Turkey: Qualifications And Duties Of Concordat Trustee

Last Updated: 19 December 2018
Article by Hande Pat

Most Read Contributor in Turkey, April 2019

Introduction

The qualifications and duties of concordat trustee are regulated in the amendments to Enforcement and Bankruptcy Law numbered 2004 ("EBL"), together with Law Regarding Amendment to the Enforcement and Bankruptcy Law and Certain Other Laws numbered 7101 ("Law Numbered 7101").

In order to efficiently implement the regulations governing the concordat, it is vital to understand the regulations regarding the qualifications and duties of the concordat trustee, as the concordat trustee is one of the most effective agencies in attaining success at the end of the concordat term. The trustee undertakes important duties, such as taking measures to protect the assets of the debtor, informing the court regarding the progress of the process, and directing the court in rendering the decisions of extension or removal of the delay during the entire term, from the start of the concordat term, until the concordat project is submitted to the court.

Qualifications of Concordat Trustee

The concordat trustee is qualified as a public official who performs the duties stipulated in the law1. The qualifications of the concordat trustee are regulated in Article 4 of the Regulation on the Qualifications of the Concordat Trustee and Compulsory Formation of the Board of Creditors ("Regulation"). Accordingly, the concordat is required:

  • To be a Turkish citizen;
  • To have the relative experience2;
  • To be fully competent;
  • To not have been bankrupt;
  • To not have had his/her duty as a concordat trustee terminated for non-compliance with the duty of care that the assignment required within the past three years;
  • To not have been removed from the profession or public office, nor banned from rendering an art or professional activity, from the date of assignment;
  • To not have been banned from public service;
  • To not be subject to any provision that restrains him/her from performing the duty of concordat trustee according to the relevant legislation with respect to his/her most recent occupation;
  • To not have been sentenced for the crimes set forth in paragraph (ğ) of the Article; and
  • To not have connection to any terrorist organization.

In the second paragraph of the relevant Article, it states that in the event three people are assigned as concordat trustee, it shall be preferred that one of them is a lawyer, and one of them is a certified public accountant. In the doctrine, it is underlined that it would be beneficial if the third trustee has specialty and experience in the field of operation of the debtor3. In fact, if the trustee makes informed decisions that are in accordance with the necessities of the relevant commercial field, then the transactions shall be more profitable during the temporary delay, and this shall serve the concordat's mandate to improve the financial status of the debtor.

Amendments Regarding the Qualifications of Concordat Trustee Stipulated in the Legislative Proposal of 13 November 2018

Certain amendments regarding the qualifications of the concordat trustee are stipulated in the Legislative Proposal with respect to the Procedure to Commence Proceedings of Pecuniary Claims Resulting from the Subscription Agreement ("Legislative Proposal"). Under Article 14 of the Legislative Proposal that amends Article 287(3) of the EBL, if three trustees are assigned, one of them shall be selected from amongst the independent auditors that are authorized by the Public Oversight, Accounting and Auditing Standards Authority ("Authority"), with the condition of operating in the province where the court is located.

Also, Article 15 of the Legislative Proposal, which stipulates amendments to Articles 5 and 6 of Article 290 of the EBL, regulates that the trustees shall be chosen from the list of trustees that is prepared by the regional boards of experts. In order to be included on this list, the condition of completion of training that is given by the institutions, and which are authorized by the Ministry of Justice, is a requirement. The Authority shall notify the regional board of experts of the independent auditors who are so are authorized and approved as cap auditors, and who could be appointed as trustees.

Moreover, the number of cases to which a trustee may be assigned at the same time is limited to five according to the mentioned regulation. In the event the proposal becomes law, the Regulation of Article 4(3) that governs the same, shall also be regulated by the law.

Duties of Trustee within the Term of Temporary Respite

Although the Switzerland Enforcement and Bankruptcy Law ("SwEBL"), which is the source of the regulation used in Turkish law, stipulates that the concordat trustee may not be assigned during the term of temporary respite, and it is necessary to assign a concordat trustee during the period of temporary respite. In the doctrine, it is argued that this requirement is well-intentioned, as assignment of the trustee is important for protection of the creditors during the temporary respite period, in which the debtor has the power of disposition4. Furthermore, as the transactions that are conducted with the approval of the trustee are not subject to the concordat terms, the debtor shall have flexibility in his/her commercial activities during the temporary respite period, in the event a trustee is assigned for this term.

Whereas a single trustee could be assigned by the court, in the event the case so requires, three trustees may also be assigned. For this appointment, the financial condition of the debtor must be sufficient to afford the assignment of multiple trustees.

The decision regarding the assignment of the trustee cannot be appealed. The regulation in Turkish law on this subject diverges from the SwEBL, which stipulates that the decision regarding the assignment of trustee may be appealed. In the doctrine, it is argued that the trustee may be dismissed by the court upon the request of the debtor or the creditors, in order to prevent conflicts that the filing of an appeal could cause5. As the decision of appointment of the concordat trustee is an ex parte proceeding, the commercial court of first instance may revoke the decision regarding the appointment of the trustee.

The principle duties of the concordat trustee during the temporary respite are to investigate whether the preliminary project is reasonable and realizable, and to prevent the diminution of the debtor's assets through inspection of the transactions of the debtor. The court may assign more detailed duties to the trustee according to the conditions of the case. Moreover, the trustee is obliged to report on the progress during the temporary respite to the court. In the event it becomes clear during the temporary respite that the preliminary project will not be successful, the trustee should not wait until the end of the respite period to inform the court of this situation6.

Duties of Concordat Trustee during the Peremptory Respite

Under Article 287(3) of the EBL, assignment of the concordat trustee is also obligatory during the peremptory respite. The primary reason for this requirement is the obligation to secure the assets of the debtor, as well as the interests of the creditors, during the peremptory respite, which term can extend to eighteen months.

Upon the decision of peremptory respite, in the event a new assignment is not deemed to be necessary, the temporary trustee shall continue his/her duties. Appeal of the decision regarding the assignment of the trustee is also impossible during this period. On the other hand, the actions of the trustee may be subject to complaint. In addition, the actions of the trustee shall be subject to supervision of the board of creditors during the peremptory respite. As the board of creditors is an arbitrary institution, the court should also hear the complaints of the creditors regarding the actions of the trustee in the concordat proceedings, if there is no board of directors to secure the creditors' right to fair hearing.

The preliminary duties of the trustee during the peremptory respite are; to assist the with transactions of the debtor (EBL Article 290/2/b), inviting the creditors to notify their receivables by way of announcement (EBL Article 299), examining the notified receivables and preparing a report on the same (EBL Article 290/2/a), informing the court via interim reports (EBL Article 290/2/d), inviting the creditors to deliberate on the project (EBL Article 301), to preside over the board of creditors, and to submit reports to the board (EBL Article 302/1). In addition to these duties, the concordat trustee is to maintain and evaluate the books of the assets of the debtor. Therefore, the trustee shall be able to determine whether the assets of the debtor are proportionate to the concordat proposal. In this process, the pledged creditors, whose receivables will not be covered by the pledge, shall be taken into consideration in the calculation of the majority of the receivables and the creditors.

The trustee's specialization in the field of activity of the debtor may enable him/her to find the appropriate balance between protection of the assets of the debtor, and provide flexibility to the debtor in his/her commercial transactions, while assisting with his/her operations. A trustee who has knowledge regarding the field of operation of the debtor would be able to correctly determine which transactions fall under ordinary transactions of the business, and which transactions qualify as extraordinary, and could cause disruption of the interests of the creditors in the event they are conducted without the permission of the trustee.

During this process, the debtor and the court also have vital responsibilities. The debtor is obliged to provide the trustee with all of the information that is necessary for the fulfillment of the trustee's assignment of supervision. The trustee may direct the debtor in this subject, provide the necessary instructions to him/her. Also, the court should determine which transactions shall be subject to the authorization of the trustee at the beginning of the concordat term, in as much detail as possible for protection of the legal security of the third parties.

Incisive determination of the transactions of the debtor that shall be subject to the approval of the trustee, provides flexibility to the debtor in his/her routine activities. In the event the debtor has such flexibility, he/she shall be able to continue the business activities without interruption, and act in the momentum that commercial life requires, which may have a critical impact on realization of the mandate of improvement by the concordat.

In this process, the trustee may stipulate additional measures, such as freezing the debtor's bank accounts, and limiting the debtor's power of disposition, in the event he/she deems it necessary for protection of the assets of the debtor.

In the event the debtor violates the binding instructions of the trustee, the trustee may request dismissal of the respite from the court. The debtor may argue against such a request.

Duties of Trustee in the Process of Ratification of Concordat

Under Article 302(8) of the EBL, the trustee is obliged to submit any document that is related to the concordat, together with his/her reasoned report regarding whether the concordat project has been approved, and whether the ratification shall be appropriate, within seven days, at the latest, after the end of the period of accession of the creditors. In the doctrine, it is argued that the period for submission of the report of the trustee is definite and, in the event the trustee does not apply to the court within the proper period, the request of ratification shall be rejected without any further examination7. The trustee who does not submit his/her report to the court within the definite term shall be responsible for the harm the debtor suffers therefore under the general provisions8.

The report of the concordat trustee at the time of the request of ratification should summarize the concordat process, as well as any change in the values of the debtor's assets during the term of concordat. In this report, the trustee shall examine whether the conditions referred to in Article 305 of the EBL have been satisfied.

Conclusion

The concordat trustee acts as a bridge between the debtor, the creditors, and the court, and carries out supervision and informational activities at every step throughout the concordat process. Especially, the trustee's efficient fulfilment of the duty to assist with the actions of the debtor provides for protection of the interests of the creditors. Therefore, mindful and efficient performance of the duties of the concordat trustee are crucial for realization of the financial purpose of the institution of concordat.

Footnote

1 Altay, Sümer; Eskiocak, Ali:7101 Sayılı Kanun'la Yapılan Düzenlemelerin Işığında Konkordato ve Yeniden Yapılanma Hukuku, 4th Edition, İstanbul 2018, p.142.

2 Article 4/1/c of the Regulation on the Qualifications of the Concordat Trustee and Compulsory Formation of the Board of Creditors: "Graduating from a university that provides at least four-year bachelor degree program, or domestic or overseas educational institutions that are accepted to be equivalent to these by the Council of Higher Education, and having at least five years of professional experience."

3 Pekcanıtez, Hakan; Erdönmez, Güray: 7101 sayılı Kanun Çerçevesinde Konkordato, İstanbul 2018, p. 37.

4 Pekcanıtez; Erdönmez,, p. 35.

5 Pekcanıtez; Erdönmez, p.39.

6 Pekcanıtez; Erdönmez, s.40.

7 Pekcanıtez; Erdönmez, p. 119.

8 Altay;Eskiocak, p. 143.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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