The Justice and Development Party (AKP) on Nov. 13 submitted a bill to parliament to tighten Turkey’s bankruptcy law aimed at preventing what the government says is abuse of the regulation by some healthy companies.
A section of the current law is designed to give struggling firms temporary protection from creditors. Since going into effect eight months ago, it has seen a surge in applicants, officials and bankruptcy lawyers say, as a currency crisis has pushed the inflation rate to 25 percent and shaken the economy.
Officials had previously told Reuters the government was working on a revision to the law, saying that some companies had sought temporary protection – known as “concordato” in Turkey – even though they were not in distress.
The bill submitted on Nov. 13 requires changes to required documentation, limits the number of institutions that can evaluate applicants, and adds a clause that applications may be rejected if the applicant is believed to be attempting to damage creditors.
It was not immediately clear how prevalent abuse of the law was. The cost of the application process ranges from 80,000-100,000 lira ($14,500-$18,200), according to a Turkishcommercial court official.
To file for concordato, a company applies to the court and declares its debts, receivables and assets, to prove its inability to pay its debt in time. It also supplies a plan for repayment.
If it is approved, the court appoints trustees to the firm to renegotiate its debt over a three-month period that can be extended for up to 23 months. During this time, the court can freeze its debt, allowing the company to continue operating.
Some 441 firms have been granted concordato this year, according to statistics from konkordato.org, a website that tracks Turkish company filings. A total of 1,000 firms have so far applied for the protection.
Well known firms that have been granted concordato include intercity coach operator Pamukkale Turizm, shoe maker Yeşil Kundura and construction firm Nuhoğlu İnşaat.
The new bill is likely to pass given that the AKP and their nationalist allies have more than enough representatives in parliament for the required simple majority.