New Amendments On Composition Provisions Tighten Oversight Of Composition Proceedings

EA
Esin Attorney Partnership

Contributor

Esin Attorney Partnership, a member firm of Baker & McKenzie International, has long been a leading provider of legal services in the Turkish market. We have a total of nearly 140 staff, including over 90 lawyers, serving some of the largest Turkish and multinational corporations. Our clients benefit from on-the-ground assistance that reflects a deep understanding of the country's legal, regulatory and commercial practices, while also having access to the full-service, international and foreign law advice of the world's leading global law firm. We help our clients capture and optimize opportunities in Turkey's dynamic market, including the key growth areas of mergers and acquisitions, infrastructure development, private equity and real estate. In addition, we are one of the few firms that can offer services in areas such as compliance, tax, employment, and competition law — vital for companies doing business in Turkey.
The changes are effective as of the date of promulgation on the Official Gazette, 19 December 2018, with pending applications remaining subject to the previous version of the provisions.
Turkey

Recent Development

The Turkish Parliament enacted a law amending the composition (tr. "konkordato," a Turkish scheme of arrangement) articles in the Code of Enforcement and Bankruptcy in response to widespread abuse of the composition proceedings. The changes are effective as of the date of promulgation on the Official Gazette, 19 December 2018, with pending applications remaining subject to the previous version of the provisions.

The Amendments

The major amendments are summarized below.

  • The financial analysis reports assessing the viability of the preliminary composition projects, which are submitted with the application, are converted to an audit report assuring the viability of the composition application. Under the amendments, only independent audit firms authorized by the Public Oversight, Accounting and Auditing Standards Institution ("POAASI") will be allowed to prepare these reports. Additionally, the Turkish Audit Standards will be the audit standard the reports must utilize. The motive behind this amendment was to extend the scope of the report.
  • If the court appoints three commissaries to oversee the composition application, one of the commissaries must be licensed by the POAASI as an independent auditor.
  • The commissaries will be selected from the commissary list prepared by the regional court expert committees. In order for a commissary to be registered in this list, they are required to complete a course taught by licensed institutions.
  • The amendments clarify and extend the grounds for dismissal of the composition request and imposition of bankruptcy. Regardless of the stage of the proceedings, the courts will be able to impose bankruptcy if the court believes the applicant is acting with the intent to harm the creditors.

Conclusion

Turkish lawmakers are observing the composition practice and working to reduce the possibility of abuse through tighter regulation.

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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