Based on the legal regulation that came into force on July 19th, 2019, the “Financial Restructuring (“FR”)” application for large-scaled* and small-scaled** companies (“Borrowers”) that have loan debts to banks and financial institutions (“Creditor Institutions”) started. The period for the application of FR was extended for 2 years on July 15th, 2021 by the decision of the President of the Republic of Turkey.
* That means, Companies with 100 Million TRY and over Principal (Cash + Non-Cash) Credit Debts to Banks and Financial Institutions.
**That means, Companies with 100 Million TRY and less Principal (Cash + Non-Cash) Credit Debts to Banks and Financial Institutions.
With the application, borrowers who intend to pay their debts, but cannot fulfill their obligations because their income-expenditure balance has been disrupted, are allowed to fulfill their repayment obligations. In this context;
In terms of large-scaled companies; for the commercial credit borrowers who have temporary problems or are likely to experience problems with the repayment of their debts to creditor institutions, it is intended to:
- Extend the due dates of the credit debts of these borrowers,
- Renew the credits of these borrowers,
- Give additional credit to these borrowers,
- Reduce all receivables arising from principal, interest, default interest, delay penalties, and dividends and credit relationship related to their debts or waive them partially or completely, to reduce the guarantee.
- Turn the debts arising from the principal, interest or dividend receivables into participations partially or wholly, to transfer or assign the debts to special purpose companies and investment funds established in accordance with the Capital Market Law no. 6362 in return for a price in kind, in cash or on a collectible basis, to partially or completely liquidate, sell, derecognize in return for the in-kind values belonging to the borrower or third parties.
- Ensure that the borrowers can fulfill their repayment obligations and continue to contribute the employment, with some measures to be taken regarding the credit debts of these borrowers (eg: making protocols by acting with other Creditor Institutions and creditors).
In terms of Small-scaled Companies; for the commercial credit borrowers who have temporary problems or are likely to experience problems with the repayment of their debts to creditor institutions, it is intended to:
- Extend the due dates of the credit debts of these borrowers,
- Renew the credits of these borrowers,
- Partially or completely waive the default interest/delay penalty arising from the debts of these borrowers,
- Transfer or assign the debts of these borrowers in cash, in kind or for a payment conditional on collection, to liquidate or sell the debts partially or completely in exchange for the same values belonging to the borrower or third parties
- Ensure that the borrowers can fulfill their repayment obligations and continue to contribute the employment, with some measures to be taken regarding the credit debts of these borrowers (eg: making protocols by acting with other Creditor Institutions and creditors).
It is necessary to be convinced that the borrowers will gain the ability to repay their debts after determining their financial situation in the scope of financial restructuring and restructuring their debts in this context. Borrowers who are deemed to be unable to repay their debts cannot be included in the scope of financial restructuring.
The “Credit Institutions” that may be included in the financial restructuring are: banks mentioned in Article 3 of the Law of Banking No. 5411, companies mentioned in Article 3 of the Leasing, Factoring and Financing Companies Law No. 6361, banks and financial institutions established abroad that have directly provided credit facilities, multilateral banks and institutions investing directly in Turkey, special purposed companies to be established by these creditors for the collection of debts and mutual funds established for the same purpose in accordance with the Capital Markets Law No. 6362.
“Borrowers” that may be included in the scope of financial restructuring are: companies established in Turkey except the ones that are subject to Insurance Law No. 5684, the Law No. 6361, The Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions No. 6493 and institutions subject to Article 35 of Law No. 6362 other than investment trusts. Borrowers with a decree of bankruptcy are excluded from the scope of the regulation.
Borrowers, that may be included in the Financial Restructuring process, must apply to one of the 3 creditor organizations with the highest amount of receivables. In terms of small-scaled companies, the application is made to one of the 3 creditor institutions with the highest amount of receivables, and if the creditor institution to which the first application is made does not accept this application, the application is made to the creditor institution in the 2nd and 3rd ranks; in any case, if the third creditor does not accept the application, the restructuring process does not initiate.
The process of preserving the situation begins when the application is duly submitted to the creditor institution applied for and the application is shared with the relevant creditor institutions: i) As a result of legal proceedings initiated by any creditor institution before the date of application of the borrower; If the sale date regarding the assets of the borrower is decided, if the lawsuit for termination of the tender is ongoing, if the debt has been committed to execution and if actions such as the continuation of the action for the cancellation of the savings have been taken, these transactions are not affected by the Financial Restructuring. ii) In the Financial Restructuring process for small-scaled enterprises, creditor institutions cannot proceed with enforcement proceedings (except in situations where rights may be lost due to statute of limitations and forfeiture), cannot continue existing proceedings, open new proceedings, or seek other legal remedies in relation to the restructured receivables of the borrower. It is essential to preserve the existing guarantees received by the Creditor Institutions Consortium members before the initiation of the process.
The Financial Restructuring Contract is executed in addition to the aforementioned credit contracts and does not remove the validity of the loan contracts already executed between the creditor institutions, the borrower and joint guarantors. If the aforementioned loan contracts and the Financial Restructuring Contract's provisions conflict, the Financial Restructuring Contract does not mean that the debts pertaining to the FRC are renewed in any way, that existing debts and sureties are terminated, that the creditor institutions have no other debt. In any case, the borrower must acknowledge that the Financial Restructuring Contract does not imply a guarantee waiver.
Participation Banks will establish transactions in accordance with their own application and operating principles, in conformity with the legislation on participation banks, in a way that does not violate the conditions determined in the Financial Restructuring Contract in loan allocation, structuring, reserve account, participation account, profit distribution, profit share, delay penalty and other banking applications. In the implementation of the Financial Restructuring Contract, contractual interest profit share and default interest are applied as delay penalties.
Transactions to be completed as part of financial restructuring; the prison fee, costs levied in accordance with Act of Fees No. 492 (including the judicial fee), and the documents to be issued (including Framework Agreements and Contracts) Stamp duty collected in line with Stamp Duty Law No. 488, amounts to be collected by credit institutions under any name The bank and insurance transactions tax, as well as the credits granted and made available, are exempt from the resource utilization support fund under the Expenditure Taxes Law No. 6802. The tax exemptions and incentives provided do not apply if the obligations of a borrower included in the scope of financial restructuring are subject to another financial restructuring within two years of the signing date of the prior financial restructuring contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
