Turkish Composition – Stricter Than Ever

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Esin Attorney Partnership

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Esin Attorney Partnership, a member firm of Baker & McKenzie International, has long been a leading provider of legal services in the Turkish market. We have a total of nearly 140 staff, including over 90 lawyers, serving some of the largest Turkish and multinational corporations. Our clients benefit from on-the-ground assistance that reflects a deep understanding of the country's legal, regulatory and commercial practices, while also having access to the full-service, international and foreign law advice of the world's leading global law firm. We help our clients capture and optimize opportunities in Turkey's dynamic market, including the key growth areas of mergers and acquisitions, infrastructure development, private equity and real estate. In addition, we are one of the few firms that can offer services in areas such as compliance, tax, employment, and competition law — vital for companies doing business in Turkey.
The Regulation on Composition Commissaries and Creditors' Committee and the Documents to be Attached to the Composition Application were promulgated on the Official Gazette on 30 January 2019.
Turkey Accounting and Audit

Recent Development

The Regulation on Composition Commissaries and Creditors' Committee ("Commissary Regulation") and the Documents to be Attached to the Composition Application ("Composition Application Regulation") were promulgated on the Official Gazette on 30 January 2019. The Commissary Regulation regulates a mandatory training program for commissaries, whereas the Composition Application Regulation regulates the audit report assuring the viability of the composition application required for submission in composition applications.

The Amendments

a. Commissary Regulation

The Commissary Regulation abolished the Regulation on the Composition Commissaries' Qualifications and the Establishment of the Mandatory Creditors' Committee, which was promulgated on the Official Gazette dated 2 June 2018.

The Commissary Regulation sets out the requirement for commissaries to receive primary training. In accordance with this requirement, this primary training will be given by the educational institutions licensed by the Ministry of Justice ("Ministry"). The primary training will cover enforcement and bankruptcy law; composition practice and rules; business management; analysis of financial reports; and other relevant subjects considered necessary by the Head of the Expert Department Directorate General for Legal Affairs of the Ministry of Justice. After receiving primary training, commissaries are obliged to attend a renewal training every three years delivered by the institutions licensed by the Ministry.

If the court appoints three commissaries, one of the commissaries must be elected from the independent auditors operating in the province where the court is located. Moreover, one of the commissaries elected should preferably be a legal expert.

The Commissary Regulation states that after the court grants a definitive composition period to the debtor, the establishment of the board of creditors is mandatory if the number of creditors exceeds 250 or if the debt amount exceeds TRY 125,000,000, provided that there are at least three creditor categories. Hence the threshold regarding the amount of receivables in the previous Regulation has been increased by TRY 5,000,000.

b. Composition Application Regulation

The Composition Application Regulation details the audit report assuring the viability of the composition application ("Audit Report"), mandatory for the composition application as per the law promulgated on the Official Gazette on 19 December 2018.

Independent audit firms authorized by the Public Oversight, Accounting and Auditing Standards Institution will audit all of the documents submitted by the debtor in the composition application whilst preparing the Audit Report. The audit standard will be the standards of Independent Audit Standards and Assurance Audit Standard.

After the audit, if the auditor cannot find evidence justifying the rationality of the assumptions and estimates about the prospective financial information, the auditor will be unable to vote in favor of the proposal in the preliminary project.

Conclusion

Turkish lawmakers intend to implement the composition practice more efficiently. In order to ensure efficiency and reduce the possibility of abusing the procedure of composition, commissaries and the debtors are subjected to tighter supervision.

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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