BRSA Introduces Draft Law to Facilitate Financial Restructuring

Recent Developments

The Banks Association of Turkey (“ BAT ”) distributed to its members the Draft Law on the Restructuring of Debts Owed to the Financial Sector (“ Draft Law ”) prepared by the Banking Regulatory and Supervisory Authority (“ BRSA ”).

What’s New?

• If the Draft Law enters into force, the provisions in the Regulation on the Restructuring of Debts Owed to the Financial Sector (“ Regulation ”), which entered into force on August 15, 2018, will have the force of law and certain significant provisions will be introduced.
• Debtors’ obligations to banks, leasing companies, factoring companies and financing companies (“ Creditors ”)  arising under the facilities provided to debtors before the Draft Law’s entry into force can be subject to financial restructuring if the authorized institutions review and approve the debtors’ financial status and repayment ability.
• Financial restructurings will be completed under the framework agreements (“ Framework Agreements “) to be drafted by the BAT and approved by the BRSA. The BAT will be authorized to classify borrowers according to their credit scale and area of operation in the relevant sector, and to draft different Framework Agreements for each group. The signed Framework Agreements will be subject to the BRSA’s approval and will become valid following the approval. Changes to these agreements will also be subject to the BRSA’s approval.
• Framework Agreements will be implemented with the individual restructuring agreements (“ Restructuring Agreement ”) to be signed between debtors and Creditors within two years following the Framework Agreements’ signing date. The Framework Agreement will determine the scope of the receivables to be restructured; debtors’ qualifications; the minimum contextual requirements of the Restructuring Agreements; and other relevant items.
• One of the most significant provisions of the Draft Law, in parallel with the Regulation, obliges all Creditors who signed a Framework Agreement to agree to restructuring, if the Creditors that own two thirds of the concerned receivables sign the Restructuring Agreement.
• Any dispute arising from the Framework Agreements will be resolved by an arbitration committee consisting of three BAT-appointed arbitrators.
• After executing the Restructuring Agreement, Creditors cannot initiate execution proceedings against the borrower; ongoing execution proceedings will be suspended; provisional injunction and provisional attachment decisions will not be enforceable; and the statute of limitation for borrower’s debts will be suspended.
• The Draft Law will introduce significant tax exemptions which are not regulated by the Regulation. In this respect, the Framework Agreements and Restructuring Agreements will be exempted from stamp duty, fees, banking and insurance transactions tax, resource utilization support fund and other funds or taxes.
• Tax exemptions will be available for the taxes, funds or fees arising from the disposal of assets acquired by the Creditors pursuant to the Framework Agreements and Restructuring Agreements. Tax exemptions will also be available for initiation of the execution proceedings for the collection of receivables if the borrowers breach the Restructuring Agreements.
• The duration of the incentive certificates, export commitments of and the guarantees provided by the Loan Guarantee Fund or others for borrowers whose debts are restructured will be deemed to have been extended in accordance with the duration determined under the Restructuring Agreements.

Conclusion

The Draft Law aims to create uniform financial restructuring transactions, thus making these transactions quicker to close and more advantageous for Creditors and borrowers.