Bankruptcy law in Turkey provides legal mechanisms to deal with financially distressed businesses, either through the enforcement of bankruptcy or postponement of bankruptcy. Governed by the Turkish Execution and Bankruptcy Law (Law No. 2004), these processes allow for the orderly liquidation of assets or restructuring efforts to give companies a chance to recover. This guide outlines the key aspects of enforcement through bankruptcy and the legal framework for postponement of bankruptcy in Turkey.
Bankruptcy enforcement applies primarily to commercial enterprises, allowing creditors to initiate legal proceedings to recover debts when a debtor is insolvent. The key steps include:
- Filing for Bankruptcy: Creditors can file for bankruptcy if a debtor fails to meet financial obligations. Alternatively, a company may file for voluntary bankruptcy if it is unable to pay its debts.
- Bankruptcy Decision: If the court finds that the debtor is insolvent, it issues a bankruptcy decision. The court may also appoint a trustee to manage the debtor’s assets during the proceedings.
- Liquidation Process: Once bankruptcy is declared, the debtor’s assets are liquidated. Proceeds from the sale of assets are distributed to creditors according to their ranking—secured creditors take priority, followed by unsecured creditors.
- Conclusion of Bankruptcy: Once all assets are liquidated and proceeds distributed, the bankruptcy is concluded. If the proceeds are insufficient to satisfy the debts, remaining amounts are generally discharged.
Postponement of bankruptcy provides companies facing temporary financial difficulties an opportunity to reorganize and recover, without immediately entering bankruptcy proceedings. The process is designed to protect viable businesses from liquidation and is subject to strict legal requirements:
- Application Process: A company may apply for postponement if it is technically insolvent but has a viable recovery plan. The company must submit a detailed restructuring proposal to the court, outlining how it intends to pay off its debts.
- Appointment of a Trustee: If the court approves the postponement, a trustee (commissar) is appointed to oversee the restructuring process and ensure compliance with the restructuring plan. The company is protected from creditors’ enforcement actions during this period.
- Duration of Postponement: The initial postponement period is typically one year, but it can be extended if the court finds that the company is making progress toward recovery. However, the total postponement period generally cannot exceed five years.
- Outcome: If the company successfully reorganizes and meets its financial obligations, the postponement period ends, and the company continues operating. If the restructuring fails, the company may face full bankruptcy proceedings.
In recent years, Turkey has introduced reforms to make bankruptcy and postponement procedures more transparent and efficient. The most notable developments include:
- Digitalization of Court Procedures: The use of electronic filing systems has been expanded to streamline bankruptcy filings and improve the efficiency of court proceedings.
- Enhanced Creditor Protections: Recent amendments have strengthened the rights of creditors, especially in cases where fraudulent acts by the debtor are suspected.
- Increased Focus on Restructuring: Lawmakers have emphasized restructuring efforts to allow businesses to recover rather than proceed directly to liquidation, reflecting a trend toward preserving economic value and jobs.
Bankruptcy enforcement and postponement of bankruptcy provide structured legal paths for dealing with financially distressed companies in Turkey. Enforcement through bankruptcy focuses on liquidation, while postponement offers the potential for reorganization and recovery. The legal framework ensures that creditor rights are protected while providing companies a chance to stabilize and return to financial health.
