Following the amendments made in the Financial Restructuring Framework Agreements, announced with a public declaration dated 16.07.2021 by the Banks Association of Turkey, the process of structuring the loans of small-scale companies whose loan debts are below 100 million TL has been determined as follows;
Pursuant to the transitional provision n. 32 of the Banking Law No. 5411 and the relevant legislation; The primary aim is to facilitate the repayment process of the commercial loan debtors who are experiencing temporary complications as well as those who are likely to encounter problems regarding the fulfillment of their debts to the banks which are in the position of the Creditor Organisations, and to promote their further contribution to employment through measures that will be taken in compliance with the creditors and other Creditor Organisations in the form of issuing protocols.
Nonetheless, it is required that the debtors that are to be covered by the FRS should acquire the ability to repay their debts, as a result of the restructuring of their financial situation and in this sense, the restructuring of their incurred debts, or committing to a new amortization plan. Debtors who are deemed to be unable to acquire the ability to repay their debts will not be included in the scope of FRS.
The scope of the FRS;
In addition to the matters concerning the commitment of the existing risk to a due date in light of the conditions that will be determined based on the debtor, the liquidation of activities not directly related to the main activity of the debtor, the increase of capital, the change of management, the public offering, the sale of affiliates and assets, the alteration of the partnership structure, the establishment of pledge and/or usufruct rights in favour of the creditors that have signed the FRSC, the pro-rata cession of the assets of partners and first degree relatives of the applicant debtor to the Creditor Organizations as collateral if deemed necessary, the enactment of all amendments (individually, partially or cumulatively)which are seen as imperative in order to incorporate the debtor into the economy may be made or requested to be made by the debtor.
The debtors to be subject to the FRS;
Apart from the loan debtors who have a decree of bankruptcy issued against them, companies whose principal debt is less than 100 million TL in cash and non-cash, will be able to apply to the banks that are the Creditor Organizations.
Making the application;
Loan debtors will be able to apply to one of the three highest Creditor Organizations that have signed the Framework Agreement, and if the largest Creditor Organization to which the first application is made is rejected, the second and third-ranked Creditor Organizations can be referred to. Ultimately, if the third Creditor Organization does not accept the application either, the restructuring process will be terminated before it has even started.
Three months must have passed starting from the date of the first application, for the debtor to be able to re-apply if their first proposal is rejected.
The evaluation of the application;
If the application is accepted, the process will be carried out by the Creditor Organization that accepted the application and this institution will transmit the preliminary offer concerning restructuring, which contains a feasibility report analyzing whether the debtor will acquire the means of repaying the debts as a result of the examination process of the internal and external balance sheet assets and capacities of the debtor in question, the furthest possible due date regarding the payment plan, the interest rate/type which will be implemented as well as the names of the Creditor Organizations that haven't signed the Framework Agreement but wish to be included in the FRSC.
The FRSC will be signed with the approval of a 2/3 majority regarding the amount of the receivable, and the consent of at least two Creditor Organizations; if a majority is not attained, the process will terminate.
Restructuring parameters to consider;
The bank that is the Creditor Organization accepting the application will prepare the FRSC whilst adhering to the parameters of “expiry and grace period, frequency of installments, interest rates, the currency of restructuring, the establishment of collateral, additional loan disbursements, the revision of the payment plan, the non-cash loans and restructuring commission” included in the Financial Restructuring Framework Agreement texts. Parameters such as debt cancellation/reduction and participation will not be in question.
If a transaction other than the enumerated parameters is desired to be executed, the Implementation Process specified in the Large-Scale Application can be used with the consent of 2/3 of the majority of the Creditor Organizations that signed the Framework Agreement in terms of the receivable and the consent of at least two Creditor Institutions.
The process of preserving the status of the debtor;
The process of preserving the status of the loan debtor companies whose applications are accepted will start next.
The Debtor shall not undertake any ventures which will make a difference between the creditors (individually or as a group), including the Creditor Organizations, during the "Preservation of the Status Process". This restriction will also cover other persons and organizations with which the relevant debtor is related, as well as their partners.
Once the application is accepted and shared with the relevant Creditor Organizations, the “Process of the Preservation of Status” will begin without being subjected to any procedures. During this process, the Creditor Organizations will not be able to carry out enforcement proceedings against the debtor regarding the receivables subject to financial restructuring, the present proceedings will not be furthered, new proceedings will not be initiated, and other legal remedies will not be sought, except for situations that will lead to loss of rights due to the statute of limitations and the expiry of forfeiture periods.
In the event of legal proceedings being taken by the Creditor Organization before the date of application and if, as a result: a sale date is determined, the lawsuit for the termination of the tender is in process, the debt has been connected to the execution commitment, the lawsuit for the cancellation of the execution is ongoing, these transactions will not be affected by the FRS. The Creditor Organization(s) implementing the said transactions may waive these if they wish so.
The status of the collateral in the banks;
It is essential to protect the existing collaterals received by the Creditor Organizations before the initiation of the process, and for this purpose, provisions concerning the collection of secured receivables, their distribution and the conversion of collaterals into cash will be included in the FRSC that is to be made with the relevant debtor and, if necessary, in the contracts to be concluded between the Creditor Organizations.
Encumbrances, other than pledges/mortgages that were previously placed by the Creditor Organizations, party to the FRSC on the assets for which pro-rata collateral will be received, shall be released together with the pro-rata collateral being received.
In the event that the collaterals received before the FRSC are converted into cash after the FRSC, the payment plan of the relevant Creditor Organization will be revised in order to reduce the amounts of the installments without changing the number of installments and the due date, by deducting the collection amount equally from the installment amount of the relevant Creditor Institution.
The monitoring and inspection criteria will be determined in the FRSC to be concluded with the loan debtor.
The Arbitration Board to be determined by the Board of Directors of the Banks Association of Turkey will be competent in the resolution of disputes that may arise in the event of the Creditor Organizations not fulfilling their obligations arising from the Framework Agreement.
The validity period of the framework agreement;
The specified provisions will be valid for the FRSC to be signed between 19.07.2021 and 19.07.2023, as specified in the Provisional Article n.32 of the Banking Law No. 5411.
The Framework Agreement that is signed by the parties and prepared by the Banks Association of Turkey in accordance with the relevant provisions of the Regulation, will enter into force following the approval of the Banking Regulation and Supervision Agency.
FRS: Financial restructuring
FRSC: Financial restructuring contract
FRS Framework Agreement of the Banks Association of Turkey Small-Scale Implementation-July 2021
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.