Back on the Agenda: Concept of Commercial and Economic Integrity

Back on the Agenda: Concept of Commercial and Economic Integrity

Under Turkish law, despite the commercial and economic integrity decision is an institution arising from enforcement and bankruptcy law, today it comes to the fore mainly on the companies that are under the management and control of the Saving Deposit Insurance Fund [“SDIF”]. The significance of commercial and economic integrity decision lies on the point of whether the rights and assets subject to the attachment should be sold and liquidated separately or as a whole along with the enterprise embodying these rights and assets.

In fact, under Turkish enforcement and bankruptcy law, the principle is sale of attached rights and assets separately. The prevalent exception of this principle is regulated and practiced under the SDIF legislation within the framework of commercial and economic integration. In addition, a new draft law altering the Enforcement and Bankruptcy Law No. 2004 [“EBL”] is on the agenda. Accordingly, the draft law stipulates that in cases of bankruptcy, the enterprises that embody the rights and assets which constitute a commercial and economic integrity may be sold as a whole, rather than each of these rights and assets separately. In this regard, in case of the enactment of the draft law, the practice of commercial and economic integrity, which is mainly practiced under SDIF legislation today, will broaden. 

In General: What is Commercial and Economic Integrity?

Pursuant to the EBL, the rule is selling the attached assets separately. In other words, in cases like the bankruptcy of a company, the real estates, intellectual and industrial property rights and other movables of the company are sold in separate. Nevertheless, Article 123/5 of the EBL enables the sale of certain properties, rights, and assets as a whole, if selling them separately would be less profitable. This provision seeks to increase sales revenue. Based on this article of the EBL, the legislation of SDIF authorizes the authority to sell the relevant properties, rights, and assets of companies as a whole in order to collect public receivables. Likewise, as explained in detailed below, pursuant to the draft law amending the EBL, enterprises embodying those rights and assets would be sold as a whole within the scope of the commercial and economic integrity in cases of bankruptcy.

Commercial and Economic Integrity Under SDIF Legislation

The Regulation on the Sale of the Attached Properties Constituting a Commercial and Economic Integrity by SDIF [the “Regulation”] is the prevailing regulation on the matter. Pursuant to Article 4 of the Regulation, the assets that may be sold within the commercial and economic integrity are as follows:

  • Assets and licenses, permits, and concession agreements attached within the Law No. 6183 on the Procedure of Collection of the Public Receivables,
  • Rights arising from temporary or permanent use of frequency and channels regarding Provisional Article 6 of the Law No. 3984, [1]
  • Accessories of these properties, rights, and assets and complementing agreements and any other properties, rights, and/or assets arising from these agreements.

These properties, rights and assets that are cited above may appear in a wide variety. For example:

  • Within the scope of the “Leziz Tarım Ürünleri Commercial and Economic Integrity”, real estates including the olive grove and field, milking shed, feed storage and machinery and devices of meat and milk production that are situated above these real estates, [2]
  • Within the scope of the “Vera Denizcilik Commercial and Economic Integrity”, dry cargo vessel named “Vera 9”, inventories situated on the vessel and affreightment contracts that Vera Denizcilik A.Ş. is the tenant, [3]

have been sold through auction by the relevant sale committee of the SDIF.

As is seen, various assets may fall within the concept of commercial and economic integrity such as ships or groves as well as the agreements that the individual or legal entity whose assets are sold is a party.

SDIF’s Decision Regarding Commercial and Economic Integrity and Its Consequences

The establishment of a commercial and economic integrity is decided on by the Fund Board following the proposal made by the Committee within the SDIF. Accordingly, the sale of the relevant properties, rights, and assets is carried out through tender procedure to be determined. Then, the sale decision and tender procedures, properties, rights, and assets constituting the commercial and economic integrity, are published on the SDIF website and in the Official Gazette alongside the other details.

The main goal of selling the properties, rights, and assets owned by individuals or legal entities that are under control and management of the SDIF is increasing the sales revenue in contrast with the sale of the same separately.

In addition, as a result of the decision on constituting a commercial and economic integrity, bankruptcy of the owner of the components of integrity cannot be requested, and the sale or detainment of such components by third parties including privileged creditors becomes prohibited.[4] This prohibition remains effective for 2 [two] years following the decision and includes the banks and financial institutions holding the assets of the relevant individual or legal entity. Banks and financial institutions cannot to apply to detainment and other debt collection proceedings for their own claims from these persons within the respective 2-year period.

Commercial and Economic Integrity in Draft Law

With the draft law amending the EBL, it is expected to maintain the continuity of the enterprises, especially those that are having rough times due to the Covid-19 pandemic, by “selling the enterprises constituting a commercial and economic integrity as a whole” during the bankruptcy proceedings.

If the Parliament adopts the draft law as is, not only the rights and assets of the bankrupt, but also its enterprises embodying those rights and assets would be sold as a whole within the scope of the commercial and economic integrity, as in SDIF practice. That is, even in case a company bankrupts, its enterprises will continue to operate. Considering the financial difficulties many companies are facing today due to the Covid-19 pandemic, it is doubtless that this new regulation will be crucial for the continuity of businesses.

Conclusion

Despite the commercial and economic integrity is an institution most frequently used for the companies controlled and managed by the SDIF, lately it has come up in connection with the debt collection law again. The decision of integrity aims to increase the sales revenue by selling the company as a whole with its properties, rights, and assets such as real estates or ships that are normally subject to special procedures. Thus, in SDIF practice, the purpose is paying a larger portion of the debts of the creditors in the order table after collecting the public receivables. Respectively, with the draft law amending the EBL, it is expected to maintain the continuity of the enterprises that are already having financial difficulties due to the Covid-19 pandemic by “selling the enterprises constituting a commercial and economic integrity as a whole”. So that, even if the company bankrupts, the enterprise would be able to continue its operations, and in this way, the commercial life would be protected.

 

[1] The Law No. 3984 on Radio and Television Organizations and Their Broadcasts has been abolished by the Law No. 6112. However, Provisional Article 4 of the Law No. 6112 sustains the licenses granted as per the aforementioned article.

[2] Please see the SDIF announcement published in the Official Gazette dated 3.12.2020 and numbered 31323.

[3] Please see the SDIF announcement published in the Official Gazette dated 26.03.2021 and numbered 31435.

[4] Accordingly, in a decision the Court of Cassation reversed the first-degree court’s decision on the grounds of inadequate examination by stating that the bankrupt company that is subject of the judgement might have been taken over by SDIF and that its assets might constitute a commercial and economic integrity which prohibits the bankruptcy of the company. [23rd Civil Chamber of Court of Cassation Decision No. 2019/1331 E. 2019/1377 K. dated 15.4.2019]