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.
