financing companies, payment systems, and electronic currency institutions.
Various entities, ranging from banks, financial leasing, financing, and factoring companies operating within Turkey to foreign banks and financial institutions that have directly extended loans to Turkish debtors, as well as multilateral agencies and international financial institutions with direct investments in Turkey, along with special purpose companies established by these creditor groups for debt collection and investment funds created for similar purposes, can all participate as creditors in financial restructuring by embracing either the Large Scale or Small Scale Framework Agreements.
To initiate the financial restructuring process, debtors are required to submit an application to any of their three largest creditors, provided that these creditors are also signatories to the relevant Framework Agreement. These applications must include the requisite supporting documents, as outlined in the Framework Agreements. These documents encompass the debtor’s balance sheet, profit and loss statements, business plan, asset inventory, and details regarding recent asset disposals. Subsequently, creditors are given the option to commence negotiations with the debtor.
The adherence of creditors to the terms and conditions stipulated in the Framework Agreements and financial restructuring contracts is meticulously overseen by an arbitration board established under the auspices of the Banks Association of Turkey. This rigorous oversight ensures the integrity and fairness of the financial restructuring process, safeguarding the interests of both debtors and creditors alike.
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