Distressed Turkish companies in almost every industry are attempting to restructure their debts to survive and continue their operations in the wake off the recent economic crisis. The main piece of legislation addressing restructuring is Law No 4743 on Restructuring of Debts to the Financial Sector and amendments to certain laws followed by the Regulation on the General Terms of the Approval, Acceptance and Implementation of Financial Restructuring Framework Agreement.
The Agreement was prepared by the Turkish Banks Association and made available to creditor financial institutions for signing in May 2002 and has been signed to date by all leading national leasing/factoring companies and Turkish banks. The restructuring mechanism set forth under the Law and the Framework Agreement aim to improve the balance sheets of creditor financial institutions and prevent the failure of companies suffering from temporary liquidity problems even though their long-term solvency and financial strength appear sound and reliable.
The Agreement places debtor companies in two main categories. Broad scope companies and narrow scope companies. While both broad scope and narrow scope companies are subject to similar restructuring procedures, there are certain differences. Where creditors representing a minimum of 25% of the total receivables from a broad scope company may initiate the restructuring process, for narrow scope companies the creditors must represent 51% of the total receivables to initiate the restructuring process.
As a means of restructuring, the Framework Agreement introduces certain mechanisms including rescheduling debt, extension of new finance, capital increase, change of management, public offering, sale of subsidiaries and immovables, change of ownership structure and establishing usufruct rights on the shares of the debtor company. The Law also provides certain tax exemptions with respect to the transactions to be executed in accordance with the Agreement.