On September 12, 2019, the Regulation on Restructuring of Debts Owed to the Financial Sector was amended. The amendments constitute a follow-up measure of the Temporary Article 32 of the Banking Law regarding the restructuring of debts, which was enacted in July 2019. Main novelties brought by the amendments are as follows:
Definition of Creditor Entities:
Creditor Entities definition was expanded with the inclusion of:
– banks and financing institutions incorporated abroad and lending directly to the debtors,
– multilateral banks and institutions investing directly in Turkey,
– special purpose companies incorporated for the purpose of debt collection from such creditors, and
– investment funds incorporated in accordance with the Capital Markets legislation for the same purpose.
Definition of Debtor:
The Debtor was formerly defined as companies other than institutions falling within the scope of Banking Law numbered 5411, article 35 of the Capital Markets Law numbered 6362, Insurance Law numbered 5684, Financial Leasing, Factoring and Financing Institutions Law numbered 6361 and Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions numbered 6493.
The amendments specifically mentioned that the companies shall be incorporated in Turkey and further removed investment trusts (yatırım ortaklıkları) from the exclusions provided under article 35 of the Capital Markets Law (e.g. investment companies, independent audit and rating companies).
Scope of Financial Restructuring:
The scope of financial restructuring was amended to indicate that the restructuring should only be for the purposes of ensuring the relevant company to gain the ability to repay its debts within a reasonable time. Consequently, restructuring agreements executed for the purpose of extension, instalment, collateralization, extension of additional loans and other refinancing methods, shall not fall within the scope a Framework Agreement.
The measures which were allowed to be taken within the scope of framework agreements and contracts, under clause 4 paragraph 3 were also removed. These measures include: (i) extension of due dates of loans, (ii) renewal of loans, (iii) extension of additional loan, (iv) reduction or relinquishment of the principal, interest, default interest and share profit as well as all kinds of receivables arising from the loan, (v) partial or complete conversion of principal, interest or share profit to contribution, transfer or assignment of the same in exchange for a payment in kind, in cash or subject to collection condition, partial or complete liquidation, sale or write-off in exchange for a value in kind from the debtor or from third persons, (vi) executing protocols acting in concert with other banks and creditors.
Removal of the 2-year Time Limit:
The amendments also remove the 2-year requirement for restructuring agreements to be executed in line with Framework Agreements within two years as of the date of approval of the Framework Agreement by the Banking Regulation and Supervision Authority (“BRSA”). Instead, the amended clause indicates that restructuring agreement may be executed following the BRSA’s approval of the Framework Agreement, prepared in accordance with the opinions of the Association of Participation Banks of Turkey, and Association of Financial Leasing, Factoring and Financing Companies.
Another amendment was that restructurings falling outside the scope of framework agreements executed prior to July 17, 2019 (which is the enforcement date of the Temporary Article 32), shall also be outside the scope of Framework Agreements and agreements executed within the framework of the Financial Restructuring Regulation.
Further, all terms relating to joinder of creditors other than the creditor entities (as defined under the Financial Restructuring Regulation) as a new party, as well as clauses on termination and penalties to be enforced in the event of termination shall be determined in the Framework Agreements.
Lastly, a new provision setting forth a notification requirement was inserted. As per the new requirement, all information that is deemed necessary by the BRSA, relating to the borrowers, the executed agreements and all acts and transactions performed within the scope of such, shall be submitted to the BRSA in the requested time, form and content.
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