Pursuant to Article 179 of the Turkish Execution and Bankruptcy
Code (the "TEBC"), an insolvent debtor
is entitled to apply to the commercial court and suggest a proposal
for restructuring its debts and strengthening its financial status.
This is referred to as "stay of bankruptcy" under the
relevant article. Under the TEBC, a corporation whose assets are
not sufficient to cover its debts may apply to the relevant court
on its own initiative; or any of the creditors may request this
from the competent court with a restructuring project prepared for
that insolvent debtor.
Under this scheme, the insolvent debtor may submit to the court
a proposed schedule to restructure its debts. If the court
considers this proposal realistic and persuasive, the court may
render a stay of bankruptcy decision for a maximum term of one
year, subject to extension if required, and the court will then
appoint a custodian to the insolvent debtor to monitor the
debtor's implementation of the decisions of the court and its
suggested restructuring proposal. The total term for the extension
can be a maximum of four years. The custodian can be either a
natural person or a legal entity. Duties and authorities of the
custodian have not been stated in the TEBC. Therefore, the courts
have wide discretion to determine these duties and authorities. The
court may limit the authority of the board of directors of the
subject corporation and decide to subject its decisions to the
approval of the custodian. Alternatively, the court may partially
or completely lift the authority of the board of directors and
transfer it to the custodian.
The court examining the stay of bankruptcy application may
decide to take preliminary measures including the suspension of the
execution proceedings already initiated or to be initiated,
including the execution proceedings for public receivables, with
the exception that proceedings arising from liens, pledges and
mortgages may continue up to the sale process. The court also may
not need to wait until the end of the proceeding to decide on the
preliminary measures and may decide on the injunction upon a stay
of bankruptcy application. A stay of bankruptcy decision does not
stop the ongoing lawsuits or lawsuits from being initiated, with
the exception of a bankruptcy lawsuit, but only prevents the
initiation of execution proceedings or holds the pending execution
proceedings suspended until the end of the stay term. A stay of
bankruptcy decision also does not have any legal effect on the
contracts executed or to be executed and does not terminate the
rights and obligations of the parties to such contracts.
At the end of the one-year period, (i) if the debtor's
financial status has improved (i.e., the company's
assets are enough to cover its debts), then, the Court may decide
to lift the decision regarding the stay of bankruptcy and the
debtor company may return to its regular governance, or (ii) in
case the debtor's financial status has not improved, but there
is still a possibility for improvement, the court may extend the
term for another year upon the request of the custodian, or (iii)
if the debtor's financial status has not improved and there is
no possibility for improvement, the court will decide to declare
the debtor bankrupt.
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.
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