Amendments to the Execution and Bankruptcy Law: It is Now Possible to Sell Businesses as a Whole
On June 19, 2021, the Law No. 7327 Amending the Execution and Bankruptcy Law and Some Other Laws [“Amendment Law”] was published in the Official Gazette, and accordingly, significant amendments have been introduced to the Execution and Bankruptcy Law [“EBL”]. This client alert aims to outline these amendments.
Amendment of the 3rd paragraph of Article 241 of the EBL enabled the sale of the assets and rights that are commercially and economically integrated and businesses possessing these rights and assets as a whole, in case the sale as a whole would be more profitable. In this respect, it is aimed to ensure the continuity of the businesses that are having financial difficulties especially during the Covid-19 pandemic. This provision also expands the application of the concept of "commercial and economic integrity", which was mainly regulated in the legislation regarding the Savings Deposit Insurance Fund.  [Please see our article titled “Back on the Agenda: Concept of Commercial and Economic Integrity” for further information on this subject.]
Perhaps the most striking provision of the Amendment Law was the one altering the 4th paragraph of Article 308/c of the EBL. Pursuant to this amendment, assumed debts, including loans granted by credit institutions, as per the permission of the concordat commissioner after the decision of temporary respite, will be paid immediately after the pledged receivables and before all other receivables registered at the bankrupt’s assets, including receivables arising from employment laws.
The Amendment Law modifies Article 223 of the EBL on the qualifications and selection procedures of the bankruptcy administrative officers who will take part in the bankruptcy administration. According to the relevant provision, bankruptcy administrative officers will be selected from the list of bankruptcy administrative officers formed by the regional expert boards. One of these officers selected is required to be a certified public accountant, and another to be a lawyer. On the other hand, it is forbidden for a bankruptcy administrative officer to take charge in more than five cases at the same time.
Amendment of Article 295 of the EBL will make it possible to convert the pledged property into cash in accordance with the procedure in the second paragraph of Article 297, if it is not stipulated in the concordat plan that the pledged property will be used by the business, or if its value will decrease or its preservation will be costly. From the sales proceeds, the pledgee will be paid as much as the pledge amount. With this amendment it is aimed to prevent possible losses the pledged creditor may suffer.
The Amendment Law adds the phrase that the obligations arising from contracts that continue during the temporary and final respite will be mutually fulfilled to Article 296 of the EBL. Accordingly, parties will have to fulfill their obligations under the agreements, which they are party to, during the temporary and final respite. With the addition, the Legislator clearly demonstrated its will to keep the contracts alive even in the case of concordat.
With the Amendment Law, Article 297 of the EBL has been amended and it is now become obligatory for the court to obtain the consent of the concordat commissioner and the board of creditors when allowing the debtor who declared concordat to establish a pledge, to be a surety, to make gratuitous dispositions, to make transactions such as transferring and restraining real estates or movables that are important for the continuation of the business operations after the respite decision.
Amendment Law adds the following provision to Article 308 of the EBL: "If the concordat process ends in bankruptcy, the court that issued the bankruptcy decision will decide that the liquidation will be carried out according to the simple or ordinary liquidation procedure and that the ordinary liquidation will be carried out by the commissioners when necessary. In this case, the duties and powers of the bankruptcy administration will be exercised by the commissioners.”.
The following provisional article has been added to the EBL: “In accordance with the sixth paragraph of Article 223, until the list of bankruptcy administrative officers is formed, bankruptcy administrative officers will be appointed from the list without considering the assignment procedure. In order to prevent a person from serving as an officer in more than five cases simultaneously, the appointed bankruptcy administrative officers are notified to the regional expert board of the regional court of appeal to which the enforcement court is affiliated.”. Pursuant to this provisional article, procedures for the appointment of bankruptcy administrative officers have been determined until the formation of the "bankruptcy administrative officers list", which is newly introduced as per the above-mentioned provision of the Amendment Law altering Article 223 of the EBL.
 Regulation on the Sale of Securities Forming Commercial and Economic Integrity by the Savings Deposit Insurance Fund