Bankruptcy (Insolvency) in Turkey: A Guide for Foreign Investors
When investing in a foreign country, understanding local business regulations and procedures is crucial for success. In Turkey, bankruptcy (or insolvency) is an important topic for foreign investors, as it addresses a company’s ability to manage financial distress and navigate the legal frameworks available for restructuring or liquidation. This guide will explain bankruptcy and insolvency laws in Turkey and provide insights into the processes and options available for companies facing financial difficulties.
Overview of Bankruptcy in Turkey
Bankruptcy (also referred to as insolvency) in Turkey is primarily governed by the Turkish Execution and Bankruptcy Code. This law provides mechanisms for businesses that cannot pay their debts and are at risk of liquidation or financial restructuring. There are two main types of bankruptcy proceedings in Turkey:
- Involuntary Bankruptcy: Initiated by creditors when the debtor fails to fulfill their financial obligations.
- Voluntary Bankruptcy: Initiated by the company itself when it cannot meet its financial liabilities.
For foreign investors, understanding these processes is critical to ensure they are well-prepared for any potential risks associated with their investments in Turkey.
Types of Bankruptcy Proceedings in Turkey
- General (Ordinary) Bankruptcy General bankruptcy procedures in Turkey allow companies to declare insolvency, where assets are sold to satisfy creditors. A trustee is appointed to oversee the liquidation process.
- Concordat (Composition with Creditors) Concordat, a form of debt restructuring, is designed to help companies avoid liquidation. This allows businesses in distress to propose a repayment plan to creditors, helping them recover without closing down. In Turkey, concordat agreements are overseen by the courts, and they are essential tools for companies looking to reorganize their financial liabilities.
- Suspension of Bankruptcy This legal remedy can be applied when the company provides proof that it can recover financially. The Turkish court grants a suspension of bankruptcy for a specific period, giving the company a chance to improve its financial situation.
The Bankruptcy Process in Turkey
1. Filing for Bankruptcy
When a company is unable to pay its debts, it may file for bankruptcy or creditors may initiate bankruptcy proceedings. Once bankruptcy is declared, the company’s assets are frozen, and the court appoints a trustee or bankruptcy administrator.
2. Appointment of Bankruptcy Trustee
The trustee is responsible for managing the debtor’s assets, collecting receivables, and selling assets to settle debts. The trustee also prepares a liquidation plan, which must be approved by creditors.
3. Debt Settlement and Liquidation
Once the assets are sold, creditors are paid according to the priority of their claims. Secured creditors are generally paid first, followed by unsecured creditors. If there are insufficient assets, some creditors may not receive full repayment.
4. Discharge from Bankruptcy
Once the liquidation process is complete, the company is legally dissolved. The bankruptcy procedure officially ends when all debts are settled or when it is determined that no further assets are available to pay creditors.
Impacts of Bankruptcy on Foreign Investors
For foreign investors, the possibility of a Turkish company entering bankruptcy or insolvency can be a significant concern. Here’s how it can affect you:
- Risk of Non-Payment: If a business you’ve invested in or partnered with goes bankrupt, there is a risk of not recovering your investments or receivables.
- Securing Assets: During bankruptcy proceedings, secured creditors receive priority when the company’s assets are liquidated. As an investor, you should ensure that your interests are secured to minimize risks.
- Legal Representation: Given the complexity of bankruptcy proceedings in Turkey, it is advisable for foreign investors to seek legal advice from an experienced attorney to protect their rights.
Avoiding Bankruptcy: Concordat and Debt Restructuring
Foreign investors should be aware that not all companies that face financial difficulties need to go through liquidation. Turkey has several mechanisms designed to help businesses recover:
- Concordat (Composition with Creditors) Concordat is a voluntary process initiated by the debtor to restructure its debt. The company proposes a repayment plan to its creditors, which, if approved, allows it to continue its operations and avoid bankruptcy.
- Benefits of Concordat: It offers debtors a chance to recover, while creditors receive some form of repayment.
- Court Oversight: The courts in Turkey must approve the concordat agreement, and an auditor monitors its implementation.
- Restructuring through Mediation An alternative to concordat, mediation can be used to resolve disputes between creditors and debtors, allowing both parties to agree on a repayment plan without involving the courts.
Insolvency Alternatives for Foreign Investors
As an investor, if a business you are involved with in Turkey faces insolvency, you have several options to mitigate risk:
- Debt Restructuring: Investors can work with the business to restructure its debt, potentially converting debt into equity or negotiating extended repayment terms.
- Selling Assets: You may negotiate the sale of specific company assets to cover liabilities or protect your investment.
- Exit Strategy: In some cases, it may be best to exit the investment before the company faces bankruptcy. This can be done by selling your shares or liquidating your equity position.
Protecting Your Investment: Our Expert Services
Navigating the complexities of bankruptcy and insolvency in Turkey can be daunting, especially for foreign investors unfamiliar with local regulations. To protect your investments and ensure that you are well-prepared for any potential financial risks, We offer specialized advisory services tailored to foreign investors. With over 15 years of experience working with multinational companies, we provide expert guidance in the following areas:
- Debt Restructuring Consultation: Help businesses and investors avoid bankruptcy by implementing debt restructuring strategies.
- Exit Strategy Planning: Advise on the best course of action for investors looking to minimize losses or exit a financially distressed business.
By partnering with me, you will have the tools and insights necessary to navigate the complexities of the Turkish business landscape, ensuring that your investments remain secure.
Conclusion
Understanding bankruptcy (insolvency) in Turkey is essential for foreign investors. The Turkish legal system provides several avenues for businesses in financial distress, including bankruptcy liquidation, concordat, and debt restructuring. Foreign investors should be aware of these processes and prepare strategies to protect their investments in case of financial difficulties.
To safeguard your investments in Turkey, it is crucial to seek professional financial advice and legal representation. We are here to provide you with the expert services needed to navigate these challenges and minimize risks. For more information on protecting your investments or for guidance on bankruptcy procedures in Turkey, feel free to reach out to us.
FAQ
1. What is the bankruptcy process in Turkey?
Answer:
In Turkey, bankruptcy is a legal process where a company’s assets are liquidated to pay off creditors. The process begins when a company files for bankruptcy or is declared bankrupt by the court. Creditors can also initiate bankruptcy proceedings if the debtor fails to meet financial obligations.
2. Can foreign-owned companies file for bankruptcy in Turkey?
Answer:
Yes, foreign-owned companies operating in Turkey can file for bankruptcy under Turkish bankruptcy laws. The process is similar to that for local businesses, and it involves court procedures to settle debts and liquidate assets, if necessary, to repay creditors.
3. What types of bankruptcy are available in Turkey?
Answer:
Turkey offers two main types of bankruptcy: ordinary bankruptcy, where a company ceases operations and liquidates its assets, and suspended bankruptcy, where a court grants time to restructure debts and avoid liquidation. The latter aims to help companies recover without immediate closure.
4. How does bankruptcy affect creditors in Turkey?
Answer:
In Turkey, when a company files for bankruptcy, creditors have a legal claim to the company’s assets. The court appoints a trustee to manage asset distribution, and creditors are prioritized based on the nature of their claims (secured, unsecured, or preferential debts).
5. What are the alternatives to bankruptcy in Turkey?
Answer:
Alternatives to bankruptcy in Turkey include debt restructuring and conciliation agreements, where a company negotiates new payment terms with creditors to avoid liquidation. These options provide businesses with time and flexibility to recover without going through formal bankruptcy procedures.
Invest CPA Ltd. Turkey 