Pursuant to Article 179 of the Turkish Execution and Bankruptcy Code (TEBC), an insolvent debtor is entitled to apply to the commercial court and suggest a proposal for restructuring its debts and strengthening its financial status. This is referred to as "stay of bankruptcy" under the relevant article. Under the TEBC, a corporation whose assets are not sufficient to cover its debts may apply to the relevant court on its own initiative; or any of the creditors may request this from the competent court with a restructuring project prepared for that insolvent debtor.
Under this scheme, the insolvent debtor may submit to the court a proposed schedule to restructure its debts. If the court considers this proposal realistic and persuasive, the court may render a stay of bankruptcy decision for a maximum term of one year, subject to extension if required, and the court will then appoint a custodian to the insolvent debtor to monitor the debtor's implementation of the decisions of the court and its suggested restructuring proposal. The total term for the extension can be a maximum of four years. The custodian can be either a natural person or a legal entity. Duties and authorities of the custodian have not been stated in the TEBC. Therefore, the courts have wide discretion to determine these duties and authorities. The court may limit the authority of the board of directors of the subject corporation and decide to subject its decisions to the approval of the custodian. Alternatively, the court may partially or completely lift the authority of the board of directors and transfer it to the custodian.
The court examining the stay of bankruptcy application may decide to take preliminary measures including the suspension of the execution proceedings already initiated or to be initiated, including the execution proceedings for public receivables, with the exception that proceedings arising from liens, pledges and mortgages may continue up to the sale process. The court also may not wait until the end of the proceeding to decide on the preliminary measures and may decide on the injunction upon a stay of bankruptcy application. A stay of bankruptcy decision does not stop the ongoing lawsuits or lawsuits from being initiated, with the exception of a bankruptcy lawsuit, but only prevents the initiation of execution proceedings or holds the pending execution proceedings suspended until the end of the stay term. A stay of bankruptcy decision also does not have any legal effect on the contracts executed or to be executed and does not terminate the rights and obligations of the parties to such contracts.
At the end of the one-year period, (i) if the debtor's financial status has improved (the company's assets are enough to cover its debts) then the Court may decide to lift the decision regarding the stay of bankruptcy and the debtor company may return to its regular governance, or (ii) if the debtor's financial status has not improved, but there is still a possibility for improvement, the court may extend the term for another year upon the request of the custodian, or (iii) if the debtor's financial status has not improved and there is no possibility for improvement, the court will decide to declare the debtor bankrupt.
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