On 19 July 2019, certain amendments to the Banking Law No 5411 (the "Banking Law") concerning the restructuring of debts owed to the financial sector entered into force. Although standalone drafts had been distributed to the members of the Banks Association of Turkey from time to time since last summer, the Turkish government finally decided to insert a "Provisional Article 32" into the Banking Law, setting out all the provisions related to this issue, rather than having a separate restructuring law.
Under Provisional Article 32, the general procedures and principles of financial restructuring regulated by the Regulation on the Restructuring of Debts Owed to the Financial Sector (the "Regulation") have been reformulated, and several new tax exemptions for the actors of restructuring have been introduced.
Provisional Article 32 is applicable for a period of two years from 19 July 2019, and the President of the Republic of Turkey can extend this period for an additional period of two years. Having said that, the tax exemptions – briefly explained below – are not subject to these time limitations.
Below you can find the key changes introduced under Provisional Article 32:
- The definition of creditor institutions now includes (i) non-resident banks and other financial institutions that have directly lent to a Turkish resident borrower; (ii) institutions and multinational banks that have directly invested in Turkey and (iii) special purpose vehicles (companies) established by these institutions to collect receivables, and investment funds established for the same purpose.
- Provisional Article 32 covers all kinds of measures related to the financial restructuring process that were previously set out in the Regulation, including term extension, the extension of new loans, write-downs and the conversion of debt into equity by creditor institutions.
- The borrower’s repayment ability and the evaluation about the feasibility of financial restructuring is either assessed by independent audit firms or, subject to the prior approval of the borrower, by the creditor institutions.
- In order to give some comfort to the officials and directors of financial institutions, in particular to bank directors, it is further emphasised that a decline in collaterals/securities, write-offs of the principal amount and other receivables and similar transactions within the scope of restructuring will not be considered as embezzlement (zimmet suçu, in Turkish).
- Several tax exemptions have been introduced for the transactions and documents to be entered into within the scope of financial restructurings, such as exemption from stamp duty, the resource utilisation support fund, as well as banking and insurance transaction tax etc.
- These tax exemptions are not applicable to the disposal of assets and collaterals/securities that have been directly or indirectly acquired by the creditor institutions within the scope of financial restructuring transactions. Having said that, transfers between creditor institutions and/or to the borrower are also considered to be covered by the exemptions.
In addition to these changes introduced under Provisional Article 32, an additional paragraph has been added to Article 53 of the Banking Law. Accordingly, loans that have been written-down due to an inability to collect relevant receivables will be considered as “bad debt” under the Tax Procedure Law No. 213, on the condition that a special reserve is allocated for the loans.
In compliance with Turkish bar regulations, opinions relating to Turkish law matters that are included in this client alert have been issued by Özdirekcan Dündar Şenocak Avukatlık Ortaklığı, a Turkish law firm acting as correspondent firm of Gide Loyrette Nouel in Turkey.
This client alert is not intended to constitute legal advice and should not be taken as a recommendation to take action or withhold from taking action.