tma europe conference update on restructuring regime in turkey as / nexia turkey 11 june 2010
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TMA EUROPE CONFERENCE Update On Restructuring Regime in Turkey AS / NEXIA TURKEY 11 June 2010. CONTENTS. Introduction: Turnaround Management in Turkey Features of Debtors & Creditors Corporate Debt-Restructuring Methods Out-of-Court Restructuring - PowerPoint PPT PresentationTRANSCRIPT
TMA EUROPE CONFERENCEUpdate On Restructuring Regime in Turkey
AS / NEXIA TURKEY11 June 2010
CONTENTS Introduction: Turnaround Management in Turkey Features of Debtors & Creditors Corporate Debt-Restructuring Methods Out-of-Court Restructuring Court Restructuring – Postponement of the
Bankruptcy Postponement of Bankrutpcy – Practices Positive Results of the Postponement of Banktrupcy Evaluation of the PoB Process Other Features of the Turkish Restructuring Regime
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TURNAROUND MANAGEMENT IN TURKEY In essence, corporate debt restructuring is the
main service provided by turnaround professionals.
Corporate restructuring (business reviews, SWOT analysis, etc.)
Restructuring of financial and trade debt of companies (negotiations with creditors, projecting cash flows, etc.)
Lender advisory
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FEATURES OF DEBTORS & CREDITORS Major features of the Turkish debtors and creditors
SME-MME business segment companies are major targets for turnaround management: Industrial sectors: Textile, Iron&Steel, Construction Materials,etc. Family owned – narrow shareholder base High financial debt relative to equity & too many creditors Reasons of distress:
Wrong investment decisions, lack of feasibility analyses and low equity Problems of liquidity and working capital management rather than solvency
issues Vulnerability to domestic and external demand shocks
Low penetration of external advisory services regarding turnaround management
Creditors, especially financial institutions have in-house remedial management teams for NPLs or exit accounts.
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CORPORATE DEBT RESTRUCTURING-METHODS
Out-of-court restructuring
Turnaround under the provisions of Execution and Bankruptcy Law (EBL): After the Turkish financial crisis in 2001, EBL has changed in order to permit rehabilitation of the companies without engendering terminal insolvency.
Postponement of bankruptcy (PoB) (aka Turkish Chapter 11)
Reorganization by way of the abandonment of the debtor’s assets
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OUT-OF-COURT RESTRUCTURING
In Turkey, both creditors and debtors prefer out-of-court restructuring against court restructuring, since Less legal interference More customized restructuring plans
Turnaround professionals may have greater involvement in the out-of-court restructuring process.
Successful out-of court restructuring involves:
Creditors receive additional security (e.g. lien against guarantor’s real estate, receivables, etc.) or shareholders are induced to sell personal valuable assets in order to raise equity
Revolving and overdraft lines are converted into middle-long term loans in order to oversee the debtors’ cash flow
Revolving lines are rolled over after the interest is paid, in order to provide a grace period Interest rates on loans are revised downwards
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COURT RESTRUCTURING – POSTPONEMENT OF BANKRUPTCY
Most frequent way of debt restructuring. Approval conditions:
Major goal is to preserve company assets and to gradually diminish company debt with a viable development plan in order to prevent terminal insolvency.
Major requirements: Liabilities excess company assets and company must present a viable development plan for the future. However, the plan need not be submitted to creditors’ approval or without the opinion of any third party turnaround management company.
Automatic stay is granted after the court has examined the company’s compliance to the requirements stated above and trustee is appointed immediately.
Duration: 1+4 years, subject to trustee recommendation and court approval.
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POSTPONEMENT OF BANKRUPTCY-PRACTICES Company and its guarantors pool their tangible assets (including
individual if necessary) as collateral for all the financial creditors.
Temporary suspension of litigations.
All financial debt are pooled and restructured as a single amortizing loan and paid periodically (quarterly or semi-annual) pro-rata.
Cash flow projections and debt repayment capacity are analyzed by the leader creditor or an external advisor.
Role of the trustee: Trustee had to approve the whole process.
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EVALUATION OF THE PoB PROCESS Problems in the “institution of trusteeship”:
Trustees are not turnaround professionals and do not have the necessary skills and experience to manage the troubled company.
They are not able to yield the neccessary power to manage the company. Most of the time, the same management which has brought the company to the brink of bankruptcy continues to manage the company. Trustees only signs off the management’s decisions.
Courts grant PoBs and automatic stays rather hastily and without consulting neither to the company’s creditors nor to the third party turnaround proffesionals. Courts are not specialized in assesing the bankruptcy process.
When company files for the PoB, it is not announced to creditors, hence creditors’ views are not sought regarding the proposed development plan.
Distressed companies exploit the automatic stay provisions in order to protect shareholder assets from the creditors.
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OTHER FEATURES OF THE TURKISH REGIME Lack of distressed lending: Banks and other non-bank financial
institutions are hesitant in lending to companies under distress or under the PoB protection.
Immature secondary market for NPLs: Lack of dedicated, expert investment banking companies eager to buy NPLs.
The legal framework is lenient on debtors.
Low recovery rates
High costs regarding restructuring, including taxes and administrative fees
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