Financial Restructuring: A Legal Perspective

Financial restructuring plays a crucial role in helping companies navigate financial distress and prevent bankruptcy. In Turkey, this process is governed by a combination of the Turkish Commercial Code and the Execution and Bankruptcy Law (No. 2004). Financial restructuring allows companies to renegotiate debts, reorganize assets, and secure financial stability without resorting to liquidation. This guide outlines the legal framework surrounding financial restructuring in Turkey and explains the different mechanisms available to companies.

1. Turkish Commercial Code:The Turkish Commercial Code (TCC) provides general rules governing corporate restructuring. It allows companies to undergo reorganization, including mergers and acquisitions, to improve financial stability. In the context of financial restructuring, the TCC offers provisions for negotiating debt with creditors and reorganizing the company's structure to ensure its long-term viability.
2. Execution and Bankruptcy Law (No. 2004):
   This law forms the backbone of Turkey’s restructuring and insolvency regime. It outlines the procedures for financial restructuring and includes both Concordat (Konkordato) and Postponement of Bankruptcy as mechanisms to avoid liquidation. Companies facing financial distress can use these tools to propose a restructuring plan that involves deferred payments or reduced debt burdens.

1. Concordat (Konkordato):A company facing financial difficulties can apply for a Concordat to restructure its debts. Under this system, the company negotiates with its creditors to agree on new payment terms. During the restructuring period, the company is protected from enforcement actions by creditors, giving it time to reorganize its finances. The court-appointed Concordat commissioner oversees this process to ensure fairness and compliance with the law.
2. Postponement of Bankruptcy:Companies that are technically insolvent but have a viable recovery plan can apply for Postponement of Bankruptcy. This legal tool allows the company to delay bankruptcy proceedings while restructuring its operations and finances. The postponement period gives the company the opportunity to stabilize and avoid liquidation, provided it can demonstrate a realistic path to recovery.
3. Out-of-Court Restructuring:In addition to formal procedures, companies in Turkey often engage in out-of-court restructuring agreements with their creditors. This method involves negotiating new debt terms without going through the courts, which can be quicker and less costly. However, such agreements require the full consent of all involved parties and are less enforceable than court-supervised processes.

Creditors hold several rights during the financial restructuring process:

1. Secured Creditors: Secured creditors have priority over unsecured creditors in recovering debts during restructuring. They may retain their claims on collateral even if the company undergoes Concordat or postponement proceedings.
2. Voting Rights: Creditors are entitled to vote on the restructuring plan proposed by the company. The plan must be approved by a majority of creditors to move forward, ensuring that creditors have a say in the process.

1. Pandemic-Related Restructuring: In the wake of the COVID-19 pandemic, many companies in Turkey have faced financial challenges, leading to an increase in restructuring applications. Recent amendments to the Execution and Bankruptcy Law have simplified some restructuring procedures to support businesses affected by the crisis.
2. International Influence: Turkey has increasingly adopted international best practices for restructuring, aligning its legal framework with standards seen in EU countries. This has made the restructuring process more efficient and accessible for companies with international creditors.

Financial restructuring is a vital tool for companies in Turkey facing financial distress. The legal framework provides multiple avenues—Concordat, postponement of bankruptcy, and out-of-court settlements—for companies to stabilize and avoid liquidation. By working within the existing legal structure, companies can effectively restructure their debts while protecting their business operations. Understanding these mechanisms, as well as the rights of creditors, is crucial for navigating the complex landscape of financial restructuring in Turkey.