The Regulation for the Restructuring of Debts Owed to the Financial Sector (the "Restructuring Regulation") was published in the Official Gazette dated 15 August 2018 and numbered 30510 and entered into force on the same date.
The Restructuring Regulation aims to establish a common framework for a contractual restructuring and/or rescheduling of financial debt with a view to enabling eligible private sector entities to bridge over potential cashflow difficulties amidst increasing current currency and rate pressures.
The Framework Agreement
The Restructuring Regulation mandates the Banks Association of Turkey to produce a "Framework Agreement", taking comments from the Participation Banks Association of Turkey and the Association of Financial Institutions, for the approval of the Banking Regulatory and Supervisory Agency.
The Framework Agreement will set out the common principles and procedures for restructurings, including, at a minimum, available restructuring processes and schemes, eligibility criteria for debtors, rights and obligations of parties, default provisions and the primary terms of the bilateral agreements that will be signed with debtors on the basis of Framework Agreements.
The Restructuring Regulation covers private sector debt owed to banks, financial leasing companies, factoring companies and financing companies operating in Turkey (the "Creditors"). However, the Restructuring Regulation leaves room for the possibility for other creditors to participate in any arrangement.
Eligible debtors will be those whose financial position will demonstrably improve following any proposed restructuring, enabling them to service restructured debt. This matter will need to be determined by way of a formal evaluation process, the details of which will be set out in the Framework Agreement.
The Restructuring Regulation provides that a bilateral restructuring agreement that is approved by Creditors holding at least 2/3 of the aggregate claims will be binding on all Creditors of the relevant entity.
Potential restructuring schemes
According to the Restructuring Regulation, the following restructuring schemes can be implemented within the scope of Framework Agreements:
- maturity extensions;
- "renewal" (refinancing) of loans;
- provision of additional loans;
- agreeing a reduction to or waiving loan receivables;
- converting loan receivables into equity, transferring loan receivables for consideration conditional on recovery or settlement in cash or in kind and liquidating claims in exchange for assets of the debtor or other third parties; and
- to enter into arrangements together with other banks and creditors.
The Restructuring Regulation will apply to restructurings that are agreed within a period of 2 years starting from the approval of the Framework Agreements by the Banking Regulatory and Supervisory Authority. The Banking Regulatory and Supervisory Authority has authority to extend this time period.
While the economic landscape that has invoked the need for the Restructuring Regulation may be exceptional, the provisions of the Restructuring Regulation themselves appear to be have their basis in previous restructuring laws numbered 4743 and 5569.
It should therefore be reasonable for entities wishing to take a preliminary view as to their position under the Restructuring Regulation to assume that the common Framework Agreement, once available, will be based on precedents under these previous restructuring laws.
It is worth noting, though, that the choice to regulate restructurings by way of regulation, rather than by law as previously, required dropping certain tax exemptions and benefits such as incentive extensions offered under previous restructuring laws because, as a technical matter, these exemptions and protections are not capable of being cast by way of secondary legislation. In any event, market interest will reveal if and how much this will take away from the overall benefit of the Restructuring Regulation.
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.