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Resolving Insolvency in

Turkey

Below is a description of the time, cost and outcome of the most common insolvency proceeding in each economy under the case study assumptions, as well as the strengths and weaknesses in existing insolvency regulations in four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation.

This information was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 190 economies. The most recent round of data collection was completed in June 2016.

Compare Turkey to 189 other economies.

  • Indicator Explanation Answer
    Recovery rate (cents on the dollar) 18.5
    Proceeding The most common and practical way for the hotel to proceed is the postponement of bankruptcy procedure. Article 377 of Turkish Commercial Code and Article 179 of the Turkish Enforcement and Bankruptcy Code regulate this procedure. The debtor must propose a rehabilitation plan. The court may decide to grant up to one year for the debtor to attempt rehabilitation based on the proposed plan. This period can be extended up to 4 years in total. Upon the decision on postponement of bankruptcy, no legal proceeding (including the proceedings for the collection of the public receivables) can be initiated against the debtor and the pending proceedings will be deferred. If the court agrees to postpone the bankruptcy, it will also appoint an administrator in the same decision. The maximum postponement period is one year (it can be extended up to 4 years) during which time the administrator will supervise the business. In most cases, similar to the case study, the debtor does not achieve the projections of the rehabilitation plan and the court will commence liquidation proceedings. liquidation (after an attempt at reorganization)
    Outcome If the debtor fails to achieve its goals shown in the rehabilitation report, then the court will rule for opening its bankruptcy. Therefore in that case it would not be possible for the debtor to continue operating as a going concern. piecemeal sale
    Time (in years) After several months of procedural matters and hearings, the court will grant a one-year postponement of bankruptcy period to Mirage. This period can be extended up to four years depending on the achievement of the rehabilitation plan. In the case of Mirage, the postponement period will last 3 years in total. After the third year, Mirage can request an extension of the postponement period (another year), however, the court will likely deny this this request, because Mirage is not likely to comply with the financial projections of the proposed rehabilitation plan. The court will declare Mirage bankrupt and notify the bankruptcy office. Bankruptcy administrators will be appointed and will carry out the liquidation procedure. Bankruptcy administrators will examine the inventory and financials of the company, review creditors' claims, prepare creditors' list, organize creditors' meetings and facilitate the sale of the hotel's assets. The bankruptcy procedure will last 18 months. Given the recent restructuring of its commercial courts, pending cases are experiencing significant delays while case files are being reassigned to new courts. It is however expected that this reform will speed up proceedings in the longer term. 4.5
    Cost (% of estate) The largest part of the expenses is government levies (4.55% for bankruptcy) and other case-related costs (court fees, publication costs, stamp duty, etc.). Attorney fees comprise about 5% of the total expenses, as per the fee schedule for Monetary Claims and related proceedings before Execution and Bankruptcy Offices. Fees of administrators, auctioneers, accountants and other professionals involved in the insolvency proceedings make up the rest of the expenses. 14.5
    Answer Score
    Strength of insolvency framework index (0-16) 8.0
    Commencement of proceedings index (0-3) 3.0
    What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for both liquidation and reorganization 1.0
    Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (a) Yes, a creditor may file for both liquidation and reorganization 1.0
    What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (c) Both (a) and (b) options are available, but only one of them needs to be complied with 1.0
    Management of debtor's assets index (0-6) 2.0
    Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the debtor? No 0.0
    Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? No 0.0
    Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0
    Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0
    Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of insolvency proceedings? No 0.0
    Does the insolvency framework assign priority to post-commencement credit? (c) No priority is assigned to post-commencement creditors 0.0
    Reorganization proceedings index (0-3) 1.0
    Which creditors vote on the proposed reorganization plan? (c) Other 0.0
    Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation? Yes 1.0
    Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in the same class treated equally? No 0.0
    Creditor participation index (0-4) 2.0
    Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency representative? Yes 1.0
    Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0
    Does the insolvency framework provide that a creditor has the right to request information from the insolvency representative? No 0.0
    Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting creditors' claims? Yes 1.0