ASC Law Office > Firm Profile

The firm: ASC Law is a leading full-service law firm with its unique composition of consultancy, litigation, and enforcement/debt collection departments. Bringing together more than 50 lawyers and 170 employees in total, it has been serving domestic and international clients since 2001.

ASC has extensive experience in the structuring of complex transactions and of the different demands of clients and thus the ability to understand the needs of the parties involved in a particular transaction. ASC represents a variety of major multinational corporations, banks and financial institutions located in Turkey and abroad from diverse industries including energy and natural resources, telecommunications, real estate, construction, transportation and retail.

Areas of practice: ASC is mainly an excellent resource for all areas of Turkish law and particularly specialises in project finance, banking and finance, acquisition finance, IPO, capital markets, mergers and acquisitions, derivatives, corporate, litigation, arbitration, real estate, structured finance, intellectual property and labour law among the others.

ASC creates synergy by combining its extensive expertise in energy and finance and advises both lenders and borrowers in relation to project finance deals in the energy industry. ASC has been acting as legal counsel in various energy financing deals, including hydro-power plants, wind farms, biomass plants and solar farms.

ASC has significant expertise and experience in financial debt restructuring deals. This vast experience includes all complex industries such as energy, infrastructure and retail. Two recent key mandates of ASC on financial debt restructuring are (i) acting as local counsel to the lenders on the restructuring of $5.5bn debt of a leading conglomerate and its group companies extended by 13 different banks (largest debt restructuring ever in Turkey in terms of debts restructured) and (ii) acting as the local legal counsel to the lenders in the $1.6bn financing of the indirect shareholder of Turkey’s largest mobile operator and currently advising a reputable Turkish bank on refinancing of the same existing loan facilities.

M&A is another ASC specialty and the firm has taken part in numerous M&A deals. Recent experience of ASC includes acting as legal counsel to a conglomerate on sale of 100% shares of the franchise operator of a leading global fast food company.

ASC also provides its clients with top-notch legal advice in capital market deals. The firm regularly participates as issuers’ or underwriters’ legal counsel for initial public offerings, issuance of bonds, and other securitisations in Turkish and international capital markets. ASC has acted as legal counsel to a reputable food products wholesale and retail company on its initial public offering, the largest IPO in Turkey in recent years.

ASC has significant experience in litigation with regards to private and public laws; such as labor law, commercial law, real estate law, expropriation law. ASC has extensive knowledge and experience in national and international arbitration proceedings and has represented telecom and construction companies in international arbitration proceedings.

The litigation team works closely with the corporate/transactional team to make ASC one of the few full-service law firms in Turkey.

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	Emirhan Öncü	Associate	View Profile
	İrem Akın	Senior Associate and Mediator	View Profile
	Mr Murat Aksu	Founding Partner	View Profile
	Ayşe Esra Altan	Associate	View Profile
	Muhammet Altuntaş	Associate	View Profile
	Ms Begum Busra Aslan	Associate	View Profile
	Ms Hilal Bayar	Senior Associate	View Profile
	Ceren Bayar	Associate	View Profile
	Didem Bayraktar	Associate	View Profile
	Merve Bekiroğlu	Associate	View Profile
	Mr Okan Beygo	Founding Partner	View Profile
	Ms Aysem Cemre Caglayan	Senior Associate	View Profile
	Mr Zeki Caliskan	Founding Partner	View Profile
	Mr Arda Cosar	Senior Associate	View Profile
	Mr Dogan Cosgun	Managing Partner	View Profile
	Tuana Dikmen	Associate	View Profile
	Ekin Ergün	Associate	View Profile
	Nihat Güzeler	Associate	View Profile
	Ms Oya Gokalp	Senior Associate	View Profile
	Ms Dilara Goksu	Associate	View Profile
	Beray Sena Kılıç	Associate	View Profile
	Gökberk Kafalı	Associate	View Profile
	Ms Zeynep Kalem	Associate	View Profile
	Ms Oyku Su Karahan	Associate	View Profile
	Mr Cem Keser	Partner	View Profile
	Mr Ayhan Kilinc	CEO	View Profile
	Ms Caglar Kokturk Akoymak	Partner	View Profile
	Mustafa Oğulcan Kurt	Associate	View Profile
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	Mark D. Skilling	Of Counsel	View Profile
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Cumulative Voting System in Privately Held Joint Stock Companies in Turkey

Under Turkish corporate law, the management body of Joint Stock Company is “Board of Directors” and the directors are elected by shareholders through their affirmative votes in shareholders’ meeting ( “general assembly meeting”).  The capacity of shareholders to have an impact on the management of the company depends on one’s number of shares in the share capital of the company as it reflects upon one’s power in voting for the election of the board of directors.

Shareholders don’t have any direct management rights but indirectly impacts the company’s management and policies through their voting power for the appointment of the board members. Voting rights belong to shareholders due to their ownership of shares. Each share gives shareholder at least one voting right and in the general assembly, voting rights are proportionate to one’s amount of shares. Shareholders voting in proportion with their shares in the general assembly is known as the “straight voting system”.

As an alternative to straight voting system, “cumulative voting system” is regulated under article 434/4 of Turkish Commercial Code (“TCC”); which enhances the shareholders’ ability to have an impact on the selection of board members of the privately held joint stock companies. Cumulative voting system, especially in privately held joint-stock companies where there is no controlling majority shareholder and an alliance is necessary due to the multiplicity of shareholding, increases each shareholder’s involvement in the management, along with providing a potential for minority shareholders to be represented more in the board of directors.

1. MAJORITY RULE AND VOTING SYSTEMS

One of the main principles of joint-stock companies is the majority principle. Accordingly, in general assemblies decisions are made in line with the majority. Majority is achieved by the amount of shares a shareholder owns, not by the number of shareholders. The voting rights are calculated in proportion with one’s shares in the share capital of the company.

To implement the majority rule in an absolute form would bring the danger of minority shareholders’ rights being violated or it might cause failure in decision-making due to having multiple minority shareholders. In order to eliminate such danger and enable the minority to be represented in the company’s management, the lawmaker foresaw certain mechanisms. One of these mechanisms is the “cumulative voting system” relating to the selection of the board of directors in the general assembly.

Customarily, in general assemblies of joint-stock companies there are two different methods of voting. The first method is the “straight voting system” where each share authorises one voting right to vote for each board member candidate. In this system, shareholders who own the majority of the shares of the joint-stock company have the opportunity to select all of the board members as a result of the majority rule. The second method, “cumulative voting system” attempts to enhance the power of minority votes by providing shareholders to almost cumulate their votes and then divide it up. In this system, the shareholder owns a voting right equal to the multiplication of the number of board member candidates and his/her own shares. Unlike the straight voting system where each board member is elected one by one, the cumulative voting system requires board of directors to be chosen all together at once. As the latter allows minority shareholders to form an alliance to vote for one or two candidates therefore enabling their representation, the cumulative voting system is an exception to the common majority rule in joint-stock companies.

2. THE PRINCIPLES OF CUMULATIVE VOTING SYSTEM

2.1 Cumulative Voting System For Privately Held Joint-Stock Companies Is a Method Accepted by TCC: Cumulative voting system has been accepted for privately held joint stock companies under article 434/4 of the TCC. With article 434/4 of TCC, Trade Ministry was delegated the authority to regulate the cumulative voting system for privately held joint-stock companies. Pursuant to this, The Trade Ministry published the “Communique Regarding the Fundamentals of Using the Cumulative Voting System in the General Assemblies of Privately Held Joint-Stock Companies” (“The Cumulative Voting System Communique”) through the Official Gazette dated 29.08.2012 and numbered 28396. Accordingly, the terms and operation of the voting system in privately held joint-stock companies, along with the calculation of the votes are subject to The Cumulative Voting System Communique.

2.2 Objective of the Cumulative Voting System is to alleviate the Representation of Minority Shareholders in the Board of Directors: As a rule, in joint-stock companies, the decisions of the general assembly are in line with the wishes of the shareholders who own the majority of the votes. As a result of the majority rule, in general assembly’s relating to the election of the board of directors, the members are selected according to the will of the majority; therefore, the minority shareholders do not have an impact on the election. The cumulative voting system provides an opportunity for shareholders with lesser shares to cumulate their voting rights and use it effectively to have an influence on the election of the board members. This method puts forward a legal mechanism which allows minority shareholders to be represented in the board of directors in relation to their rate of shares.

2.3 Cumulative Voting System is a Method Which Can Only Serve the Election of Board of Directors: In line with its objective, the cumulative voting system is reserved for the election of board members in the general assembly. In other words, such voting system can neither be used in a general assembly unrelated to the election nor be applied to any other agenda in an assembly where board of directors are elected.

2.4 Cumulative Voting System, Subject to Demand before Each General Assembly (As an Alternative to Straight Voting System) Is a Discretionary System: Although there should be an explicit provision in the company’s articles of association for cumulative voting to be implemented, this does not come to mean each election of the board of directors must use cumulative voting. To include the cumulative voting system in the articles of association does not remove the straight voting system altogether; however, it allows the invocation when the shareholders specifically request it as an alternative to the straight voting system. Thus, a shareholder who plans on voting under the cumulative system must inform the company at least a day prior the general assembly where the board of directors will be elected. Without such notice, the relevant general assembly will operate with the straight voting system. To elect the board of directors via the cumulative voting system, notice by only one shareholder prior to the general assembly would suffice. In such scenario, all shareholders (including ones who have not given any notice) must vote under the cumulative system. In other words, upon at least one shareholder’s demand, all shareholders are obliged to use their voting rights according to the cumulative voting system.

2.5 In Cumulative Voting System, It Is Substantial That All The Board Members Are Elected in The Same General Assembly. As a general rule, under the cumulative voting system, partial election of board members is prohibited. All members must be elected in the same general assembly meeting and take office for the same duration. Therefore, in case of a vacancy on the board, all the remaining members’ office terminates, and the board of directors must be reconstituted. The obligation to elect all members at once, the vacancy on the board, and certain exceptions are thoroughly explained below under (6) “The Effect of a Vacancy on the Board of Directors to the Cumulative Voting System”.

3. COMPARING CUMULATIVE VOTING SYSTEM WITH STRAIGHT VOTING SYSTEM

3.1 In the Case of Electing Board Members, “Cumulative Voting” Is an Alternative to Straight Voting Where Minority Shareholders’ Voting Power Is Enhanced: Straight voting system is accepted by TCC regarding all general assembly resolutions and it depends on the principle where a shareholder’s voting rights are proportional with her shares in the share capital of the company. So, the rule in the straight voting system states that each shareholder can vote for each matter with his/her voting power, which is proportionate and limited to the quantity of their shares. Similarly, in general assembly where board members are elected, straight voting allows shareholders to vote in proportion to their share quantities for each candidate separately. Therefore, each candidate is being voted severally; and in line with the majority rule, the candidate voted by the majority shareholder is elected as the board member. Whereas in the cumulative voting system, the voting right is attained by the multiplication of a shareholder’s number of shares and the number of member candidates. The shareholder can use his/her votes in only one candidate or can divide up the votes between several members. Thus, shareholders’ voting rights are calculated cumulatively, allowing them to distribute between candidates as they wish. Due to this, unlike the straight voting system where each board member is selected individually, under the cumulative voting system there is only one voting for electing all the board members. As a result, board member candidates are arranged from most voted to least voted, and from such sequence the number of available board seats are filled.

3.2 In a scenario for a company which has a share capital of TL 100 (hundred) (100 shares with the nominal value of TL 1), A owns 70% and B owns 30% of shares. In the election for the board which consist of 3 (three) members, A puts forward X, Y, Z candidates and B proposes Q, P, R. The calculation for such election under (i) the straight voting system and (ii) the cumulative voting system will be as explained below.

4. THE REQUIREMENTS TO APPLY THE CUMULATIVE VOTING SYSTEM

4.1 The Articles of Association of the Company Must Explicitly State the Cumulative Voting System: There are 2 fundamental arrangements that a joint-stock company’s articles of association must include in order to apply cumulative voting for the election of board of directors.

4.1.1 An Explicit Provision Regarding the Cumulative Vote: There must be an explicit and clear provision in the articles of association stating that all the shareholders can cumulatively vote for one or more board members in the general assembly and that upon request of the shareholders, cumulative voting is available as an alternative.

4.1.2 A Fixed Number of Board Members Which Is Not Less Than Three: In order for the cumulative voting system to operate, the board of directors must at least consist of 3 members and accordingly, the articles of association must include a fixed number of members which is also not less than 3.

4.2 There Must Be No Provision in The Articles of Association Which Disable the Cumulative Voting System: According to the Cumulative Voting System Communique, it is prohibited for a privately held joint-stock company to include a provision in its articles of association which render the cumulative voting system inoperative.

4.2.1 Nomination Privilege: Under article 360 of the TCC, there is a privilege allowing certain shareholder groups to be represented in the board of directors, thus allowing nomination of a candidate. If the cumulative voting system is to operate, the articles of association must not include a provision relating to the candidate nomination privilege under article 360 of the TCC.

4.2.2 Privilege in Voting: Under article 479 of the TCC, there is a privilege which allows attainment of at most 15 different votes for equal nominal shares. If the cumulative voting system is to operate, the articles of association must not include a provision relating to the privilege in voting under article 479 of the TCC.

4.3 It Is Mandatory to Notify the Company before the General Assembly That the Cumulative Voting System Will Be Applied: The explicit provision in the articles of association is not sufficient to use cumulative voting. A shareholder who wants to vote under the cumulative system must provide a written notice to the company at least 1 (one) day before the general assembly. Therefore, without any written notice by a shareholder; as with any other agenda item, the straight voting system will be used for electing the board of directors.

4.4 The Straight Voting System Is Applied for All the General Assembly Resolutions except the Election of The Board of Directors: Even if a shareholder has provided a written notice and the board of directors will be elected with the cumulative voting system, the other agenda items of the general assembly will be subject to the straight voting system. Thus, in the relevant general assembly, cumulative voting system and straight voting system would be applied together, with the cumulative system being limited to the election of the board members.

4.5 General Assembly Announcements Must Include Statements Regarding the Cumulative Voting System: The joint-stock companies which implement the cumulative voting system must include explanations of the cumulative voting system in the general assembly announcements and on the website, if they send out an announcement inviting relevant people to the general assembly.

4.6 In the General Assembly, Cumulative Votes Are Given Via Ballots: Cumulative votes are given via written ballots which indicate the distribution of the cumulative vote, along with including the voter’s number of votes, name, surname, and signature. Even if there is no instruction under the certificate of representation regarding cumulative voting, as it is obliged to vote in such manner upon the request of any one shareholder or representative, the representative votes under the cumulative system when obliged. If there are no specific instructions under the certificate of representation, the representative decides on the distribution of the votes.

5. THE METHOD TO CALCULATE THE CUMULATIVE VOTE AND FORMULAS

 5.1 The Distribution of the Cumulative Vote and Utility Maximization: It is in the shareholders’ discretion to give a written notice to invoke the cumulative voting system, to decide to vote in the general assembly, and to divide their votes. Therefore, the ability to use the voting rights cumulatively does not in itself bring a representation guarantee in the board for the minority shareholders as they can distribute their votes as they intend to.

Nevertheless; if the shareholders want to be represented in the board and elect the optimum number of board members, they should determine the number of members their votes can elect, calculate how the distribution between the candidates should be made, and divide their votes in an optimal manner. The cumulative voting system does not guarantee representation of the minority shareholders in the board, however, depending on the composition arising from the mathematical calculation of probabilities, such representation is enabled. Therefore, each shareholder should make a calculation regarding their shares and the candidate number; and according to the outcome, shareholders should make an optimum level distribution of their votes to choose the board members. On the other hand, if the shareholder who is voting cumulatively has voted for more than one candidate without indicating any specific division, it is assumed that the votes are distributed equally between the candidates.

5.2 Formulas relating to the Calculation of the Cumulative Vote: The two formulas of the cumulative voting system which depend on variables are explained as below.

5.2.1 The Calculation of The Minimum Requisite Share/Vote for the Desired Number of Board Members to be Elected: The below formula calculates the minimum requisite of share/vote for shareholders to use in order for the desired number of members to be elected for the board.

5.2.2 Calculation of the Number of Candidates to be Chosen for the Board of Directors with Reference to One’s Owned Shares/Votes: Taking a reference from the formula above in section (5.2.1) regarding the number of the shareholder’s owned share/vote, the below formula creates the possible number of members which can be elected by that shareholder.

5.2.3 Principles of Applying the Formulas and Examples: From the outcomes of the calculations made above in section (5.2.1) and (5.2.2); (i) the P2 value in the first formula is the number of share/vote thus any fractions should be disregarded and (ii) the A in the second formula is the number of board members thus any fractions should be disregarded. Additionally, the share/vote number calculated under the above formulas are based on share numbers and do not represent the share’s equivalent in percentage. Therefore, in application of the above formulas, the shareholder’s share/vote number should be taken into account rather than the percentage of his/her shares within the company’s capital.

In applying the above formulas, below is given the minimum requisite number that a shareholder must have to be able to choose the desired number of the board members in a joint-stock company which issues 10,000 shares and votes, each consisting of TL 1. Table-1 depicts a scenario where 7 (seven), whereas Table-2 depicts an example where 11 (eleven) members are to form the board of directors.

6. EFFECT OF A VACANCY ON THE BOARD OF DIRECTORS TO CUMULATIVE VOTING SYSTEM

 6.1 General Rule Regarding the Prohibition on Filling the Vacancy on the Board: The Cumulative Voting System Communique article 5 paragraph 8 states: “The law numbered 6102 states that in case of a vacancy on the board under article 363 or a dismissal from the office under article 364; if the member who did not fulfil the office’s duration has been chosen with the cumulative voting system, other members are dismissed from office collaterally and a new election is made to choose the new board of directors. Nevertheless, this rule does not apply when the membership ends by itself under article 363 paragraph 2, or when the termination’s justification under article 364 is accepted by the court.” According to this regulation, in case of a vacancy on the board under article 363 of the TCC or a dismissal of board member under article 364 of the TCC the vacancy cannot be filled via another cumulative voting system. In other words, a temporary member cannot be appointed by the board or be submitted to the approval in the general assembly.

 6.2 Exceptions to the General Rule: As a rule, if the board has been selected in a cumulative voting system and one of the member’s office ends before it is due, all the other members’ offices are terminated. In scenario, a new general assembly is convened to reconstitute the board and choose the members again. Although this is the main principle, there are certain exceptions. As the Cumulative Voting System Communique article 5 paragraph 8 states, depending on the existence of the conditions and circumstances stated below, the board of directors can appoint a temporary board member to submit it for the general assembly’s approval in case of a vacancy on the board under article 363 of the TCC:

 6.2.1 Non-completion of the Office by a Member Who Has Been Elected by the Majority Shareholders: If the member in question has been elected by the affirmative vote of the majority shareholder, other members of the board continue their offices. In this scenario, the discharged office can be filled through the board’s decision appointing a new member.

 6.2.2 Membership Ending by Itself under Article 363/2: The article 363/2 of the TCC states: “if a board member is declared bankrupt or under interdiction or a lawful condition for the membership loses its qualification envisaged under the articles of association; then such membership can be terminated without any proceeding”. Therefore, in cases of bankruptcy declaration, under interdiction or losing of envisaged qualifications under the articles of association (e.g. a certain duration of professional experience, an affiliation with a specific occupational group, not being sentenced by particular crimes etc.) membership ends by the order of the law. In such resolution of office by the statute, a new member can be appointed by the board’s decision which can invoke the gap-filling method.

 6.2.3 Dismissal from Office of the Board Member by the General Assembly Whose Justification Has Been Found Reasonable by the Courts (Discharge): Article 364/1 of TCC 1 states that: “Even if the members of the board are appointed by the articles of association, they can be dismissed from office when there is no relevant section in the agenda or even if there is, when a rightful justification exists.” Therefore, as a rule, in the straight voting system the general assembly holds the power to always end one’s membership with a rightful justification. When the termination by the general assembly is according to a court’s judgment, other board members continue their membership and a new member can be appointed by the board’s decision which can invoke the gap-filling method.

CONCLUSION

1. The cumulative voting system is an effective and functional legal mechanism which can enable the optimal representation of the minority shareholders in the privately held joint-stock companies under Turkish corporate law.

2. The cumulative voting system can increase the representation ability of minority shareholders either by themselves or by the aggregation of their vote/capital powers, especially when it is compared with the nomination privilege under article 360 of the TCC. Because, under article 360 the TCC, nomination privilege, shareholders are only granted the right to propose a candidate to the general assembly which does not guarantee that the candidate will be elected. In the end, the right to choose a board member is reserved to the general assembly and the general assembly has the authority to not choose the candidate. Whereas in the cumulative voting system, the shareholder’s nominated candidate is elected so long as there are sufficient mathematical voting right/shares.

3. The cumulative voting system can be regulated in a discretionary manner under the AoA and it can be used as a backup to be invoked when there is a controversy between the shareholders. In this aspect, without any conflict between the shareholders, the cumulative voting system will not be needed; however, if a disagreement occurs, any shareholder can demand the application of the cumulative voting system, creating a high possibility of representation in the board. Therefore, the cumulative voting can be evaluated as a system invoked when there is a conflict, which allows shareholder representation in the board of directors without being dependent on the majority.

DEBT RESTRUCTURING IN TURKEY: USE OF “FRAMEWORK AGREEMENTS”

In the following article we address the use of standardized “Framework Agreements” – prepared by the highly-regarded Banking Association of Turkey[1] – in debt restructuring negotiations[2]. The use of this relatively new restructuring tool has been instrumental, it is fair to say, in providing at least temporary financial relief to hundreds of Turkish companies operating under the weight of crushing debt loads, the result, for the most part, of Turkey’s recent economic woes[3]. Because of this, many viable and productive companies, which otherwise faced liquidation, have been able to continue their operations and thrive.

When used in appropriate circumstances, we have found Framework Agreement-based restructuring to be quite effective, as well as being popular – and, we believe, for good reason – with our clients. For example, since coming into force, ASC Law has represented both debtors and creditors in successful restructurings, using the Framework Agreement procedure, totalling nearly five-billion Dollars.

Although the decision regarding the use of this procedure should be made only after thorough analysis of all the relevant facts and law, being aware of this important restructuring tool, along with having a working understanding of its operation, is essential for all businesses doing business in Turkey[4].

Background

The Turkish economy, already stagnant for years, continues to suffer under a nearly decade-long depreciation of its currency, coupled, more recently, with the blow of Covid-19. Since 2013, for example, the Turkish Lira (“TL”) has dramatically weakened, from slightly less than 2 TL/US$1 to, presently, just shy of 9 TL/US$1[5]. During this same period, Turkey’s per capita income has dropped, according to World Bank, from its all-time high of US$12,615 in 2013, to only US$8,538 in 2020, close to a 33% decline[6].

Faced with this systemic, and prolonged, economic weakening, Turkey amended its Bankruptcy Law in 2018 to provide for a modified “postponed of bankruptcy” procedure, aka the “Concordatum”, whereby a Turkish company facing temporary, but serious, financial difficulties is able to seek protection from its creditors under the auspices of a Turkish Court[7]. Pursuant to this procedure, for example, creditors can be kept at bay for nearly two years, providing the parties an opportunity to seek a negotiated restructuring.

As useful, and widely used, as Concordatum has been, it requires the considerable involvement of already overwhelmed Turkish Courts, leaving both creditors and debtors vulnerable to these slow, and often unpredictable, decision makers[8]. Concordatum also leaves debtors burdened – often oppressively, and for extended periods of time – by Court-appointed Trustees charged with overseeing the debtors’ operations.

An alternative procedure – which focuses on debt held by “financial institutions”[9], and involves the use of standardized “Framework Agreements” – was also the subject of legislation passed in 2018[10]. The Framework Agreement procedure was, and is, aimed to address, among other things, several of the perceived shortcomings of the Concordatum procedure. Most importantly, the procedure all but eliminates the involvement of Turkish Courts, while doing away with third-party oversight of debtor operations.

The Standardized Framework Agreements, and the Financial Institution “Signatories”

As mentioned above, the Turkish Parliament passed legislation, in 2018, whereby the Banking Association of Turkey (“BAT”) was charged with preparing a standardized Framework Agreement for use in debt restructurings, subject to the final approval of the Turkish Banking Regulatory and Supervisory Authority (the “BRSA”). The efforts of BAT, with the BRSA’s approval, resulted in the creation, in 2019, of not one, but two standardized Framework Agreements[11].

One of these two Agreements, the “Large-Scale Financial Restructuring Framework Agreement”, is for use with regard to restructuring of the debts exceeding 100 million TL. The other Agreement, the “Small-Scale Financial Restructuring Framework Agreement”, is used for debt amounts less than 100 million TL.

The final, crucial step was securing the agreement, of a critical mass of Turkish financial institutions, to abide by the Framework Agreement terms, both during restructuring negotiations and with regard to any resulting restructuring agreements. All but a handful of these institutions signed on to the terms. The list of those who did – the “Signatories” [12] – includes all significant Turkish financial market players, and more.

Initial Indications of the Efficacy of the Framework Agreement Procedure

Since the Framework Agreements were finalized, according to BAT data, between October 2019 through August 2021 successful restructurings using the “Large-Scale” Framework Agreement have totalled more than 100 billion TL (approximately US$11.5 billion). Between November 2019 and August 2021, “Small-Scale” Framework Agreement restructurings totalled around 700 million TL (nearly US$80 million)[13].

BAT data also indicates something akin to a “rate of success” of those using the Framework Agreements. According to this data, of the 720 firms seeking relief under the “Large-Scale” Framework Agreement, 373 subsequently entered into restructuring agreements. With regard to the “Small-Scale” Framework Agreement, the numbers are less impressive, with only 59 of 144 negotiations started under it successful.

The “Standstill Process”, e., “Safe Space”, Created by the Framework Agreements

The two Framework Agreements include a series of provisions, which must be complied with by parties when using the Framework Agreement procedure. Compliance with these provisions is intended to create a protective umbrella – a confidential “safe space”, if you will – under which the parties can attempt to negotiate debt restructurings. This safe space is referred to as the “Standstill Process” in the Agreements[14].

One of the most important of these provisions is that creditors must agree to refrain, for a “reasonable” period of time, from making any effort to collect on the outstanding debt in question, such as initiating collection proceedings, or continuing the prosecution of those already pending, or seeking to foreclose on security interests they may hold[15]. At the same time, debtors must agree to refrain from, generally speaking, incurring any further debt, or debt-like obligations, and/or from selling, or otherwise encumbering, their assets[16]. Certain exceptions apply, such as, for example, permitting debtors to use “checks, promissory notes and drafts” needed for “ordinary fields and lines of business operation”[17].

The Framework Agreement Procedure

1. Debtor’s Application and Letter of Undertaking

To initiate the Framework Agreement procedure, the debtor company must first submit to its three largest creditors – the “Applied to Creditors” – an Application and Letter of Undertaking, the forms of which are included as attachments to the Framework Agreements. As part of these, the debtor is to provide a detailed description of its financial condition, including providing a complete list of its financial institution creditors, along with a detailed proposal for the restructuring of its debts. Once the Application, and Letter of Undertaking, are submitted, the debtor’s obligation – to refrain from, among other things, incurring any further debt, or debt-like obligations, and from selling, or encumbering, any of its assets – takes effect[18].

2. Notification to other Creditors, the Creditors Consortium, and the Feasibility Report

Next, the Applied to Creditors are to notify the debtor’s other financial institution creditors of the submission of the Application, after which the Applied to Creditors assemble a “Creditors Consortium” – the creditors’ decision-making body – which must include creditors holding at least two-thirds of the total debt in question[19]. Once formed, the Creditors Consortium arranges for the preparation of a Feasibility Report, usually done by one of the “Big Four” accounting firms, in which the debtor’s proposed restructuring plan is to be analysed. The purpose of this analysis is to determine whether the debtor has the financial wherewithal, if restructured as the debtor proposes, to satisfy its debt obligations[20].

3. The Restructuring Negotiations

If the Feasibility Report concludes the debtor plan is indeed feasible – as is, or with certain modifications – and Creditors Consortium agrees[21], the restructuring negotiations can begin. These negotiations are similar to those during ordinary restructuring transactions, and cover such matters as new repayment schedules, events triggering prepayment, the adjustment of interest rates, currency conversion and whether new loan facilities are to be utilized. If the negotiations are successful, the creditors and debtor enter into a restructuring agreement, which can be enforced in Turkish Courts like any other contact[22].

According to the Framework Agreements, the Creditors Consortium is to, within 90 days of the Application date, conclude, or not, a debt restructuring agreement with the debtor. This period can be extended for another 90 days by agreement of creditors holding at least two-thirds of the subject debt. Also, according to the Framework Agreements, if no agreement is reached within this time period – whether 90 days, or 180 days by creditor agreement – the debtor may file a second Application, which further extends the period of time within which the parties may conclude a restructuring[23].

The Advantages of the Framework Agreement-Based Financial Restructuring

Framework Agreement-based financial restructurings provide several meaningful advantages to the participating debtors and creditors, including, among others, the following.

1. Provides a “Safe Space”, e., the “Standstill Process”

As discussed above, the Framework Agreements can fairly be said to provide a confidential “safe space” – and one without the involvement of the Courts or third-parties monitors – during which the debtors and their financial creditors can attempt to negotiated a restructuring of the subject debt. For example, during this Standstill Period, a debtor has several important protections from actions against itself and its assets, including among others:

• No new enforcement proceedings can be initiated against the debtor by its creditors.
• Save where to do otherwise would result in irreputable damage to a creditor’s rights, existing enforcement proceedings are to be stayed.
• No steps negatively impacting the rights of one creditor vis-à-vis another may be taken.
• No other legal proceedings related to the debts subject to the restructuring negotiations can be commenced or, if already commenced, continued by creditors against the debtor.

2. The Restructuring of All Debts with Financial Institution “Signatories”

When a restructuring agreement is negotiated under the umbrella of one of the two Framework Agreements, and includes, as parties, creditors whose aggregate lending constitutes at least two-thirds of the debtor’s total debt, all non-party financial creditors – provided they have previously agreed to abide by the terms of the Framework Agreements, i.e., the “Signatories” discussed above[24] – are, generally speaking, obliged to honour the terms of the restructuring with regard to the debt they hold.

3. Tax Benefits

Restructuring transactions completed pursuant to a Framework Agreement are provided certain meaningful tax benefits, such as, among others, exemptions from the Turkish Stamp Tax and its Banking and Insurance Transactions Tax, as well as from other charges specified in the relevant legislation.

4. Protection from Embezzlement Charges

Financial restructuring transactions often include, among other things, significant write-offs of outstanding loan principal, as well as non-negligible reductions in applicable interest rates, actions which, theoretically, exposing the restructuring parties to criminal embezzlement charges. The legislation enacting Framework Agreement-based debt restructuring, however, specifically exempts those participating in such restructurings from liability for the crime of embezzlement[25].

5. Settlement of Disputes, and Panel of Referees

Finally, the Creditors Consortium is entitled to apply to BAT for the “settlement of disputes” arising from the failure of other Consortium members to fulfil their obligations, whether it is an alleged failure during restructuring negotiations or related to any resulting restructuring agreement.

Following such an application, BAT is to constitute a three-member “Panel of Referees” charged with resolving the disputes. Any decision by the Panel of Referees must be supported by a majority of its members, i.e., a minimum of two, and its decisions are binding on all parties.

About ASC Law

The İstanbul based ASC Law, founded in 2001, is a 60-plus attorney law firm, with 10 Partners and approximately 50 non-Partners. ASC Law is one of Turkey’s most respected law firms, with, among others, top-tiered Banking and Finance, Debt Restructuring, Corporate, Commercial, M&A and Dispute Resolution practices. Further information can be found on our website, ASC HUKUK.

[1] The Banking Association of Turkey, founded in 1958, is a professional organization to which all deposit, development and investment banks operating in Turkey are obliged to join. See https://www.tbb.org.tr/en/home.

[2] This debt-restructuring tool was the subject of the Regulation on Restructuring of Debts owed to Financial Sector passed by the Turkish Parliament in 2018 (as amended in 2019).

[3] The use of Framework Agreements, in this context, is not entirely new in Turkey. For example, during two serious economic crises in Turkey in the early 2000s, Framework Agreements prepared by the Banking Association were also used to facilitate the restructuring of the debts of business experiencing temporary financial difficulties.

[4] Surprisingly, an “overview” of restructuring and insolvency in Turkey, prepared just this year by a highly-regarded local firm, neglected to mention the use of the Framework Agreement tool.

[5] https://tradingeconomics.com/turkey/currency

[6] https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2020&locations=TR&start=2008

[7] Enforcement and Bankruptcy Law (Law No. 2004), Arts. 285-309.

[8] Unfortunately, given the volume of matters before them, these Courts, and the Experts they rely upon, often make their decisions hastily, and many times without full consideration of the competing interests of all parties.

[9] The term “Financial institutions” includes not only banks but also leasing/factoring companies and certain other entities providing financial services. Of note, in this regard, while in theory non-financial creditors can join in the restructuring negotiations, i.e., with the consent of a specified number of the financial creditors, our experience has been that non-financial creditors rarely join or, more accurately, are rarely allowed to join, these negotiations.

[10] See Banking Law (Law No. 5411), Provisional Art. 32 (to expire on 19 July 2023) and Regulation Amending Regulation on Debts Owed to the Financial Sector, both passed in 2018, with subsequent modifications.

[11] Updated just months ago, each of the two Framework Agreements is now 18 pages in length, with 15 Articles. English versions can be found on BAT’s website. The Banks Association of Turkey – Framework Agreements on Financial Restructuring (tbb.org.tr) (under “Framework Agreements for Financial Restructuring” tab).

[12] A full list of the financial institution “Signatories”, for both the “Large-Scale” and “Small-Scale” Framework Agreements, can be found on BAT’s website. The Banks Association of Turkey – Framework Agreements on Financial Restructuring (tbb.org.tr) (under “Signatories of Framework Agreements” tab).

[13] The Banks Association of Turkey – Framework Agreements on Financial Restructuring (tbb.org.tr).

[14] See, e.g., Framework Agreement, Large Scale Implementation, Art. IX.

[15] Ibid.

[16] These debtor promises, generally speaking, remain in force through the full repayment of the restructured debt.

[17] See, e.g., Framework Agreement, Large Scale Implementation, Annex 1, II.5.

[18] The various prohibitions are described in detail in the Framework Agreements, and in the debtor Application and Letter of Undertaking, all of which should be carefully considered. Of note in this regard, modification, by way of “carve-outs”, can be made, provided creditors holding at least two-thirds of the subject debt agree.

[19] So as to prevent deadlock in the decision-making process, the Framework Agreements provide, depending on the nature of the decision to be made, several different constructions of the necessary “majority”. For example, there is a “Creditor Majority”, made up of at least two creditors having two-thirds of all the outstanding credit risk, and a “Creditors’ Qualified Majority”, made up of at least two creditors holding 90% of all outstanding financial risk. For certain decisions a unanimous decision is required, such as writing off principal and/or accrued interest.

[20] Although these steps are set forth in the Framework Agreements, the reality of how things progress in this regard is much more fluid. For example, during the Feasibility Report’s preparation, there are often significant, and meaningful, interactions with the debtor, often resulting in the plan’s modification. Accordingly, it is fair to say, the restructuring negotiations usually begin well before the Feasibility Report’s finalization.

[21] In this case, creditors holding at least two-thirds of the subject debt.

[22] Copies of executed restructuring agreements are to be filed with BAT, albeit solely for informational purposes.

[23] Filing of a second Application triggers a new 90-day period, which can be extended by another 90 days by the creditors, but does not, for example, trigger a requirement for the preparation of a new Feasibility Report.

[24] Supra Part B.

[25] Compare Banking Law (Law No. 5411) with Provisional Art. 32.

Interviews

Okan Beygo, Partner

Okan BEYGO, name partner of Aksu Caliskan Beygo Attorney Partnership, evaluates the future direction of the firm and the legal profession.

What do you see as the main points that differentiate Aksu Caliskan Beygo Attorney Partnership from your competitors?

Aksu Caliskan Beygo Attorney Partnership, or ASC Law Office, is one of the preeminent law firms in Turkey. The firm was registered as the sixth member of the Istanbul Bar Association and it has been serving its clients for almost two decades. Our strength comes from our past, our dedication and most importantly our impeccable reputation as lawyers that we have earned throughout the years.

We are proud to be one of the largest full-service law firms that uniquely offers Consultancy, Litigation and Enforcement/Debt Collection services under one roof. With more than 50 lawyers, we are regularly recognized as one of the most successful in the country. Our HR approach is also associated with our experience. Most of our team members were hired as trainees and then gained long tenures with our firm which enables us to have long, steady and trustworthy relationship with our clients.

ASC Law employs one of the best consultancy departments in the country, with impressive teams in banking and finance, capital markets, M&A and restructuring. The litigation practice includes top-notch litigators whom have been handling some of the most complex litigations in Turkey and complemented by the extremely successful Enforcement/Debt Collection department which serves to major banks and conglomerates of the country.

Which practices do you see growing in the next 12 months? What are the drivers behind that?

As everyone would agree, the agenda of the next 12 months will be shaped by the coronavirus outbreak. Once the turmoil hopefully comes to an end, we will have two things in our hands: A deep financial crisis and the abundance of liquidity circulated against it. Based on our past experience, we know the areas to come forward in this environment: Banking, project financing, debt restructuring, M&A, IPO, bond issues and litigation. We have witnessed this twice with Turkey’s crises in 2001 and the global crisis of 2008 which have actually brought us as Aksu Caliskan Beygo Attorney Partnership to today’s valuable assets.

We can also expect that the state intervention will reach its heights, mercantilist and Keynesian approaches will be popular once again, probably for a not-so-short period. This can bring in new opportunities for legal professionals who have expertise in working with public institutions.

What’s the main change you’ve made in the firm that will benefit clients?

We have recently appointed a non-lawyer CEO with technology and management background in order to handle the digital transformation process effectively. Throughout the last two decades we have managed to transform our office into a dynamic and competitive structure. Now the recent challenge is the utilization of technology in every possible aspect. We want to make sure that we and our clients do not lag behind in following and adapting the changes. We aim to achieve digital transformation in a professional manner and make sure that we combine our legal experience with the must haves of the new world.

Is technology changing the way you interact with your clients, and the services you can provide them?

Yes, definitely. We of course welcome the now-conventional tools like social media which speeds up our communication. However, there is much more than that, one specific example: It provides automated systems between us and our clients which essentially removes the physical barrier between in-house legal departments and our office. We can carry out the file transfer, observe the progress and review the performance indicators, sharing the same interface which is extremely helpful especially with the big companies.

Can you give us a practical example of how you have helped a client to add value to their business?

In a recent case, we have helped our client from Republic of Korea to construct a global tech business with a significant success potential. Our client is an innovator with a promising and unique technology. Along with the extensive legal work, we helped the client in reaching conglomerates from diverse industries for potential cooperation and we have also facilitated our trusted network for him to reach the venture capital funds. Again thanks to our long-term partnership, we helped the client to create a presence in the US for global outreach. We have always tried to understand the business perspective and not to limit our problem solving process with just legal domain. In this way we aim to help our clients create sustainable long-term business plan.

Are clients looking for stability and strategic direction from their law firms – where do you see the firm in three years’ time?

I think the answer to the first question simply depends on the clients. There are some clients looking for stability given the fact that our world is a lot more complicated now than ever and stability might be the right approach for some businesses. However, there are also some clients who believe that stability means slow change and a dynamic environment brings more opportunities. For example, one might envisage the time, which is not that far, when the contracts will be all about transactions on blockchain and cryptocurrencies are circulated by some “central banks”. I personally believe that no one should ignore the fact that business world is very dynamic and clients must be able to react quickly to changes and adopt to new technologies. In my opinion, most clients will in fact look for more strategic direction from their law firms in an unstable post virus environment that awaits us.

For the second part of the question, I have been practicing law in a part of the world that business and legal environment changes rapidly. I know that the legal profession requires knowledge and experience but I also understand that we must react and adopt quickly to new technologies and I am extremely confident that our firm shall overcome any challenge that we may face as human race. Therefore, I sincerely see that in three years ASC Law continues to be one of the most successful law firms in Turkey and achieve great success in legal arena

Comparative Guides

• Turkey: Public Procurement

  Published: January 2021

  Authors: Ayhan Kilinc

  This country-specific Q&A provides an overview to Public Procurement laws and regulations that may occur in Turkey.