The Omnibus Bill Regulating The Financial Restructuring Agreement Has Been Approved By The Grand National Assambly of Turkey 23 July 2019

The provisional article 32 added to the Banking Law regulates the Financial Restructuring Framework Agreement (“Agreement”) and aims to restructure the debts of debtor firms.

We would like to point out that although the law passed Parliament's approval on 17 July 2019, it has not been approved by the President yet and may be subject to amendments.

In this article; we would like to inform you about the restructuring process introduced by the law.

1) Who is covered by the concept of “financial restructuring”?

With the amendments to the Banking Law; companies established in Turkey excluding the institutions subject to Article 35 of Capital Market Law and investment trusts, Banking Law, Insurance Law, Financial Leasing, Factoring and Financing Companies Act, Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions will benefit from financial restructuring.

Above mentioned companies, associations, foundations, natural persons and public institutions and organizations will not benefit from financial restructuring.

Companies that are covered may be subject to financial restructuring as a whole or in part with other borrowers in the risk group they belong to.

2) With whom shall the agreement be signed?

Banks, financial leasing, factoring and financing companies, foreign banks and financial institutions that have provided loan facilities directly to the borrowers, multilateral banks and organizations made a direct investments in Turkey, special purpose companies to be established by these creditors for the collection of receivables and mutual funds established in accordance with the Capital Market Law (“Creditor Institutions”)  will be able to sign Agreements with the companies within the scope. Therefore; debts of the borrower company which are not included in these companies shall not be included in the scope of restructuring.

3) What are the necessary conditions to sign the Agreement?

The Agreement aims to enable the borrower companies to fulfill their repayment obligations within the scope of the measures to be taken regarding the loans granted by the Creditor Institutions and also aims to enable the borrower companies to continue to make a contribution to employment.

It is fundamental to determine the borrower’s financial situation and to form an opinion that the borrowers will be able to repay their debts as a result of the financial restructuring. Borrowers deemed to be unable to repay their debts shall not be subject to financial restructuring.

Procedures and principles regarding financial restructuring shall be determined in accordance with the provisions of the regulation issued by the Banking Supervision and Regulation Authority.

4) Who shall determine the financial situation of borrowers?

Determination of the financial situation of borrowers and evaluation of the applicability of financial restructuring shall be carried out by independent audit firms, organizations with sufficient knowledge and expertise within the scope of the Agreement or Creditor Institutions if accepted by the borrower company.

5) What are the measures to be taken within the scope of financial restructuring?

The following measures shall be taken within the scope of financial restructuring:

• to extend the maturities of loans, to renew loans, to provide additional loans,
• to discount or to waive partly or wholly from all kinds of receivables arising from the principal, interest, default interest, overdue penalties, profit share and any other credit-related receivables,
• to discount collaterals, to convert principal, interest or profit share receivables into shareholding partially or wholly; to transfer or assign principal, interest or profit share receivables to special purpose companies or mutual funds established in accordance with the Capital Markets Law for a price subject to cash or collection condition,
• to take the necessary measures such as partly or wholly liquidation, sale, withdrawing from the balance sheet, acting in cooperation with other creditor organizations and making protocols

Since the above-mentioned measures are not limited, it is possible to implement other necessary measures.

Article of the Execution and Bankruptcy Law titled as “postponement of the sale and custody of pledged goods and the return of goods subject to financial leasing” shall apply comparatively for the goods subject to the Agreement. Therefore; the custody and sale of pledged goods subject to the Agreement may be postponed within the scope of conditions set out in the above mentioned article. However, this postponement shall not exceed one year from the date of decision.

6) How will the assets and liabilities of borrowers be determined?

The valuation of the fair value of the collaterals of the loans or the assets and liabilities of the borrowers to be acquired by the creditor as an associate is made by the institutions authorized by the Capital Markets Board to make valuation, if requested by one of the parties. For investment funds established in accordance with the Capital Markets Law, the regulations regarding the valuation in the capital market legislation are reserved.

7) What will be the taxation in the context of financial structuring?

In accordance with the principles set out in the Agreement that shall be signed within the scope of financial structuring;

• The procedures to be carried out shall be exempted from the prison fee and the fees (including the litigation costs) charged in accordance with the Act of Fees No.492 dated 2/7/1964. The papers to be issued (including Framework Agreements and Financial Restructuring Agreements) shall be exempted from the stamp duty charged in accordance with the Stamp Duty Law No.488 dated 1/7/1964.
• The amounts to be collected by the Creditor under any name shall be exempt from the tax on bank and insurance transactions to be paid in accordance with the Expense Tax Law dated 13/7/1956 and numbered 6802.
• The loans granted and to be extended shall be exempted from the fund for supporting the use of resources.

However, these exceptions shall not apply if the creditor organizations dispose the assets and guarantees – except when creditor organizations transfer these to each other or transfer them to the debtor – acquired directly or indirectly due to their transactions under the Agreement.

The exemption clause in the Corporate Tax Law, which is applied for the receivables to be collected from the borrowers, shall also be applied to the institutions that transfer their assets to the Creditor within the scope of the Agreement without the condition of legal proceedings and to the incomes arising from the sale of the mentioned assets that have taken over by the creditor intuitions.

The exception provision in the Value Added Tax Law, which is applied in the transfer of immovable and associate shares to the Creditor, shall be applied to the transfer and delivery of the related assets to the Creditor within the scope of the Agreements and the transfer or delivery of these assets by the transferee Creditor.

In accordance with the provisions of the Contract, the amounts to be withdrawn in accordance with the provisions of the Tax Procedural Law shall be considered as worthless receivable for the creditor and as a waived receivable for the debtor. This provision shall not apply to the restructuring transactions made by the Creditor with the borrowers in the risk group they belong to.

If the debts of a borrower included in the scope of financial restructuring will become a subject to another financial restructuring within two years from the beginning of the year following the signature date of the Agreement, the above-mentioned tax exemptions and incentives shall not be applied.

Even in cases where the transactions executed by the Agreement fall through, the tax, fund and fee exemptions applied shall not be recalled.

8) Which incentives will be applied within the scope of financial restructuring?

The duration of the incentive certificates obtained by the borrowers whose debts are restructured according to the Agreements and the periods of export commitments and the guarantees and bails given by the credit guarantee institutions (Including guarantees provided under the Public Finance and Debt Management Law) shall be deemed to be extended by the periods determined by the Agreements.

9) How long will the provisional article remain in force?

The provisional article which regulates the financial structuring and will be added to the Banking Law will remain in force for 2 (two) years from the date of publication. The President is authorized to extend this period for another two years.

Although the provisional clause will remain in force for a period of two years, the Agreements which will be signed under this clause and the tax exemptions and incentives provided shall remain in force irrespective of the provisional clause for the period in which they are signed.