By provisional article 32 of Banking Law no. 5411, banks in Türkiye, renting, factoring, and financial companies and loan borrowers (debtors) those are in economic difficulty but can continue their operations through restructuring their debts to the financial sector (expect borrowers with a bankruptcy order against them) are able to restructure their loan debts by a frame order and agreement.
Financial Restructuring Agreements (FRAs) have differences and advantages which are related to concordat and bankruptcy. Concordat is an agreement between debtors and creditors to write off some of debtors' debts or reorganize their maturities. The bankruptcy process is a more compelling and certain method that causes the dissolution of the debtor company and distribution of its assets to the creditors. On the other hand, differently from the concordat, FRA offers flexible solutions like extending maturities, reducing interest rates, or rearranging payment schedules rather than writing off or reducing debts. In addition, during the process of FRA, debtor companies continue their commercial activities, and a method such as bankruptcy, which blocks whole commercial activities, would not be preferred.
But according to the provisional article 32, under the conditions of financial restructuring, valuable legal, economic, and taxational facilities and advantages are recognized. But there are several issues about the implementation of them.
Under the process of financial restructuring, the first advantage is the state preservation process.
1- State preservation process; state preservation process is the process among parties which includes preserving the existing legal status, collateral structure, level of relationship, and assets of the debtor and its shareholders, both between the parties and with the debtor, for a reasonable negotiation period (1). Creditor organizations shall decide the continuity of the state preservation process in the first meeting of the Consortium of Creditor Organizations (CCO). However, if any decision cannot be taken about this situation, it is accepted that the decision of the creditor organizations is to continue the state preservation process (2).
During this process, regarding the receivables subject to restructuring, the debtor creditor organizations cannot initiate an enforcement proceeding, cannot continue the current enforcement proceedings expect situations that will lead to loss of rights due to statutes of limitations and forfeiture periods, cannot start new enforcement proceedings, and cannot apply to other legal ways.
In practice; because of the exception of situations that will lead to loss of rights due to statutes of limitations and forfeiture periods, new cases for annulment of objection are filed, and their judgment continues. If the length of the judgment process is considered, the cases are not finalized immediately. Even if they are finalized, they cause uncertainty about continuing the enforcement proceeding.
In doctrine, the view Vildan PEKSÖZ is: "After filing a lawsuit for the cancellation of the objection, applying to an administrative authority for debt restructuring can be considered a stay of proceedings in accordance with Article 165 of the Code of Civil Procedure. However, while the case continues, making payments according to the restructuring plan cannot be considered as a reason to stay the proceedings. Because the fulfillment of a contract does not fall under Article 165. If the debt restructuring agreement transforms into a settlement, attention should be paid to whether there is an agreement on enforcement denial compensation in the settlement. If the settlement agreement does not address enforcement denial compensation, it is presumed that the parties have waived their right to claim compensation. However, if the restructuring agreement does not transform into a court settlement, a decision on enforcement denial compensation may be necessary. (3)"
On the other hand, among the statements and commitments received from the debtor in the financial restructuring agreement texts are that there are no administrative, civil, or criminal arbitration proceedings against them. In this case, the debtor may request that the cancellation of the objection is exempted from other cases, and if this is not accepted, the financial restructuring process may be terminated on the grounds that one of the prerequisites is not met.
2- Legal fee exemption; fee exemption is another advantage that is provided by financial restructuring.
According to Provisional article 32/a of Banking Law; transactions those are made by financial restructuring are exempt from the prison fee and fees according to the Law on Fees No. 492 (including the judicial fee). Article of the regulation is clear, and the execution of the collection fee levied on the receivables collected within the scope of execution proceedings is one of the judicial fees levied in accordance with the Law on Fees No. 492 and is within the scope of fee exemption.
Because of that reason, in order to maintain the continuity of financial activities of the debtor under the process of financial restructuring and to maintain the enforceability of the agreement, all movable and immovable properties, rights, and receivables existing before third parties and all other liens filed before the FRA about the debtor should be removed without any legal fee.
In practice, in spite of this certain article of the regulation, most of the enforcement offices reject the requests to remove enforcements without any legal fee. As a result of the rejection decision, the problem is solved with a judge's decision in the enforcement law court through a complaint against the enforcement office. In spite of the correct decisions of the judges of the enforcement law court according to the regulations, to take this decision shall take a long time because of the judicial workload. Indeed, when the legal fees are not removed at the correct time, the commercial activity and cash flow of the debtor shall be influenced.
3- Another advantage that is provided by financial restructuring is taxational facilities.
I- Financial restructuring transactions are exempt from stamp tax, banking and insurance transactions tax (BITT) and resource utilization support fund (RUSF).
§ All of the proceeds from the transfer of immovable properties, participation shares, founder's shares, redeemed shares and preemptive rights transferred to creditor institutions by debtors who are corporate taxpayers in return for their debts, 50% of the gains arising from the sale of immovable properties, and 75% of the gains arising from the sale of others are exempt from corporate tax.
§ The transfer and delivery of immovable and participation shares included in the assets of debtors to creditor institutions and the transfer and delivery of these immovable and participation shares by creditor institutions are exempt from Value Added Tax (VAT).
However, these specified exceptions do not apply in cases where the assets and securities that creditor organizations have acquired directly or indirectly due to transactions under the Framework Agreements are disposed of, except when transferred among the creditor organizations themselves or to the debtor (4).
II- Deregistration of credits which are unable to be collected and their acceptance as worthless receivables; Loans those are deregistered due to unable situation to be collected after specific provisioning are allowed to be considered as worthless receivables within the scope of the provisions of Article 322 of the Tax Procedure Law (5).
III- Prolongation of incentive certificates, export commitments, guarantees and sureties provided by credit guarantee institutions
According to the FRA, interval taken by financially restructured debtors,
§ Duration of Incentive Documents,
§ Duration of Export Commitment,
§ The periods of the guarantees and sureties provided by the credit guarantee institutions, including the guarantees provided within the framework of the provisional Article 20 of the Law on the Regulation of Public Finance and Debt Management No. 4749 dated 28/3/2002, shall be deemed to be extended for the periods determined by the restructuring agreements (6).
According to the relevant terms, if the debts of a debtor that is under financial restructuring are subjected to the financial restructuring after two years from the signing of the contract; taxation exceptions and incentives shall not be applied. Tax, fund, and fee exemptions will not be withdrawn even if the transactions put into practice by the agreements are not realized.
New special incentives should be developed in order to make SMEs more effective in financial restructuring.
4- Disagreements caused by the failure of the creditor organizations to fulfill their duties that come from the framework agreements shall be resolved by the arbitral tribunal. The decision of the Arbitral Tribunal is binding for parties. In practice, there is no provision on how to deal with Creditor Institutions that do not comply with the decisions of the Arbitral Tribunal. This gap in the law should be filled. In practice, there is no term about how to deal with Creditor Organizations that do not comply with the decisions of the arbitral tribunal (7). The legal gap about this aspect should be filled.
As a result;
FRA enables commercial loan borrowers who have temporary problems or are likely to have problems in repaying their debts to banks and financial institutions to fulfill their repayment obligations and continue to contribute to employment through measures to be taken.
According to the results of several studies, it is expected that during the second period of 2024 there will be more financial restructuring than in previous eras. Construction, agriculture, real estate, and retail sectors will face financial restructuring transactions, respectively (8).
In Türkiye, regulations about the process of FRA are not mature enough yet. Especially, there are legal gaps about the protection of the debtor. For instance, the difficulty of coordination between multiple creditors poses a significant problem in restructuring processes.
The different interests and expectations of creditors complicate the negotiation process. The fact that large banks and small creditors sit at the same table complicates the negotiation process and delays agreements.
In Türkiye, FRA's are an important tool to protect economic continuity. However, it is necessary to enforce current regulations and to make the process more effective. Especially, in order to make SMEs' more beneficial, it is necessary to generate new incentives and support mechanisms.
To make the judiciary faster, activating the expert witness institution will contribute to the success of the process.
We believe that the hesitations experienced in practice will be eliminated by recognizing and making known the advantages and facilities provided by the widespread use of FRA, publishing information letters by the BRSA or chambers of commerce, instructing especially tax offices and execution offices, organizing introductory seminars, and filling the gaps in the law.
REFERENCES
1. Neşe Caymaz; *Restructuring of Debts to the Financial Sector*, Seçkin Publishing, Ankara, 2021
2. Ali Batuhan Sevinç; *Financial Restructuring
Agreements*, Onikilevha Publishing, Istanbul, 2024
3. https://dergipark.org.tr/tr/pub/@vildanpeksoz
3. The Banks Association of Turkey, *Framework Agreement on Financial Restructuring*
4.://www.bddk.org.tr
5. https://www.neksymm.com
6. EY *Restructuring Pulse Survey*, Istanbul, September 4, 2024
7. https://www.tbb.org.tr/tr/bankacilik/arastirma-ve-yayinlar/ozel-dosyalar
8. https://akademi.btso.org.tr
9. Kazancı Case Law Program
10. Court of Cassation, 19th Civil Chamber, Case No. E. 2010/5837, Decision No. K. 2010/8926, Dated July 14, 2010
11. Court of Cassation, 12th Civil Chamber, Case No. E. 2013/23770, Decision No. K. 2013/34339, Dated November 1, 2013
12. Court of Cassation, 12th Civil Chamber, Case No. E. 2022/12156, Decision No. K. 2023/3914, Dated June 1, 2023
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.
