10.6092/issn.2531-6133/7291
To build and maintain economic fortitude, the paradigm of fiscal success remains steadfast for both developed and developing nations in one specific area: bankruptcy law. History shows that robust economies incorporate reliable bankruptcy codes into their legal schemes so that small and large businesses thrive. However, because of the influences of varied stimuli including worldviews, cultural values, and politics, not all bankruptcy laws are created equal in their respective effectiveness, fairness, and influence. For example, the current United States Bankruptcy Code, ratified after nearly one hundred years of Congressional repeals and re-enactments is today a comprehensive, well-established legal scheme that efficiently permits debtors of varied status to file under its assorted Chapters. The United States’ Code seeks to successfully balance the rights of all parties involved in a bankruptcy, while further reassuring that the honest debtor receives a ‘fresh start.’ To compare, the Turkish Execution and Bankruptcy Code is still evolving in its structure to better equalize the treatment of debtors and creditors. This comparative paper first looks to the Turkish Bankruptcy Code and how it evolved, specifically in the area of adjournment of bankruptcy. To compare and contrast these two diverse legal structures, the study first analyzes the impacts of the 2003 and 2016 amendments of Article 179 in the area of adjournment, then proceeds to assess the requirements an entity must adhere to when seeking adjournment, and finally concludes with an in-depth analysis and comparison of United States’ Chapter 11 with the Turkish adjournment of bankruptcy. Following the analysis of the two Codes, the study closes with the authors’ recommendations of how to improve Turkey’s adjournment of bankruptcy.
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Mahmut Yavasi
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Over-Indebtedness
Bankruptcy in Turkey: A Comparative Study of Turkey’s Adjournment of Bankruptcy and the United States’ Chapter 11 Reorganization
Text.Serial.Journal
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Mahmut Yavasi
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Bankruptcy in Turkey: A Comparative Study of Turkey’s Adjournment of Bankruptcy and the United States’ Chapter 11 Reorganization
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ARTICLES & ESSAYS                                                              https://doi.org/10.6092/issn.2531-6133/7291




Bankruptcy in Turkey: a Comparative Study of Turkey’s Adjournment of
Bankruptcy and the United States’ Chapter 11 Reorganization

                    INAN ULUC & KRISTI R. SUTTON & MAHMUT YAVASI †



TABLE OF CONTENTS: 1. Introduction; 2. Development of Bankruptcy Adjournment in
Turkey; 2.1. 2003 & 2016 Bankruptcy Code Amendments; 3. Requirements to Adjourn
Bankruptcy; 3.1.; “Over-Indebtedness” of the Entity; 3.2. Court Notification; 3.3. File
Request; 3.4. Recovery Plan Submission; 3.5. “Extraordinary Time” Limitations; 3.6.
One-Year Rule; 3.7. Expenses 4. Chapter 11 Reorganization; 4.1. Eligibility; 4.2. Debtor
Preparation; 4.2.1. The Petition; 4.2.2. Creditor Information; 4.2.3. Credit Counseling;
4.2.4. Schedules; 4.2.5. Small Business Debtor; 4.2.6. The Plan; 4.2.7. Disclosure; 4.3.
Code’s Protective Powers and Who Controls; 4.3.1. The Automatic Stay; 4.3.2. Debtor in
Possession; 4.3.3. The U.S. Trustee and Examiner; 4.4. Rights Exercised by the Debtor in
Possession and Creditors; 4.4.1. Avoidable Transfers; 4.4.2. Debtor in Possession’s
Power to Use, Sell, or Lease Property; 4.4.3. Cash Collateral; 4.4.4. Debtor’s Right to
Credit; 4.4.5. Executory Contracts and Unexpired Leases; 4.4.6. Adequate Protection;
4.4.7. Creditor’s Claims; 4.4.8. Additional Creditor Relief; 4.5. Plan Confirmation; 4.6.
Options if Case Fails; 5. Conclusion; 5.1. Authors’ Recommendations and Critique.


ABSTRACT: To build and maintain economic fortitude, the paradigm of fiscal success
remains steadfast for both developed and developing nations in one specific area:
bankruptcy law. History shows that robust economies incorporate reliable bankruptcy
codes into their legal schemes so that small and large businesses thrive. However,
because of the influences of varied stimuli including worldviews, cultural values, and
politics, not all bankruptcy laws are created equal in their respective effectiveness,
fairness, and influence. For example, the current United States Bankruptcy Code,
ratified after nearly one hundred years of Congressional repeals and re-enactments, is
today a comprehensive, well-established legal scheme that efficiently permits debtors
of varied status to file under its assorted Chapters. The United States’ Code seeks to
successfully balance the rights of all parties involved in a bankruptcy, while further
reassuring that the honest debtor receives a ‘fresh start.’ To compare, the Turkish
Execution and Bankruptcy Code is still evolving in its structure to better equalize the
treatment of debtors and creditors. This comparative paper first looks at the Turkish
Bankruptcy Code and how it evolved, specifically in the area of adjournment of
bankruptcy. To compare and contrast these two diverse legal structures, the study first
analyzes the impacts of the 2003 and 2016 amendments of Article 179 in the area of
adjournment, then proceeds to assess the requirements an entity must adhere to when
seeking adjournment, and finally concludes with an in-depth analysis and comparison
of United States’ Chapter 11 with the Turkish adjournment of bankruptcy.


KEYWORDS: Adjournment; Reorganization; Turkey; Chapter 11; United States Bankruptcy Code;
Turkish Execution and Bankruptcy Code; Over-Indebtedness



                                            UNIVERSITY OF BOLOGNA LAW REVIEW

                                                    ISSN 2531-6133

                                                     [VOL.3:1 2018]

           This article is released under the terms of Creative Commons Attribution 4.0 International License


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         1. INTRODUCTION

Globalization,      precipitated      by    worldwide       developments             in     technology,
transportation, and communication, led to a complex, international financial
labyrinth. Consequently, global trade expansion led to worldwide economic
growth and interdependency. These universal partnerships birthed the reality
that one nation’s financial health predictably reflects the overall health of the
global order.1 As a result, economic decline in one country may threaten the
financial stability of other countries. Two quintessential illustrations of this
contagiousness are the subprime mortgage crisis in the United States (which
morphed into a global financial crisis) and the Greek debt crisis (the impact of
which continues to impede the growth of the European Union’s economy
today).2

         Because companies encounter economic plight across all industries,
developed nations incorporate bankruptcy or liquidation laws into their
respective legal schemes to alleviate this pecuniary burden. Essential for all
healthy domestic economies is a sound and strong bankruptcy code to guide
and assuage the unavoidable impacts of financial decline and to fairly and
equitably treat debtors and creditors. A sound example of the symbiotic
relationship between a resolute bankruptcy code and a robust economy is
found in the United States. The history of the United States Bankruptcy Code
(hereinafter U.S. Code) shows one riddled with uncertainty and distrust. 3
However, in 1978 (eighty years after the Bankruptcy Act of 1898), the United
States established a more workable statutory scheme that the nation’s citizens
and businesses could look up to and rely upon when facing economic turmoil. 4



†
  Inan Uluc is Assistant Professor of Law, Social Sciences University of Ankara (Turkey). Kristi R.
Sutton is Assistant Professor of Law, Social Sciences University of Ankara (Turkey). Mahmut
Yavasi is Associate Professor of Law, Social Sciences University of Ankara (Turkey).
1
  See JAMES SUNSHINE, Globalization Has Made Economic Crises More Likely: OECD, HUFFINGTONPOST.COM
(Aug. 29, 2011), http://www.huffingtonpost.com/2011/06/29/globalization-economic-
crises_n_887083.html.
2
   Id.
3
   See generally DAVID ARTHUR SKEEL JR, DEBT’S DOMINION: A HISTORY OF BANKRUPTCY LAW IN AMERICA 25
(Princeton U. Press, 5th ed. 2003).
4
    See generally Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM.
BANKR. INST. L. REV., 1995, at 23 (Discussing History of Bankruptcy Code). Note the significant
amendments made to the U.S. Bankruptcy Code, including the 2005 BAPCPA.



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Unsurprisingly, in addition to the United States, economic crises catalyze other
countries to produce or build upon their own existing bankruptcy law. To
illustrate, Turkey, in the aftermath of the 2001 Turkish-banking crisis,
established adjournment of bankruptcy.5 Under Turkish law, adjournment of
bankruptcy enables an insolvent stock corporation (hereinafter corporation) or
cooperative society (hereinafter cooperative) to avert declaring bankruptcy and
liquidation if (and to the extent that) its financial position is ameliorative.
Bankruptcy adjournment not only assists companies to repair financial
delinquencies by regulating creditor debt collection, but it also cushions other
companies in the market from possible antagonistic repercussions associated
with    bankruptcy       and    liquidation.      There     is   however,         a     concern          that
adjournment of bankruptcy is vulnerable to exploitation by dishonest debtors
wishing to avoid paying debts.6

         This study, using a comparative method, juxtaposes the Turkish
Bankruptcy Code with the more well-known United States Bankruptcy U.S.
Code and each Code’s respective treatment of a debtor in reorganization. First,
under title 2, this article investigates the development of bankruptcy
adjournment in Turkey and second, under title 3, outlines the requirements
that a debtor must fulfill to adjourn bankruptcy. Following this exploration,
under title 4, we leap into the complexity of Chapter 11 under the United States
Bankruptcy U.S. Code and compare the two Codes’ respective approach to
reorganization. Following this examination, this study clarifies how the two
Codes differ, why they may differ, where they are analogous, and suggests
ideas to tweak Turkey’s adjournment of bankruptcy to better serve creditors,
debtors, and the State’s economy as a whole. The study concludes under title 5
where a short summary delineates several feasible improvements to the
adjournment of bankruptcy.




5
   For further information regarding the 2001 Turkish Banking Crisis and measures taken
afterwards, see generally, Working Paper of Banking Regulation and Supervision Agency, From
Crisis to Financial Stability (Turkey Experience) (Banking Regulation and Supervision, Working Paper
Sept. 2010).
https://www.bddk.org.tr/WebSitesi/english/Reports/Working_Papers/8675from_crisis_to_financ
ial_stability_turkey_experience_3rd_ed.pdf.
6
  See MUHSIN KESKIN, Bankruptcy Protection Provides an “Easy Way Out” in TurkeyLEXOLOGY.COM (Jul. 14,
2016), https://www.lexology.com/library/detail.aspx?g=9e325aee-0f23-4b2a-92db-860110fbfa52.



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         2. DEVELOPMENT OF BANKRUPTCY ADJOURNMENT IN TURKEY

In 1987, Turkey enacted law number 3332 to address and aid corporations in
financial distress and improve their financial position through reorganization. 7
Then, in response to Turkey’s 2001 economic downturn, Parliament, in 2002,
enacted law number 47438 to aid debtors realize their repayment obligations to
banks and other financial organizations with whom they had a credit
relationship. The purpose of this law was to maintain and precipitate economic
growth by assisting debtors satisfy their repayment obligations. 9

         In harmony with this focus, Parliament amended the law regulating
adjournment of bankruptcy to optimize the efficiency and efficacy of the
system, which unfortunately “fell by the wayside” due to deficiencies in the
law prior to the amendments.10 In 2003, under law number 4949, adjournment
of bankruptcy found its place in the Turkish Execution and Bankruptcy Code
(hereinafter Bankruptcy Code) where it is regulated in detail 11 (here, it is
helpful to note that the 2003 Bankruptcy Code amendments mainly align with
Articles aaaa



7
   See SABRI B. ARZOVA, MURAT YAVAŞ & BARIŞ KÜÇÜK, HUKUKI VE MALI YÖNDEN İFLASIN ERTELENMESI VE
BORCA BATIKLIK BILANÇOSU [POSTPONEMENT OF BANKRUPTCY IN LEGAL AND FINANCIAL ASPECTS AND BALANCE
SHEET OF DEBT] 27 (2016).
8
   Law on Restructuring of Debts to Financial Sector and Amendments to Some Laws, Law No.
4743, OFFICIAL GAZETTE, Jan. 31, 2002 (Turk.).
9
   Id., art. 1. (“The purpose of this Law is to enable the debtors that have been involved in a credit
relationship with banks and other financial organizations and that experience financial bottleneck
to fulfill their repayment obligations towards the financial sector and to continue to create value
added with such measures as extending maturities, renewing the credit, extending a new credit,
reducing principal and/or interest, waiving interest, converting credits into participations in
whole or in part, assigning or transferring the credits against a consideration in cash, in kind or
subject to collection, liquidating the credits fully or partly against assets in kind belonging to
debtor or third persons, making protocols by acting together with other banks, which measures
shall be taken under the conditions and periods to be determined under financial restructuring for
the credits opened before the effective date of this Law by banks, special finance institutions, and
other financial establishments operating in Turkey under the permission obtained pursuant to
their special legislation . . . .”).
10
    Before the amendments, there was no in-depth law regulating the adjournment of bankruptcy.
The main sources regulating the adjournment of bankruptcy were Articles 324 & 546 of the
Turkish Commercial Code and Article 63 (3) of the Code of Cooperatives. No article outlined the
adjournment of bankruptcy under the Turkish Execution and Bankruptcy Code. Accordingly, there
was a lack of clarity regarding: (i) the requirements of bankruptcy adjournment; (ii) the measures
that could be initiated by a court upon the adjournment decision; and, (iii) the discretion vested in
the courts throughout the process. The amalgamation of these deficiencies caused malfunction,
and accordingly, compromised the efficacy and the efficiency of the system. See generally SELCUK
OZTEK, İflasin Ertelenmesi [Postponement of Bankruptcy], 59 BANKACILAR DERGISI [BANKERS MAGAZINE]
39-83 (2006) (Turk.).
11
   Law Amending the Excecution and Bankrupcy Code, Law. No. 4949, OFFICIAL GAZETTE, Jun. 30,
2003 (Turk.).



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725 and & 725 (a) of the Swiss Code of Obligations). 12 Finally, on July 15, 2016,
Parliament enacted the last amendments to the Bankruptcy Code titled under
the omnibus law: “The Law Regarding Amendment of Some Laws to Improve
the Investment Environment (No.6728).”13 However, while the amendments
came into force on August 9, 2016, they have yet to be administered due to the
present prohibition imposed by Decree Law 669 under the State of Emergency
(dated July 25, 2016).14




     2.1. 2003 & 2016 BANKRUPTCY CODE AMENDMENTS

Amending the Bankruptcy Code brought new vigor to the adjournment of
bankruptcy regime. Not only was the opacity surrounding bankruptcy
adjournment remedied, but the new amendments barred mischievous parties
from exploiting adjournment. Clearly discernable are the motives behind the
amendments to the adjournment of bankruptcy: where the 2003 Bankruptcy
Code amendments sought to strengthen and maintain Turkey’s economy by
affording its corporations with a ‘new start’ through adjournment of
bankruptcy, the 2016 amendments sought to balance the interests of creditors

12
   SCHWEIZERISCHE OBLIGATIONENRECHT [OR], CODE DES OBLIGATIONS [CO], CODICE DELLE OBBLIGAZIONI
[CO], Mar. 1, 1912, SR 220, art. 725 (Switz.) (“(1) Where the last annual balance sheet shows that
one-half of the share capital and the legal reserves are no longer covered, the board of directors
must without delay convene a general meeting and propose financial restructuring measures. (2)
Where there is good cause to suspect over-indebtedness, an interim balance sheet must be drawn
up and submitted to a licensed auditor for examination. If the interim balance sheet shows that
the claims of the company’s creditors are not covered, whether the assets are appraised at going
concern or liquidation values, the board of directors must notify the court unless certain company
creditors subordinate their claims to those of all other company creditors to the extent of the
capital deficit. (3) If the company does not have an auditor, the licensed auditor must comply with
the reporting duties of the auditor conducting a limited audit.”); Article 725 (a) of the Swiss Code
of Obligations (“(1) On receiving notification, the court commences insolvency proceedings. On
application by the board of directors or by a creditor it may grant a stay of insolvency proceedings
where there is a prospect of financial restructuring; in this case the court orders measures to
preserve the company’s assets. (2) The court may appoint an administrative receiver and either
deprive the board of directors of its power of disposal or make its resolutions conditional on the
consent of the administrative receiver. It defines the duties of the administrative receiver. (3)
Public notice of the stay of insolvency proceedings is required only where necessary to protect
third parties.”).
13
   Law Regarding Amendment of Some Laws to Improve the Investment Environment, Law No.
6728, OFFICIAL GAZETTE, Aug. 9, 2016 (Turk.).
14
   Decree Law on the Measures to be Taken Under the State of Emergency, Decree with force of law
No. 669, art. 4, Jul, 25, 2016. According to this article, during the State of Emergency, courts shall
dismiss all requests filed for the adjournment of bankruptcy. Further, pursuant to Article 10 of
Decree Law 673, regarding adjournment of bankruptcy requests filed prior to the declaration of the
State of Emergency, courts shall neither rule upon these requests nor grant interim injunction: see
Decree Law on the Measures under the State of Emergency, decree with force of law No.673, Aug.
15, 2016.




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and debtors by remedying the ease by which bad faith debtors exploited the
process. Because the 2003 and 2016 amendments collaborate (but were enacted
on different dates), the following paragraphs initially examine the 2003
amendments and follow with an analysis of the changes brought by the 2016
amendments.

         First, the 2003 amendments to the adjournment of bankruptcy are as
follows:15

         1) Creditors may report that the entity’s liabilities exceed its assets.
Creditors exercising this authority are not obligated to substantiate this claim; 16

         2) The competent court may conduct ex officio examination of the
entity’s alleged bankruptcy, regardless of the notice of bankruptcy given by the
creditor, the management and representative bodies of the respective
corporation or cooperative, or its liquidator in the event of liquidation; 17

         3) The Bankruptcy Code now stipulates the submission of a persuasive
and serious recovery plan evincing that the entity’s financial position can be
cured. Further, the law necessitates that the party demanding the adjournment
of bankruptcy submit all information and documents at their disposal
substantiating the seriousness and persuasiveness of the recovery plan; 18

         4) The amendments further address the role of the competent court
following the court’s affirmation of bankruptcy adjournment. According to
Article 179 (a) of the Bankruptcy Code, the court shall take all appropriate



15
    See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 29-30. The Bankruptcy Code articles cited between
footnotes 13 to 21 reflect amendments made to the Code in 2003, but do not reflect the 2016 amendments to
the adjournment of bankruptcy.
16
   TURKISH EXECUTION AND BANKRUPTCY CODE, Law. No. 2004, Jun. 9, 1932, art. 179 (amended 2003)
(“If and when it is declared by the management and representative bodies or if the company or
the cooperative society is in liquidation, by its liquidators or a creditor, or it is determined by the
competent court that the liabilities of the capital company or the cooperatives society are more
than its assets, the capital company or the cooperative society will be adjudged bankrupt without a
prior bankruptcy proceeding. . . .”).
17
   Id. (“. . . . or it is determined by the competent court that the liabilities of the capital company or
the cooperatives society are more than its assets, the capital company or the cooperative society
will be adjudged bankrupt without a prior bankruptcy proceeding . . . .”).
18
   Id. (“. . . . Provided, however, that any one of the management and representative bodies or the
creditors may demand adjournment of adjudication of bankruptcy by filing to the court a plan of
recovery proving that the company or the cooperative society may be recovered. If the plan of
recovery is found serious and persuasive, the court will adjourn adjudication of bankruptcy.
Information and documents proving that the plan of recovery is serious and persuasive must also
be presented to the court.”).



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actions required for the protection of properties and assets of the corporation
or cooperative to aid in the proper execution of the recovery plan; 19

         5) Last, 179 (b) outlines the adjournment order’s intended impact.
Article 179 (b) seeks to balance the interests of the creditor(s) and the debtor.
According to Article 179 (b),20 once the bankruptcy adjournment decision is
rendered,     no executive proceeding              (including      but     not      limited         to the
proceedings under the Act numbered 6183), 21 may be commenced against the
debtor and any pending executive proceedings will be stopped and stayed.
Further, the limitation/prescription periods and the time limits of forfeiture,
permissibly suspended by a legal proceeding, will discontinue.

         Notably, Article 179 (b) privileges a particular class of creditor when
initiating or continuing an executive proceeding. Pursuant to the Article,
during adjournment, creditors whose collection of debts are secured by a real
property mortgage, chattel mortgage, or commercial enterprise pledge, may
initiate an executive proceeding for realization of the mortgage or pledge, or

19
    Id. (a)(“ . . . . [T]he court will also take all kinds of measures required for protection of
properties and assets of the company or the cooperative society by also considering the plan of
recovery.”).
20
   Id. (b)(“(1) Upon an order for adjournment of adjudication of bankruptcy, no proceeding,
including but not limited to the proceedings under the Code 6183, can be initiated against the
debtor, and the pending proceedings will be stopped and stayed, and the limitation/prescription
periods and the time limits of forfeiture which may be suspended by a legal proceeding will not
continue to be counted. (2) During the period of adjournment, for collection of the debts secured
and backed by a real property mortgage, chattel mortgage or commercial enterprise pledge, a legal
proceeding for realization of mortgage or pledge may be initiated or the pending legal proceedings
may be continued; provided, however, that conservatory measures such as seizure for security
cannot be taken and the pledged or mortgaged property cannot be sold out. However, in this case,
the interests which will continue to be accrued during the period of adjournment, but cannot be
covered and paid by the existing mortgage or pledge are required to be separately securitized. (3)
Execution proceedings for attachment can be initiated for collection of the debts listed in the first
rank in article 206. (4) Maximum period of adjournment is one year. This period may be extended
further by one year by considering the report of the administrative receiver. The accumulation of
the extension periods, however, cannot exceed four years. The administrative receiver will
regularly file reports to the court about his activities and the situation of the company or society,
in intervals to be determined by the court. (5) Upon dismissal of a demand for adjournment of
adjudication of bankruptcy or if it is determined at the end of the period of adjournment that
recovery is not possible, the court will adjudicate the company or the cooperative society bankrupt.
Furthermore, at any time during the period of adjournment if the court concludes upon reports of
the receiver that it is not possible to improve and recover the financial situation of the company or
the cooperative society, the court may abate the order for adjournment and adjudicate the
company or the cooperative society bankrupt.”).
21
   Law on Procedure of Collection of Public Receivables, Act. No. 6183, OFFICIAL GAZETTE, Jun. 28,
1953. The provisions of the Act apply to the following: principal public receivables such as taxes,
duties, charges, court fees for criminal investigations and procedures, tax penalties, monetary
penalties, and to auxiliary public receivables, such as delay fines and interest due to the
government, the private offices of the provinces and to municipalities and to other receivables due
to the same bodies from implementation of public services by the same bodies other than those
due under contract, tort, misappropriation and to the follow-up costs of the same.



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may maintain the pending executive proceeding. Notwithstanding this
privilege, conservatory measures shall not be taken, nor may the pledged or
mortgaged property be sold.22 Nonetheless, interests that continue to accrue
during the period of suspension (but cannot be covered and paid by the
existing mortgage or pledge) are required to be separately securitized. 23

        Article 179 (b) also delineates the circumstances under which a court
may dismiss the bankruptcy adjournment judgement and deem the corporation
or cooperative as bankrupt. According to the Article, the court may dismiss the
adjournment of bankruptcy request upon: a) following the receipt of reports
submitted by an administrative receiver, reflecting that the entity is
unsalvageable or, b) if the court finds, at any time throughout the adjournment
period, that the entity cannot be rehabilitated, that entity may be adjudged
bankrupt.24

        Next, the amendments to the adjournment of bankruptcy regime
introduced by the omnibus law of 2016 are as follows:

        1) Rather than relying on a sole declaration, Article 179 (1) of the
Bankruptcy Code now also requires over-indebtedness to be established via an
interim balance sheet organized using the presumptive sale prices of the
entity’s assets. This amendment clarifies the ambiguity created by Article 376
(3) of the Commercial Code. According to Article 376 (3), on the suspicions of
over-indebtedness, the Board of Directors (hereinafter B.o.D) shall have an
interim balance sheet prepared based upon the going-concern value and
liquidation value of the assets. Here, clearly, two interim balance sheets must

22
   Supra note 16, art. 179 (b), (“(2) During the period of adjournment, for collection of the debts
secured and backed by a real property mortgage, chattel mortgage or commercial enterprise
pledge, a legal proceeding for realization of mortgage or pledge may be initiated or the pending
legal proceedings may be continued; provided, however, that conservatory measures such as
seizure for security cannot be taken and the pledged or mortgaged property cannot be sold out.
However, in this case, the interests which will continue to be accrued during the period of
adjournment, but cannot be covered and paid by the existing mortgage or pledge are required to be
separately securitized”).
23
   179 (b) of the Turkish Execution and Bankruptcy Code Id. (“(2) . . . . the interests which will
continue to be accrued during the period of adjournment, but cannot be covered and paid by the
existing mortgage or pledge are required to be separately securitized.”).
24
   Article 179 (b) of the Turkish Execution and Bankruptcy Code Id. (“Upon dismissal of a demand
for adjournment of adjudication of bankruptcy or if it is determined at the end of the period of
adjournment that recovery is not possible, the court will adjudicate the company or the
cooperative society bankrupt. Furthermore, at any time during the period of adjournment if the
court concludes upon reports of the receiver that it is not possible to improve and recover the
financial situation of the company or the cooperative society, the court may abate the order for
adjournment and adjudicate the company or the cooperative society bankrupt.”).



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be prepared in accordance with two different criteria. This uncertainty
generated confusion about which interim balance sheet determined over-
indebtedness. Thus, Article 179, by identifying the criterion pursuant to which
over-indebtedness is determined, clarified the ambiguity of Article 376 (3); 25

         2) Prior to the 2016 amendments, before filing a request for the
adjournment of bankruptcy, corporations notoriously forum-shopped and
relocated their registered addresses to other jurisdictions where the request
would be favored. Subsequent to the amendments, however, to prevent the
applicants from engaging in forum-shopping, jurisdiction now vests within
the commercial court where the entity’s headquarters were registered for over
one year;26

         3) Pursuant to Article 179 (2), the recovery plan must outline how
working      capital    and    management         expenses       will    be     disbursed            during
adjournment. In addition, the current legislation now specifies the documents
and data that applicants shall submit, along with the recovery plan, when
applying for an adjournment. According to Article 179 (3) of the Bankruptcy
Code, the documents required include: the due dates and specifics of existing
debts, creditors’ addresses, lists displaying stocks, the stocks’ amounts and
waiting periods, the most recent balance sheet and income table submitted to
tax authorities, trade registry certificates, and other information and
documents corroborating the seriousness and persuasiveness of the recovery
plan. In this context, Article 179 (4) states that if the applicant does not
simultaneously provide the preceding documents along with the adjournment
of bankruptcy request or fails to submit missing documents within a two-week
grace period, the applicant shall be adjudged bankrupt upon the identification
of over-indebtedness. Last, with the additions made to Article 179 (a),


25
   Id. (1) (“If and when it is reported by the management and representative bodies or if the capital
company or the cooperative society is in liquidation, by its liquidators or a creditor, or it is
determined by the competent court that the capital company or the cooperative society is over-
indebted pursuant to the interim balance sheet prepared in accord with the presumptive sale
prices of either the capital company’s or the cooperative society’s assets, that capital company or
cooperative society will be adjudged bankrupt without a prior bankruptcy proceeding.”)
(Translation from Turkish to English made by the author - ed.).
26
   Id. (“Provided, however, that any one of the management and representative bodies or the
creditors may demand the adjournment of bankruptcy adjudication by providing the court, where
the company’s or cooperative society’s headquarters has been registered for over one year, with a
recovery plan proving that company or cooperative society may be recovered.”) (Translation from
Turkish to English made by the author - ed.).



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applicants are now permitted to submit a revised recovery plan one time
during adjournment proceedings.27

        4) To prevent debtors from exploiting the adjournment of bankruptcy
regime and preserve and solidify coherency among the extraordinary time limit
and the adjournment of bankruptcy, Article 179 (5) now prohibits applicants,
who previously benefitted from the adjournment of bankruptcy, from
requesting a further one-year adjournment, starting from the cessation of the
previous postponement period (including extension periods); 28

        5) According to Article 179 (a) (1), the court may now appoint multiple
administrative receivers if it concludes that a sole administrative receiver will
not sufficiently perform all required duties. Additionally, courts may now
dismiss administrative receivers and appoint new ones if it deems necessary; 29

        6) With the 2016 amendments, creditors now enjoy a legislative basis to
oppose an adjournment of bankruptcy request. According to Article 179 (a) (2),
within two weeks of the request’s announcement in the trade registry,
creditors aaaaaa




27
   Id. (“(2) The recovery plan must lay out the investment of new capital resources in conjunction
with objective resources and precautions including, how management expenses and working
capital shall be covered. (3) When applying to adjourn bankruptcy, the applicant shall provide the
court with the due dates and specifics of existing debts, creditors’ addresses, lists displaying
stocks, the stocks’ amounts and waiting periods, the most recent balance sheet and income table
submitted to tax authorities, trade registry certificates, and other information and documents
corroborating the seriousness and persuasiveness of the recovery plan. (4) If the applicant does
not provide the preceding documents along with the adjournment of bankruptcy request or fails to
submit missing documents within two-week grace period, the applicant shall be adjudged
bankrupt upon the identification of over-indebtedness.”); Article 179 (a) (8) of the Turkish
Execution and Bankruptcy Code (“The capital company or cooperative society may submit a
revised recovery plan once during the adjournment proceedings.”) (Translation from Turkish to
English made by the author - ed.).
28
   Id. (5)(“A capital company or cooperative society, that has already benefitted from the
adjournment of bankruptcy, cannot apply for a further adjournment for a year starting from the
expiry of the previous adjournment period, including the extension period.”) (Translation from
Turkish to English made by the author - ed.).
29
   Id. (a) (1) (“Upon receiving the adjournment of bankruptcy request, the court may appoint one
or more administrative receivers who hold the required professional and technical knowledge and
either divest the management body of all its power and authority and delegate same to the
receiver, or the court may rule that all acts and decisions of the management body will be valid
and enforceable only if and when they are approved by the receiver. The administrative receiver
(s) shall also be responsible for initiating and controlling the inventory preparation process.”);
Article 179 (a) (6) of the Turkish Execution and Bankruptcy Code (“If it is deemed necessary, the
court may dismiss the administrative receiver and appoint a new one as a replacement.”)
(Translation from Turkish to English made by the author - ed.).



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may object to the request on the sole basis that the applicant fails to fulfill the
statutory requirements of adjournment; 30

         7) Contrary to the former version of Article 179 (a), the amended Article
179 (a) (3) dictates that interim injunctions and provisional attachments,
granted against the applicant prior to the adjournment of bankruptcy request,
shall not be executed during the adjournment of bankruptcy adjudication. New
Article 179 (b) (1) supplements this sentiment regarding the period following
the adjournment request, once consented to by the court;31

         8) Next, judgments furnished by the court at the conclusion of
proceedings are dictated in the new Article 179 (a) (10). Pursuant to the article,
the court may: (i) adjourn the bankruptcy if it finds the applicant to be worthy
and the recovery plan to be serious and convincing; (ii) dismiss the
adjournment of bankruptcy request if it concludes that the corporation or
cooperative is not over-indebted; or (iii) allow the bankruptcy to proceed if the
court determines that the corporation or cooperative is over-indebted, but the
recovery plan is neither serious nor convincing, and accordingly, the applicant
is incapable of debt reimbursement.32

         9) Prior to the 2016 amendments, the bankruptcy adjournment period
could be extended to a total of four years. However, following the amendments,
extensions were reduced from four years to one year. 33 The motive behind this
reduction was to address the statistically proven infertility of the four-year
extension period. The figures upon which the Parliament premised the
diminution, revealed that the four-year extension period disturbed the


30
   Id. (a) (2) (“. . . . The announcement made in the trade registry pertaining to the adjournment of
bankruptcy request will indicate that creditors may object to the request within two weeks of the
announcement on the grounds of nonfulfillment of statutory requirements of the adjournment of
bankruptcy and may demand the dismissal of the request from the court.”) (Translation from
Turkish to English made by the author - ed.).
31
   Id. (a) (3)(“. . . . During this period of time, interim injunctions and provisional attachments
shall not be enforced and, moreover, the limitation/prescription periods and the time limits of
forfeiture which may be suspended by a legal proceeding, will not continue to be counted.”)
(Translation from Turkish to English made by the author - ed.).
32
   Id. (a) (10)(“The court: (i) adjourns the bankruptcy if it concludes that the recovery plan is
serious and convincing and the company or cooperative society is worthy; (ii) dismiss the
adjournment of bankruptcy request and bankruptcy if it concludes that the company or
cooperative society is not over-indebted; or (iii) adjudges the company or cooperative society as
bankrupt.”) (Translation from Turkish to English made by the author - ed.).
33
   Id. (b) (4) (“Maximum period of adjournment is one year. This period may be extended by one
year if deemed appropriate by the court.”) (Translation from Turkish to English made by the author -
ed.).



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equilibrium between the interests of creditors and debtors, to the detriment of
creditors, because, not only was the entity generally deprived of its assets, but
also its debts escalated during the extension period. 34 Accordingly, the majority
of corporations and cooperatives to which the four-year extension period was
granted could not avert insolvency and liquidation.

         10) With the presentation of a three-tiered court system in Turkey, a
new article on the right of appeal was integrated into the Bankruptcy Code.
According to the newly introduced Article 179 (c), the corporation, cooperative,
or creditor that requested the adjournment of bankruptcy may dispute the
commercial court’s judgment before the regional appellate court within ten
days subsequent to service of the decision. Third parties may also contest the
judgment within ten days starting from the announcement of the judgment in
the Trade Registry. It is also possible to appeal the regional appellate court’s
judgment before the Court of Appeals in conformity with the aforementioned
principles and time limits.35

         Markedly, amendments to the adjournment of bankruptcy do not
abrogate other regulations related to the adjournment of bankruptcy already in
effect. Accordingly, Articles 376 and 377 of the Turkish Commercial Code
(hereinafter the Commercial Code)36 and Article 63 of the Turkish Code of


34
   Law Regarding Amendment of Some Laws to Improve the Investment Environment, Law No.
6728, Preamble to art. 3, OFFICIAL GAZETTE, Aug. 9, 2016 (amending Law. No. 4949, art. 179 (b))
(which amends Article 179 (b) of the Turkish Execution and Bankruptcy Code).
35
   Supra note 16, art. 179 (c) (“The capital company, the cooperative society, or the creditor who
requested the adjournment of bankruptcy may contest the commercial court’s judgment before
the regional appellate court within ten days, starting from the service of the decision, or following
the announcement for third parties. The judgment of the regional appellate court can also be
challenged before the Court of Appeals in conformity with the same principles.”) (Translation from
Turkish to English made by the author - ed.).
36
   TURKISH COMMERCIAL CODE [TCC], Law. No. 6102, adopted Jan. 13, 2011, Official Gazette, art. 376
(repealing Law. No. 6762 of Jul. 2, 1956).(“(1) If it is clear in the last annual balance sheet that half
of the sum of the capital and statutory reserves is unsecured due to loss, the B.o.D. shall
immediately convoke the G.A. and submit the remedial measures it considers appropriate. (2)
According to the last annual balance sheet, if it is clear that two-thirds of the sum of the capital
and statutory reserves are unsecured due to loss, unless the G.A. immediately convoked decides to
fully supplement the capital or to be satisfied with one-third of the capital, the company shall
automatically terminate. (3) If suspicions are raised that the company’s liabilities exceed its
assets, the B.o.D. shall have an interim balance sheet prepared based on the going concern value
and based on liquidation value of the assets and shall give it to the auditor. The auditor shall
inspect this interim balance sheet within seven business days and shall present his/her evaluation
and proposals to the B.o.D. in the form of a report. The proposals of the early detection committee
regulated in Article 378 must also be taken into account in the proposals of the auditor. If it is
clear in the report that the assets are not sufficient to cover the receivables of creditors of the
company, the B.o.D. shall notify the commercial court of first instance at the location of the
company’s headquarters of this situation and shall file a claim for bankruptcy. This shall be done



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Cooperatives       (hereinafter       the    Code     of    Cooperatives) 37         preserve           their
enforceability. These Articles outline the process to be followed by the B.o.D. of
a corporation or a cooperative prior to filing a request for the adjournment of
bankruptcy. In contrast, the Articles from the Bankruptcy Code regulate the
process subsequent to the filed demand for adjournment.38 Ultimately, these
articles co-exist symbiotically for the efficient and effective operation of
bankruptcy adjournment.

         Indisputably, these amendments addressed substantial deficiencies that
hindered the efficacy of the adjournment of bankruptcy regulation. Today, the
law, post amendments, not only dictates the prerequisites to adjourn
bankruptcy with clarity, but also delineates the steps that a competent court
must take when delivering an adjournment decision. Further, the amendments
define the effects of the adjournment order, as well as dictate what constitutes
a proper recovery plan to better avert exploitation. These amendments
evidently resurrected the adjournment of bankruptcy system to help viable
corporations confront and tackle severe economic fluctuations.39


provided that before the adjudication of bankruptcy, the company’s creditors representing an
amount sufficient to cover the company’s deficit and to eliminate the indebtedness of the
Company accept in writing that they will be ranked after all other creditors and that the
legitimacy, authenticity, and validity of this declaration or contract is verified by experts assigned
by the court which shall be notified of the request for bankruptcy by the B.o.D. Otherwise the
application made to the court for an expert inspection shall be considered as notification of
bankruptcy.”); id. art. 377 (“The B.o.D. or any creditor can request the postponement of
bankruptcy by presenting to the court an improvement project indicating the objective and actual
resources and measures, including the new capital contribution in cash. In such case, Articles 179
to 179/b of the Executive and Bankruptcy Law shall be applied.”).
37
   TURKISH CODE OF COOPERATIVES, Law. No. 1163, Apr. 24, 1969, art. 63 (as amended by Law No.
3476, Oct. 6, 1988) (“(1) Where there are serious reasons to prove the insolvency of the
cooperative, the B.o.D. shall immediately draw up an interim balance sheet on the basis of the
current market prices. In case the last year’s balance sheet or a liquidation balance sheet prepared
afterwards, or the interim balance sheet referred to above implies that the resources of the
cooperative are not sufficient any more to cover the debts, the B.o.D. shall notify the related
Ministry thereof and call the General Assembly for an extraordinary meeting. (2) In a cooperative
where share promissory notes have been already issued, if half of the resources of the cooperative
remains to be bounced within the last year’s balance sheet, the B.o.D. shall call the General
Assembly for a meeting and address the situation to the information of the members. The B.o.D.
shall at the same time notify the court and the related Ministry thereof. However, in case of
cooperatives where the members are obliged with additional payments, if the deficit shown in the
balance sheet is not covered up with the additional payments of the members within three
months, the related Ministry shall be notified thereof. (3) Where it is deemed possible that the
financial situation can be rectified, the court may delay the filling of an action for bankruptcy,
upon the request of either the B.o.D. or one of the creditors, in which case it shall take the
necessary precautions related to the protection and the maintenance of the resources of the
cooperative, such as keeping the assets book or the appointment of an administrator.”).
38
   See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 30.
39
   See Turkish Companies Using Bankruptcy Laws to Postpone Debts, HÜRRIYET DAILY NEWS (Mar. 11,
2016),http://www.hurriyetdailynews.com/turkish-companies-using-bankruptcy-laws-to-



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Currently, the law bestows profound power and conviction upon judges. With
broad discretion bequeathed to judges by the amendments, the healthy and
legitimate operation of bankruptcy adjournment is now primarily contingent
upon a judge’s experience, knowledge, and diligence. 40 By duly executing this
discretion, not only may judges help creditors and debtors realize anticipated
outcomes from adjournment, but also, they can hamper debtors from
exploiting the adjournment of bankruptcy regime.41




         3. REQUIREMENTS TO ADJOURN BANKRUPTCY

Delivering an affirmative adjournment of bankruptcy decision is conditioned
upon fulfilling the requirements laid out by relevant regulations. In light of the
Turkish Supreme Court judgments and the articles from the Bankruptcy Code,
the Commercial Code, and the Code of Cooperatives, the requirements
necessitating fulfillment by a party seeking bankruptcy adjournment are
explored as follows: (3.1) “over-indebtedness” of the entity; (3.2) court
notification;      (3.3)   file    request;     (3.4)    recovery      plan        submission;             (3.5)
“extraordinary time” limitations; (3.6) one-year rule; and last (3.7) expenses.




   3.1. “OVER-INDEBTEDNESS” OF THE ENTITY

While there is no particular definition of “over-indebtedness,” relevant
articles under the Codes that regulate adjournment of bankruptcy illuminate
the meaning of over-indebtedness.42 From these articles, over-indebtedness
may be defined as a financial standing where “the assets of a corporation or a


postpone-debts.aspx?pageID=238&nID=96316&NewsCatID=345. (“Some 484 legal bankruptcy
suspension demands were placed in Turkey in 2012, 645 in 2013, and 720 in 2014, before
exceeding 1,000 [in 2015].”).
40
   See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 33.
41
    See Ismail Kayar, Iflasin Ertelenmesinde Borca Batiklik ve Iyilestirme Projesi ile Ilgili Yargitay
Kararlarinin Degerlendirilmesi [[The evaluation of supreme court decisions about negative balance at
postponement of bankruptcy and improvement project]], 33 ERCIYES ÜNIVERSITESI İKTISADI VE İDARI
BILIMLER FAKÜLTESI DERGISI [U. ERCIYES MAG. ECON. & ADMIN. SCI.], 2009, at 19, 40-41.
42
   Supra note 16, art 179 (“. . . . the liabilities of the capital company or the cooperative society are
more than its assets . . .”); supra note 37, art. 63 (“. . . . the resources of the cooperative are not
sufficient any more to cover the debts . . .”); supra note 36, art. 376 (“. . . . the assets are not
sufficient to cover the receivables of creditors of the company . . .”).



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cooperative are insufficient to cover the monetary claims raised by creditors
against the company or cooperative.”43

         Under the Bankruptcy Code, over-indebtedness is specified as a ground
for direct bankruptcy44 and is used solely for debtor corporations and
cooperatives. In this respect, Article 179 of the Bankruptcy Code states:

           [i]f and when it is declared by the management and representative
           bodies or if the company or the cooperative society is in liquidation,
           by its liquidators or a creditor, or it is determined by the competent
           court that the capital company or the cooperative society is over-
           indebted pursuant to the interim balance sheet prepared in accord
           with the presumptive sale prices of either the capital company’s or
           the cooperative society’s assets, that capital company or cooperative
           society will be adjudged bankrupt without a prior bankruptcy
           proceeding. Provided, however, that any one of the management and
           representative bodies or the creditors may demand adjournment of
           adjudication of bankruptcy by filing to the court a plan of recovery
           proving that the company or cooperative society may be recovered.

Pursuant to this Article, in the absence of over-indebtedness, there shall be no
bankruptcy order, and similarly, no legally permissible adjournment of
bankruptcy. Hence, over-indebtedness is a financial prerequisite a debtor must
satisfy to be eligible for an adjournment of bankruptcy. In harmony with this
Article, the Turkish Supreme Court stated, “. . . . in order to adjourn the
bankruptcy       proceedings,       the    company        demanding         the adjournment                    of
bankruptcy has to be over-indebted . . . .”45 This statement, in conjunction
with the Article, illustrates that over-indebtedness is a necessary prerequisite
to bankruptcy adjournment.

         To prove over-indebtedness, an interim balance sheet must be
prepared. This document reflects presumptive sale prices of the debtor’s


43
   ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 55-58. See also Öztek, supra note 10, at 53-54.
44
   Direct bankruptcy is a method where a creditor may file a bankruptcy suit against a debtor
without conducting a prior executive proceeding.
45
   ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 57 (citing 19th Civil Chamber, 2010/101 E.; 2010/1740 K.
(22.02.2010) (Translation from Turkish to English made by the author - ed.)). See also Öztek, supra note
10, at 49 (citing 19th Civil Chamber, 2005/6312 E.; 2005/11314 K. (17.11.2005) (“In order to furnish a
decision of whether or not to adjourn bankruptcy, the respective court must first determine
whether the company requesting the adjournment is over-indebted.”)) (Translation from Turkish to
English made by the author - ed.).



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assets. According to Article 376 (3) of the Commercial Code, if there is “good
cause” to suspect over-indebtedness, the B.o.D. shall prepare an interim
balance sheet to disclose the fair market value of the assets owned by the
entity. The interim balance sheet is central for a court when determining over-
indebtedness because it is a core financial instrument evincing whether the
entity’s assets cover creditors’ claims. Therefore, upon debtor-request of
bankruptcy adjournment, the interim balance sheet must be submitted to the
court in conjunction with the request.

         Because of the complexities associated with determining the financial
health of corporations and cooperatives, courts commonly assign expert
witnesses to investigate interim balance sheets. Consequently, expert witness
testimony largely governs whether the adjournment of bankruptcy will be
granted. In accord with this procedure, the Turkish Supreme Court stated that:

           [t]o adjudge the stock corporation as bankrupt on the basis of over-
           indebtedness,        preliminarily,   its   over-indebtedness      must        be
           determined. Here, the expert witness made the finding that the
           stock corporation’s financial status failed to meet the threshold of
           over-indebtedness. Rather, the entity’s balance sheets reflected
           mere financial woes, insufficient for the court to adjourn the
           bankruptcy . . . .   46



Clearly, the courts will look up to and rely upon the expertise of expert
witnesses and will deny an adjournment request if the expert witness’ analysis
reflects that the debtor is not over-indebted.




     3.2. COURT NOTIFICATION

Over-indebtedness is a necessary threshold to satisfy in order to be able to
adjourn bankruptcy. Articles 376 and 377 of the Commercial Code, Article 63 of
the Code of Cooperatives, and Article 179 of the Bankruptcy Code collectively
dictate that once the B.o.D. prepares an interim balance sheet manifesting
over-indebtedness, the Board may seek refuge in adjournment of bankruptcy.



46
   Öztek, supra note 10, at at 53 (citing 19th Civil Chamber, 2004/9593 E., 2004/13439 K.
(30.12.2004) (Translation from Turkish to English made by the author-ed.)).



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First, however, to initiate the adjournment procedure, the debtor must notify
the respective court regarding its over-indebtedness and file a claim for
bankruptcy. Pursuant to Article 376 of the Commercial Code:

          . . . . If it is clear in the report [prepared by the auditor upon the
          examination of an interim balance sheet] that the assets are not
          sufficient to cover the receivables of creditors of the company, the
          Board of Directors shall notify the commercial court of first instance
          at the location of the company’s headquarters of this situation and
          shall file a claim for bankruptcy . . . .

Notably, there is a bifurcation in opinion among scholars regarding the
relationship between the commencement of the adjournment procedure and
the notification of over-indebtedness. According to one school of thought,
unless the respective court is notified of the over-indebtedness, adjournment
of bankruptcy cannot be requested, nor can the relevant judicial proceedings be
initiated.47 In other words, notifying the court of over-indebtedness is a formal
requirement that must be satisfied in order to embark upon the adjournment
of bankruptcy procedures.

        The other school of thought, however, propounds that, regardless of
whether the over-indebtedness notification is given, filing a claim for
bankruptcy or requesting the adjournment of bankruptcy suffices to commence
the adjournment procedure.48 Pursuant to this conviction, a claim filed for
bankruptcy or a request submitted for the adjournment of bankruptcy
embraces an implicit notification of over-indebtedness. Thus, even if there is
no prior notification of over-indebtedness given to the court, it is possible to
effectuate adjournment of bankruptcy. In tandem with this idea, the Turkish
Supreme Court held, that, “[t]he request filed for the adjournment of
bankruptcy also amounts to the notification of over-indebtedness given to the
court.”49 Thus, the Court appears to obviate the need for prior notification.

        Behind the requirement that a debtor ought to notify the court of over-
indebtedness, is a desire to protect creditor interests and to prevent the debtor


47
   See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 64.
48
   See Öztek, supra note 10, at 53.
49
   Id. at 50 (citing 19th Civil Chamber, 2005/448 E., 2005/3753 K. (07.04.2005) (Translation from
Turkish to English made by the author –ed.)).



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from pursuing new contractual relationships that may exacerbate the over-
indebtedness and extend financial instability to third parties. 50 Accordingly,
rather than enforcing Article 376 (3) verbatim et literatim and demanding an
explicit notification of over-indebtedness, concentration should focus upon
notifying creditors and third parties of the financial downfall of the company.
In accord with this goal, as seen from the foregoing judgment, the Turkish
Supreme Court adopts a lenient approach to the format of over-indebtedness
notification, which can be either explicit or implicit (respectively, filing a claim
for bankruptcy or lodging a request for the adjournment of bankruptcy), and
gives precedence to the reasoning behind the over-indebtedness notification.

         According to Article 179 (1) of the Bankruptcy Code, parties authorized
to notify the court of over-indebtedness are creditors, management and
representative bodies, and liquidators if the company or the cooperative is in
liquidation. Most common, the respective company’s management and
representative bodies bear the burden of diagnosing over-indebtedness and
subsequently notifying the court. Both Article 376 (3) of the Commercial Code
and Article 63 of the Code of Cooperatives confer this responsibility upon the
B.o.D.

         To fulfill this responsibility and avoid possible criminal liability arising
from Article 345 (a) of the Bankruptcy Code and Article 553 (1) of the
Commercial Code,51 where there is good cause to suspect over-indebtedness,
the B.o.D. must prepare an interim balance sheet premised upon the going-
concern value and liquidation value of assets and shall then submit it to the
auditor for scrutiny. Once the auditor receives the balance sheet, he or she
must produce a report and if the report reflects that the assets are insufficient
to cover the claims of the company’s creditors, the B.o.D. must notify the
commercial court of first instance at the location of the entity’s headquarters.
The B.o.D. cannot be relieved of this responsibility (following the amendments


50
  See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 64-65.
51
  Supra note 16, art. 345 (a) (“If the Board of Directors or liquidators do not file a claim for
bankruptcy stating that the assets of company do not cover the claims of the company’s creditors,
there will be a sanction of imprisonment from ten days to three months upon the complaint
lodged by a creditor.”); supra note 36, art. 553 (1) (“Founders, the members of the Board of
Directors, directors, and liquidators are held accountable to the company, shareholders, and
creditors if they wrongfully breach their duties emerging from the law and the articles of
association.”).



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to the articles of association), nor can the General Assembly pass a resolution
preventing the B.o.D. from notifying the court of over-indebtedness.

          When informing the court of over-indebtedness, the B.o.D. should also
submit the interim balance sheet evincing the entity’s financial decline, along
with the notification of over-indebtedness. If the B.o.D. does not present the
interim balance sheet in conjunction with the notification, the court may
request the issuance and submission of it from the Board.

          According to Supreme Court precedent, once all documents are received,
the court should assign an expert witness to examine the documents to find
whether or not the entity is over-indebted. Notably, a judgment not founded
upon expert witness examination contravenes precedent and very likely results
in a reversal of the judgment.52




     3.3. FILE REQUEST

Once over-indebtedness of the corporation or cooperative is established by a
judicial judgment, if the entity desires to pursue adjournment, an authorized
party must request an adjournment of bankruptcy. Without an explicit or
implicit statement reflecting the intent of the entity to seek an adjournment of
bankruptcy, the court, sua sponte, cannot adjourn bankruptcy. Pertinent
articles of the Commercial Code arguably read that an adjournment of
bankruptcy may not be requested absent a claim for bankruptcy. For example,
Article 376 (3) of the Commercial Code states that,

           if it is clear in the report that the assets are not sufficient to cover
           the receivables of creditors of the company, the BoD [Board of
           Directors] shall notify the commercial court of first instance at the
           location of the company’s headquarter of this situation and shall file
           a claim for bankruptcy.

In light of this article, some scholars assert that bankruptcy adjournment may
be requested, either along with a claim lodged for bankruptcy, or throughout
bankruptcy       adjudication     emanating       from    the    notification             of      over-


52
  See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 73 (citing 19th Civil Chamber, 2001/6232E.,
2001/8385K. (14.02.2001)).



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indebtedness.53 In other words, it is not possible to file a request solely directed
to adjourn bankruptcy.

         The Supreme Court however, generally strays from this hardened
requirement and adopts a stance corroborating the individuality of the
adjournment of bankruptcy request. The Supreme Court perceives the
adjournment of bankruptcy to be an independent path and does not condition
the admissibility of the adjournment of bankruptcy request upon its
companionship with a bankruptcy claim or with the existence of an over-
indebtedness notification. To illustrate, the Turkish Supreme Court held that,

           [a]ccording to Article 324 (2) of the [former] Commercial Code, the
          adjournment of bankruptcy request embraces the notification of
          over-indebtedness. Therefore, the respective court should initially
          determine      whether      the   stock    corporation      requesting           the
          adjournment of bankruptcy is over-indebted and if it is over-
          indebted, it should be examined whether it is probable to ameliorate
          this stock corporation’s financial situation.54

In a modern judgment, the Supreme Court, in 2014, maintained its stance of
the individual nature of the adjournment of bankruptcy request. In this
judgment, the Court stated that, “. . . . the adjournment of bankruptcy request
encompasses the mandatory [over-indebtedness] notification. Therefore, even
if there is a waiver of the request, if the stock corporation is over-indebted, it
should be adjudged bankrupt . . . .”55

         In light of these judgments, the Turkish Supreme Court does not require
an adjournment of bankruptcy request to be accompanied by a bankruptcy
claim, nor does the Court require prior over-indebtedness notification.



53
   Id. at 74-75 (citing Hakan Pekcanıtez, İflasin Ertelenmesi [Postponement of Bankruptcy], 79
ISTANBUL BAROSU DERGISI [ISTANBUL BAR ASSOCIATION MAGAZINE] 325, 358 (2005)). SEYITHAN
DELIDUMAN, İFLASIN ERTLENMESININ ETKILERI [EFFECTS OF POSTPONEMENT OF BANKRUPTCY] 32 (2008);
Oğuz Atalay, İflasin Ertelenmesi [Postponement of Bankruptcy] 47 BANKACILAR MAGAZINEI [BANKERS
MAGAZINE] (2003).
54
   ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 75 (citing 19th Civil Chamber, 2004/9014E., 2005/2429K.
(10.03.2005) (Translation from Turkish to English made by the author - ed.)).
55
   23RD CIVIL CHAMBER, 2014/3784E., 2014/3888K. (2014),
http://www.forumadalet.net/index.php?topic=2289.0 (Translation from Turkish to English made by
the author - ed.). See also ARZOVA, YAVAŞ & KÜÇÜK, supra note 5, at 75 n.316 (citing a Supreme Court
judgment stating: “The submission of a request for the adjournment of bankruptcy amounts to
the notification of over-indebtedness given to the court. Accordingly, there is no need to file a
separate claim for bankruptcy.” (Translation from Turkish to English made by the author - ed.)).



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The next question demanding clarification is who constitutes an authorized
party capable of filing a request for the adjournment of bankruptcy? According
to Article 179 of the Bankruptcy Code, “any one of the management and
representative bodies or the creditors” may file a request for the adjournment
of bankruptcy by submitting a recovery plan manifesting that the recovery of
the entity is feasible. At this juncture, it is necessary to distinguish the parties
authorized to notify the court of over-indebtedness from those authorized to
file a request to adjourn bankruptcy.

           Article 179 of the Bankruptcy Code lists the parties authorized to notify
the court of over-indebtedness: (i) the management and representative bodies;
(ii) liquidators of the corporation or cooperative if it is in liquidation; and (iii)
creditors. However, according to the same article, the parties authorized to
present a request for adjournment are (i) any one of the management and
representative bodies and (ii) creditors. Notably, Article 179 grants liquidators
the power to notify the court of over-indebtedness, and yet does not give them
authority to request a bankruptcy adjournment.

           According to Article 540 of the Commercial Code, liquidators, upon
taking their office, shall draw up a balance sheet in conjunction with an
inventory spreadsheet and shall submit it to the General Assembly for
approval. Moreover, pursuant to Article 542 (c) of the Commercial Code and
Article 179 of the Bankruptcy Code, where the liquidators deduce that the
corporation is over-indebted, they shall notify the commercial court of first
instance at the location of the corporation’s headquarters. Here, of popular
scholarly debate, is whether liquidators may demand the adjournment of
bankruptcy along with a notification of over-indebtedness.

           Liquidation occurs following an entity’s dissolution. The grounds of
liquidation are listed in Articles 529, 530, and 531 of the Commercial Code.
With the initiation of the liquidation, the primary duties of liquidators are to 56
(i) represent the entity in all transactions pertaining to the liquidation process,
including reaching settlements, concluding arbitration agreements, and even,
where deemed necessary, effecting new transactions; (ii) call in share capital;
(iii) realize the entity’s assets; (iv) fulfill the entity’s legal obligations; (v)

56
     See generally supra note 36, art. 542.




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furnish the balance sheet; (vi) notify the court of over-indebtedness if over-
indebtedness is established; and (vii) avert engagement in legal transactions
not required for the regular operation of liquidation.

           Upon conclusion of the liquidation, liquidators file a request to the
commercial register to have the entity’s name deleted. Clearly, the task of
liquidators is to dissolve the corporation or cooperative, essentially killing the
entity, rather than reorganizing it. By adjourning bankruptcy, the entity lives
and the main objective is to aid the corporation or cooperative overcome its
financial obstacles.

           Thus, as both the Commercial Code and the Bankruptcy Code have no
language permitting liquidators to request bankruptcy adjournment, likely
because of the opposing motives and goals of liquidation and adjournment,
liquidators do not have vested power to request bankruptcy adjournment.

           Once an authorized party files a request for bankruptcy adjournment,
the next issue turns to how the court assesses the request. The focal point of
the court’s assessment is the alleged over-indebtedness of the corporation or
cooperative. At the conclusion of the evaluation, the court may rule in three
different ways.57 First, the court may find that over-indebtedness is present,
but the entity’s financial position may be remedied in a recovery plan. Here,
the adjournment of bankruptcy request is favored. Second, the court may find
over-indebtedness, but that the entity is unsalvageable. Here, the corporation
or cooperative is adjudged bankrupt. Last, the court may find that no over-
indebtedness exists, and accordingly, will dismiss the adjournment of
bankruptcy request.

           When evaluating the adjournment of bankruptcy request, the court
should consider entering an interim order to avoid further financial harm to
the entity. Today, it is well accepted that a court may enter an interim order to
maintain the entity’s financial status until the evaluation of the adjournment
request is concluded.58

           According to Article 179 (a) (1), upon receipt of the adjournment of
bankruptcy request, the court shall appoint an administrative receiver and

57
     Supra note 16, art. 179 (a) (10).
58
     See generally Öztek, supra note 10, at 39-83; ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 95-98.




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either deprive the B.o.D. of its disposal power or make the Board’s actions
contingent upon the consent of the administrative receiver. In addition, Article
179 (a) (3) prompts the court to employ any measures deemed necessary to
conserve the entity’s assets, ensure the maintenance of the entity’s operation,
and, last, enable the healthy execution of the recovery plan.

           In sum, even absent without an express regulation giving the court
authority to grant an interim injunction while reviewing the adjournment
request, the synthesis of the above-mentioned sub-articles paves the way for
the court to grant an interim injunction. However, when granting an interim
injunction, the court should practice caution and be mindful of any adverse
effects      upon     creditors’     interests.    Therefore,   unless     the      expert         report
establishes the over-indebtedness of the applicant and finds its recovery plan
serious and convincing, the court should avert granting an interim injunction
to maintain equilibrium between the creditors and debtor. 59 Clearly, the
expert’s report influences the court’s decision of whether or not an interim
injunction is necessary. Resultantly, essential to proper execution of the
bankruptcy adjournment is a timely filed expert witness report. 60




      3.4. RECOVERY PLAN SUBMISSION

Because approval of the adjournment of bankruptcy request is fundamentally
contingent upon the prospect of financial recovery, it is essential for the
respective corporation or cooperative to show the likelihood of financial
rehabilitation. Here, the recovery plan, prepared and submitted by the party
requesting adjournment, reflects the feasibility of financial recuperation.

           A recovery plan is a document where the applicant endeavors, not only
to prove that the entity’s financial reclamation is probable, but also to outline
the measures necessary to revive the entity from its financial woes. Prior to the
2016 amendments, legislation had no criteria with which a recovery plan had
to conform. However, the 2016 amendments dictated necessary standards that

59
     ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 98.
60
     Id.




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a recovery plan must meet. According to the new version of Article 179 (2) of
the Bankruptcy Code, a recovery plan must now incorporate, in detail, objective
and actual resources and precautions, including new capital contributions (in
cash), and further, outline how management expenses and working capital
shall be covered throughout adjournment.

         Today, it is well recognized that an applicant’s recovery plan is the
main element controlling a court’s decision of whether or not to grant an
adjournment of bankruptcy request. Therefore, it is crucial for the applicant to
submit a recovery plan that is both comprehensive and demonstrative of
probable financial recovery. In harmony with this, scholars and judiciary often
find that it is fundamental for a recovery plan to incorporate information
regarding:61 (i) the reasoning upon which the adjournment of bankruptcy
request is founded; (ii) measures to be taken to revive the corporation or
cooperative from its financial failure; (iii) methods to be employed to recruit
objective and actual resources, including new capital contribution in cash; (iv)
new investment plans that may contribute to the rectification of the entity’s
financial position and how these investment plans will be executed; and (v) the
approximate period of time that is needed to restore the entity’s financial
position.

         Significantly, simply          because a       recovery      plan conforms to the
requirements laid out above is not, in itself, sufficient to have the adjournment
of bankruptcy request granted. Article 179 (3) of the Bankruptcy Code expounds
that a recovery plan must be serious and persuasive and obliges the applicant
to submit specific documents in conjunction with the adjournment request.
Pursuant to the article, documents requiring submission are: 62 (i) the due dates
and specifics of existing debts; (ii) creditors’ addresses; (iii) lists displaying
stocks, the stocks’ amounts and waiting periods; (iv) the most recent balance
sheet and income table submitted to tax authorities; and (v) trade registry
certificates. In addition to these papers, the applicant is encouraged to submit

61
  ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 99-105; Öztek, supra note 10, at 51-52.
62
  Supra note 42, art. 179 (3) (“(3) When seeking adjournment, the applicant shall provide the court
with the due dates and specifics of existing debts, creditors’ addresses, lists displaying stocks, the
stocks’ amounts and waiting periods, the most recent balance sheet and income table submitted to
tax authorities, trade registry certificates, and other information and documents corroborating the
seriousness and persuasiveness of the recovery plan.) (Translation from Turkish to English made by
the author - ed.).



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any supplementary documents and data that aid to establish the seriousness
and persuasiveness of a recovery plan.

         According to Article 179 (4) of the Bankruptcy Code, if the applicant
fails to submit any or all of the preceding documents, the court will grant the
applicant a two-week grace period to complete the adjournment of bankruptcy
application. Where the applicant fails to submit all the documents required by
the law within this two-week grace period, the court shall regard the
adjournment of bankruptcy request as unproven and shall adjudge the
applicant bankrupt upon the identification of over-indebtedness.63

         When all the required documents are submitted, the court shall begin to
evaluate the recovery plan. During evaluation, the court primarily concentrates
upon     the   seriousness      and     persuasiveness       of    the     recovery          plan,        the
appropriateness of the measures and methods propounded by the applicant,
the maintenance of the equilibrium of rights between the creditors and debtor,
and the attainability of the recovery plan. Notably, the court is prohibited from
re-designing the submitted recovery plan, designating measures and methods
different from the ones set forth in the recovery plan, and may not replace
these measures and methods with new ones. However, in accord with the
changing circumstances and criticisms raised by the court, the applicant may
invoke Article 179 (a) (8) of the Bankruptcy Code and revise the recovery plan
once throughout the adjournment proceedings. 64




     3.5 “EXTRAORDINARY TIME” LIMITATIONS

An extraordinary time limit is regulated under Articles 317-329 (a) of the
Bankruptcy Code. In light of Articles 317 and 318, an extraordinary time limit is
an opportunity conferred upon bona fide debtors who cannot fulfill their
contractual obligations due to economic depression. An extraordinary time



63
    Id. (4) (“(4) If the applicant fails to provide the preceding documents with the adjournment of
bankruptcy request or fails to submit missing documents within a two-week grace period, the
applicant shall be adjudged bankrupt upon the identification of over-indebtedness.”) (Translation
from Turkish to English made by the author - ed.).
64
   Id. (a) (8) (“The capital company or cooperative society may submit a revised recovery plan once
during adjournment proceedings.”) (Translation from Turkish to English made by the author - ed.).




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limit becomes available for bona fide debtors who reside in particular regions
specified by the Council of Ministers in the event of an economic depression.

        To benefit from an extraordinary time limit, the requirements imposed
by Article 318 of the Bankruptcy Code are: (i) economic depression; (ii) a bona
fide debtor who cannot perform contractual obligations; (iii) a debtor residing
in a region specified by the Council of Ministers; and, (iv) a prospect of a
financial recovery and, accordingly, fulfillment of contractual obligations at
the cessation of an extraordinary time limit.

        Article 329 (a) of the Bankruptcy Code regulates the nexus between an
extraordinary time limit and the adjournment of bankruptcy regime. This
article states:

          (1) In the event that a capital company or cooperative society is
          granted an extraordinary time limit, it will not be eligible for the
          adjournment of bankruptcy under Article 179 et sequent for one year
          following the end of the time limit. (2) If the bankruptcy of a capital
          company or a cooperative society is adjourned pursuant to Article
          179 et sequent, an extraordinary time limit cannot be granted for
          one year following the end of the period of adjournment.

The language of this Article evidences a desire to eliminate exploitation of both
extensions and adjournments. However, a tension remains in the Article, as
there is also a desire to allot the company or cooperative with sufficient time to
reorganize its affairs in hopeful economic reorganization. In this vein, Article
329 (a) of the Bankruptcy Code causes scholarly divergence. The majority
opines that, while over-indebtedness is not a requirement for obtaining an
extraordinary time limit, this is not determinative of whether or not the entity
will become over-indebted within a year subsequent to the cessation of an
extraordinary time limit.65 Therefore, supporters of this view believe that a
corporation or cooperative, over-indebted within a year following the end of an
extraordinary time limit, should be able to find recourse in adjournment, so
long as there is a likelihood of financial recovery.



65
  See ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 105-06. See also Nükhet Eroğlu, İflasın Ertelenmesi
Talebi Üzerine Alınabilecek Tedbirler ve Erteleme Kararının Sonuçları (2014) (unpublished LL.M.
thesis, Başkent Üniversitesi Sosyal Bilimler Enstitüsü İcra ve İflas Hukuku Anabilim Dalı Özel
Hukuk Yüksek Lisans Programı).



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There are, however, scholars skeptical of the majority view regarding the
balance of interests between creditors and debtors. Members of this
assessment assert that allowing debtors to consecutively benefit from an
extraordinary time limit and the adjournment of bankruptcy regime compels
the creditor to “coercive” sacrifice and disturbs the equilibrium between the
interests of creditors and debtors.

            Here, by revising the language of Article 329 (a) of the Bankruptcy Code
and espousing a more resilient approach to the relationship between an
extraordinary time limit and the adjournment of bankruptcy regime the law
will prove constructive for the interests of both creditors and debtors. In this
respect, Article 329 (a)’s prohibitory language based upon the “mutual
exclusivity” of an extraordinary time limit and the adjournment of bankruptcy
regime should be tailored and courts should be vested with discretionary
authority allowing them to conduct a case-by-case analysis within the context
of Article 329 (a).



      3.6 ONE-YEAR RULE

With the 2016 amendments to the adjournment of bankruptcy regime, it is no
longer permissible for applicants, who already benefited from the adjournment
of bankruptcy, to request a further adjournment for a year starting from the
cessation of the previous postponement period, including the extension period.
According to Article 179 (5) of the Bankruptcy Code: “A capital company or
cooperative society, which has already benefited from the adjournment of
bankruptcy, cannot apply for a further adjournment for a year starting from
the expiry of the previous adjournment period, including the extension
period.”66

            Undoubtedly, this Article seeks to maintain a fair and equitable balance
between creditors and debtors by preventing the debtor from exploiting the
adjournment of bankruptcy process in pursuit of an unending stay of executive
proceedings.




66
     Translation from Turkish to English made by the author - ed..




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      3.7. EXPENSES

Although not directly regulated under the Bankruptcy Code, it is well accepted
that money going towards expenses associated with the adjournment of
bankruptcy request must be deposited into the respective court’s treasury to
initiate      judicial    proceedings       concerning     the   adjournment              request.         In
consonance with this, the Turkish Supreme Court held:

             By virtue of the relation between public order and bankruptcy, the
             party requesting the adjournment of bankruptcy is required to
             deposit money with the respective court’s treasury to meet the
             expenses that will be originating from: (i) announcing the
             adjournment request; (ii) notifying the relevant third parties of the
             adjournment request; (iii) appointing an administrative receiver;
             and, (iv) measures that will be taken by the court . . . . 67

Here, even if an applicant fulfills the other legal requirements, unless the
required money is deposited with the respective court’s treasury, not only will
the adjournment request be dismissed, but the entity will also be adjudged
bankrupt.68

           In sum, the recent amendments to the Turkish Bankruptcy Code in
bankruptcy adjournment seek to balance the rights of creditors with the rights
and needs of financially troubled entities. The 2003 amendments, in
conjunction with the 2016 amendments, furnish creditors with a stronger voice
in court proceedings, prevents forum-shopping, demands greater evidence of
viability in an entity’s recovery plan, and gives the entity a better chance for
financial recovery by enacting a “stay” on proceedings. Further, because the
law now requires an interim balance sheet to be prepared, courts are better
able to determine whether the company or cooperative is salvageable.
However, while these additions all contribute to an “improved” Bankruptcy
Code, this study will illustrate how the U.S. Bankruptcy Code treats businesses
in financial distress and will proceed to illustrate how the Turkish Bankruptcy
Code may adopt certain provisions of the U.S. Code to enhance its efficacy in
balancing the rights of creditors and debtors.


67
     ARZOVA, YAVAŞ & KÜÇÜK, supra note 7, at 106.
68
     Id. at 107.




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          4. CHAPTER 11 REORGANIZATION

To better understand the advantages and disadvantages of bankruptcy
adjournment, it is auspicious to compare Turkey’s Execution and Bankruptcy
Code with the United States Bankruptcy U.S. Code (hereinafter U.S. Code). This
title compares the similarities and differences of the U.S. Code’s Chapter 11
(commonly referred to as the “reorganization” chapter) with Turkey’s own
“reorganization” regime (adjournment of bankruptcy) by investigating the
following Chapter 11 aspects: (4.1) debtor eligibility; (4.2) debtor preparation
(including subheadings 4.2.1-4.2.7); (4.3) the U.S. Code’s protective powers and
who controls the entity (including subheadings 4.3.1-4.3.3); (4.4) rights
exercised by the debtor in possession (hereinafter D.I.P) and creditors
(including subheadings 4.4.1-4.4.8); (4.5) plan confirmation; and finally, (4.6)
options for the debtor if the case fails. Throughout this examination, this study
compares and contrasts the two codes and concludes the comparison with
recommendations           aimed      at   strengthening         and     refining          the       Turkish
adjournment of bankruptcy.




     4.1. ELIGIBILITY

First, while the bankruptcy codes of both Turkey and the United States provide
debtors with the opportunity to reorganize, the two codes diverge in regarding
who or what constitutes a qualifying debtor. Under adjournment, an insolvent
corporation, a struggling cooperative society, 69 or a creditor may petition the
court for a bankruptcy adjournment.70 However, in the interest of protecting
small businesses and large entities alike, the U.S. Code is more flexible.

          Pursuant to 11 U.S.C. §§ 109 (a) & (d), to file a Chapter 11 petition, a
debtor must reside, be domiciled, or have property within the United States
and may be a railroad, a qualifying debtor under Chapter 7 (with certain
exceptions), or a corporation. This definition allows for individuals, small

69
   See supra note 37, art. 1 (As amended by Law No. 3476) (“A cooperative is defined as a body with
variable members, variable capital and legal identity that is established by natural and public legal
entities and private administrations, municipalities, villages, societies and associations in order to
ensure and maintain certain economic interests and specifically the needs of their members
toward professional life and living standards by means of mutual assistance, solidarity and service
as trustees to each other.”).
70
   See also supra note 42, art. 179.




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businesses, and large corporations to pursue reorganization. In addition, the
U.S. Code specifically dictates that a “small business debtor” may file for
Chapter 11 protection and generally places the cap of aggregated debts at
$2,000,000.00.71

         Akin to Turkish law, under the U.S. Code, creditors may also petition for
reorganization (recovery). Under the Turkish Code, if a creditor is aware of the
financial woes of a corporation or cooperation, a creditor may file for
adjournment of bankruptcy, stipulating that the creditor supplies the court
with an effective recovery plan.72 Similarly, the U.S. Code grants creditors the
ability to file a Chapter 11 involuntary petition, provided that the creditor holds
a statutorily defined claim against the debtor.73 Thus, while both codes permit
creditors to instigate reorganization procedures, when compared to the U.S.
Code, the Turkish Code is more limited in its allowance of who may request
bankruptcy adjournment. To allow more entities to benefit from adjournment,
this definition may easily be expanded to include individuals and small
businesses. By expanding the definition of debtor, the Turkish domestic
economy will favor, not only its large companies, but also, its “mom-and-
pop” shops and encourage the growth of a stronger middle and upper-middle-
class population.




     4.2. DEBTOR PREPARATION

Both codes of the United States and Turkey outline specific requirements a
debtor must satisfy prior to seeking reorganization. To receive an adjournment
in Turkey, the debtor must meet the threshold of over-indebtedness, notify the
court of over-indebtedness, file a request to adjourn bankruptcy, submit a
recovery plan, deposit costs of adjournment into the court’s treasury, be in
accord with the one-year rule, and must not have benefitted from an
extraordinary time limit.74 Debtors in the United States must also fulfill
statutory requirements. These requirements resemble those outlined by the
Turkish Code, but naturally, contrast with others.

71
   11 U.S.C. §§ 101 (51C)-(51D) (2010).
72
   See supra note 16, art. 179.
73
   11 U.S.C. §§ 303 (a)-(b) (2010).
74
   See supra pp. 17-34 (Section B: Requirements to Adjourn Bankruptcy).




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     4.2.1. THE PETITION

First, to commence filing under the U.S. Code, the debtor must file (if
voluntarily), a voluntary petition.75 The voluntary petition reflects the debtor’s
general identification, such as name, address, social security number (or tax
identification), the Chapter the debtor intends to file under, and the debtor’s
plan, or the debtor’s intent to file a plan. Here, clearly in contrast to
adjournment of bankruptcy, the U.S. debtor is not required to immediately
submit a plan to the court. Rather, unlike Turkish law, a debtor in the United
States may submit its plan of reorganization following the filing for
bankruptcy. Once a voluntary petition is filed, the debtor assumes the debtor in
possession     76
                    identity, which grants the debtor the same powers that a trustee
has in other Chapter filings.77




     4.2.2. CREDITOR INFORMATION

In addition to the petition, and similar to the Turkish debtor’s responsibility to
submit a list of known creditors (albeit, in its recovery plan), 78 the U.S. debtor
must, in accordance with Rule 1007 of the Federal Rules of Bankruptcy
Procedure, dictate an address list of foreseeable creditors to be included on
Schedules D (creditors holding secured claims), E/F (creditors holding
unsecured claims), G (creditors with executory contracts and unexpired
leases), and H (co-debtors). Further, when filing Chapter 11, the debtor must
complete a list of its twenty largest unsecured creditors and provide the
names, addresses, and claim amounts.79 Also as outlined by Rule 1007, the
debtor, if a corporation, must additionally file a corporate ownership interest
statement. Should the petition be involuntary, the debtor has seven days to
include the creditor contact list.80

          Notably, unlike in Turkey, where courts take a “hands-on” approach to
determine whether the debtor is “over-indebted” and grant an adjournment of

75
   See 11 U.S.C. § 301 (2005).
76
   See 11 U.S.C. § 1101(1) (1978).
77
   11 U.S.C. § 1107 (a) (1984).
78
   See supra note 42, art. 179 (3).
79
   FED. R. BANKR. P. 1007(d).
80
   Id. at 1007(a)(2).




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bankruptcy, in the United States bankruptcy courts do not investigate, at this
primary stage, whether the debtor is sufficiently “over-indebted” to allow it to
file Chapter 11. Perhaps this is because in Turkey, where liquidation and
bankruptcy are largely synonymous, a debtor wishing to reorganize has no
alternative but to adjourn bankruptcy, while, in the United States, different
Chapters provide a debtor with an initial choice of reorganization or
liquidation. This is clearly an advantage for debtors in the United States. Thus,
rather than the U.S. Code demanding a minimum debt in order to file Chapter 7
(liquidation), the U.S. Code places qualifying numbers for filing under Chapter
1381 and if the debtor’s debts exceed those of Chapter 13, the debtor must file
under Chapter 11 if the debtor wishes to pursue reorganization.




     4.2.3. CREDIT COUNSELING

Next, unlike Turkish law, to file for Chapter 11 protection, the debtor, if an
individual (or joint petition), must submit to the court, within 180 days prior to
filing, a certificate of credit counseling. 82 Mandatory under the Bankruptcy
Abuse Prevention and Consumer Protection Act (B.A.C.P.A.), 83 this regulation
seeks to prevent fraud and to provide financial education to debtors prior to
filing for bankruptcy. The Turkish Code does not require such a document to
adjourn bankruptcy.




     4.2.4. SCHEDULES

Along with filing the petition, creditor list, and credit counseling (if
applicable), under Rule 1007(b) of the Federal Rules of Bankruptcy Procedure,
the debtor, either at the time of filing, or within the designated timeline, 84
must file with the court the following documents: schedules of assets and
liabilities, a schedule of current income and expenditures, a schedule of
executory contracts and unexpired leases, statement of financial affairs, a copy


81
   See 11 U.S.C. § 109 (2010).
82
   Id. at. §§109(h)(1) & 111.
83
   Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat.
23.
84
   FED. R. BANKR. P. 1007(c).




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of income from an employer within sixty days prior to filing (if applicable),
and report any interest a debtor has, as defined in § 521(c) of the Code. 85 These
requirements do parallel Turkish law, in that, the Turkish entity must provide
the court with its assets, liabilities, and other documents to help the court
understand the financial status. However, the time to provide the Turkish court
with these documents is earlier than that explicated by the U.S. Code.

         Because adjournment                of   bankruptcy   is an    innovation            to avoid
liquidation, the court must, at first blush, determine the debtor’s viability.
However, in the United States, the U.S. Code provides some breathing room for
the debtor regarding the time limits to file these additional documents and
allows the debtor to seek extensions via motion, (given that the reasoning is
for a good cause and if the proper parties are notified). 86 Notably, it is not
uncommon for debtors in the United States to file under emergency
circumstances. By filing an emergency petition, the debtor gains the protection
of the automatic stay. Then, the debtor is given time to collect all required
documents and information. This breathing room is essential to a healthy
functioning bankruptcy system.




     4.2.5. SMALL BUSINESS DEBTOR: ADDITIONAL REQUIREMENTS

While Chapter 11, for the most part, is an option for “larger” entities, small
businesses (and on occasion individuals), may also file Chapter 11. It is because
of this flexibility that requires the small business debtor to file additional
documents. First, to qualify under this section, the debtor must satisfy the
definition of “small business debtor” under the Code.87 Once a debtor is found
eligible, the duties and responsibilities of an overseeing U.S. Trustee expand.
Typically, small business cases do not have large creditors (or creditors
interested in forming committees) and thus, the trustee must have a method
for greater oversight. Resultantly, the U.S. Code dictates additional supervision
under 11 U.S.C. § 1116. Pursuant to this section, the D.I.P. must also file (with

85
   11 U.S.C. § 521(b) (2014).
86
   See FED. R. BANKR. P. 1007(a)(5), (c).
87
   11 U.S.C. § 101(51D) (2010).




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the petition or within seven days if involuntary), a balance sheet, statement of
operations, cash-flow statement, and Federal income tax return (or, if not filed
or prepared, the debtor must file a statement swearing to the same).

         Along with these documents, small business debtors must also file
intermittent reports that reflect its profitability, cash disbursements and
receipts (comparing these with prior reports), and demonstrate continued
compliance with post-petition requirements.88 These additional requests allow
the trustee to maintain a watchful eye on the debtor and quickly identify
whether or not the debtor is capable of plan confirmation. Should Turkish law
allow small business debtors to take advantage of its reorganization provision
and monitor them as the U.S. Code outlines, it is likely that the Turkish
economy will strengthen, as these entities are numerous and may be
considered the lifeblood foundation of all domestic economies.




     4.2.6. THE PLAN

While bankruptcy codes of both Turkey and the United States dictate that the
debtor must submit a plan, the U.S. Code is again, more lenient regarding the
statutory timeframe of submission (likely because Turkish courts must
immediately evaluate whether a debtor is over-indebted, but financially
recoverable). Pursuant to the U.S. Code, a debtor (voluntary or involuntary)
may file a plan with the petition, or at any time during a case.89 Further, the
U.S. Code gives the debtor 120 days following the petition’s filing, to be the sole
entity capable of proposing a plan.90 In the event the debtor91 fails to file a plan
after the 120 days, or is unable to confirm a plan within 180 days, other
interested parties may propose a plan.92 Notably, the courts have judicial
discretion to alter these dates, for cause, given that the extended timeframe




88
   Id. § 308.
89
   Id. § 1121(a).
90
   Id. § 1121(b).
91
   Note: the small business debtor must follow a slightly different timeline to the ‘regular’ Chapter
11 debtor. Regulations of this timeframe is found in 11 U.S.C. § 1121(e) (2005).
92
   11 U.S.C. § 1121(c) (2005).




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falls within the dates dictated by the U.S. Code and the proper parties are
notified.93

         Historically, critics categorized the notion of allotting a debtor with
greater time to reorganize, to be abuse. However, Elizabeth Warren and Jay L.
Westbrook, dismiss this argument and argue,

           [a]ny thoughtful evaluation of Chapter 11 eventually boils down to
           weighing costs and benefits. It is clear that any legal system that
           allows for reorganization will incur costs from delayed liquidation
           that must be balanced against the benefits of reorganization. The
           problem of costs is often overstated, but costs remain substantial
           nonetheless. The professional fees and other expenses associated
           with a Chapter 11 case diminish the value available to creditors, a
           consequence that is felt most sharply if the reorganization fails and
           liquidation follows. In addition, the time spent in bankruptcy itself
           leads to the loss of value, comprising an indirect cost. On the other
           side   of   the   ledger,   it   is   generally   thought       that      successful
           reorganization pre- serves value, especially going-concern value,
           compared with a liquidation option. A reorganization is also thought
           to produce substantial positive externalities, such as maintaining
           employment,       preserving     the    local   tax   base,      and      advancing
           community stability. To ensure that these benefits exceed the costs
           of delay and the administrative expense of reorganization, a
           reorganization system should move cases through the system
           quickly, giving an opportunity to those with a real chance of success
           and disposing of those that were destined for liquidation.94

Clearly, Warren and Westbrook believe a balance in equity must be reached
regarding debtor and creditor rights. However, both scholars find that the
benefits of a successful reorganization outweigh the costs of a longer
timeframe.95 This is an idea that the Turkish Parliament should revisit. Because
the amendments to the Turkish Code seek to minimize the time a debtor may
take to “recover,” Warren and Westbrook would argue that this strategy likely
inhibits the prospects of successful recovery.

93
   Id. § 1121(d)(1)-(2).
94
   Elizabeth Warren & Jay L. Westbrook, The Success of Chapter 11: A Challenge to the Critics, 107 MICH.
L. REV. 603, 625 (2009).
95
    See generally id. (This finding was shown through Warren and Westbrook’s studies on the
success rates of reorganization where debtors are granted greater time to reorganize).



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Interestingly, while the Turkish recovery plan contrasts with the American
reorganization plan, there are similarities. Generally, both plans must be
comprehensive and realistic. If a debtor is reorganizing under the U.S. Code,
the debtor’s plan must: a) categorize each class and treat each class the same
(unless by creditor agreement, treated less than others within that class); 96 b)
dictate any impaired claims under the plan and explain how they will be
treated; c) specify any unimpaired claims; and d) illustrate how the plan will
succeed and how creditors will continue to be paid.97 These requirements are
not   unlike those demanded               by   the new        amendments under                     Turkish
adjournment.98 Both laws seek to treat creditors equitably and fairly, while
simultaneously giving the debtor a chance to recover and reorganize.

         However, the plans contrast greatly in terms of creditor involvement.
With the enactment of the 2016 Turkish amendments, creditors do have a right
to a) oppose an adjournment of bankruptcy, in the event they find that the
debtor    is   not    satisfying     statutory     requirements99         and       b)      request         an
adjournment of bankruptcy, provided that they propose a recovery plan
satisfying the Turkish Code’s requirements.100 Thus, while creditors have a
voice in the adjournment process, under the U.S. Code, creditors are an integral
aspect of the debtor’s plan and a plan cannot be accepted, nor confirmed
without their participation.

         Under the U.S. Code, Chapter 11 creditors may play a large role in
influencing the plan’s content. The U.S. Code demands that the U.S. Trustee
shape and develop willing creditor committees (usually consisting of the seven
largest unsecured claims).101 If appropriate, the U.S. Trustee, a creditor of the
debtor, or an equity security holder of the debtor may request the formation of
additional committees to assure adequate protection and representation. 102




96
    11 U.S.C. § 1122 (1978).
97
    Id. § 1123 (2005).
98
    See supra pp. 5-17 for “Development of Bankruptcy Adjournment in Turkey.”
99
    See supra note 16, art. 179 (a)(2). Discussed supra.
100
    See supra, Discussion on the over-indebtedness of the stock corporation or cooperative.
101
     11 U.S.C. § 1102.
102
    Id.




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Notably, in small business cases, if good cause is shown, a party in interest
may request that a committee of creditors not be formed. 103

          Creditor committees are required to meet at a scheduled time and place
and may appoint attorneys and accountants to represent their interests. 104
Powers of creditors are numerous and include the ability to:

          ● consult with the trustee or D.I.P. concerning the administration of the
case;

          ● investigate   the   acts,   conduct,   assets,    liabilities,       and       financial
condition of the debtor, the operation of the debtor’s business and the
desirability of the continuance of such business, and any other matter relevant
to the case or to the formulation of a plan;

          ● participate in the formulation of a plan, advise those represented by
such     committee of      such   committee’s determinations as to any                             plan
formulated, and collect and file with the court acceptances or rejections of a
plan;

          ● request the appointment of a trustee or examiner under section 1104
of this title;

          ● perform such other services as are in the interest of those
represented.105

Aaaaa

Clearly, the U.S. Code, by bestowing these powers upon creditor committees,
seeks to assure the fair and equitable treatment of all interested entities.

          Next, a plan may only be confirmed upon committee agreement as
outlined by § 1126 of the U.S. Code. Under § 1126(c), a class of claims accepts
the plan when, “at least two-thirds in amount and more than one-half in
number of the allowed claims of such class held by creditors” approves.
Further, a plan cannot be confirmed unless all impaired claim holders approve
of the plan or are adequately protected by property value (if liquidated).106 Once


103
    Id.
104
    Id. § 1103.
105
    Id. § 1103(c).
106
    Id. § 1129(a)(7).




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a plan is accepted, but prior to confirmation, the party proposing the plan may
modify the plan. However, in accordance with Rule 3019 of the Federal Rules of
Bankruptcy Procedure, this is conditioned upon a judge, following a court
hearing, finding that the plan does not adversely impact any creditor who has
not signed the modified plan. In sum, while creditors in Turkey indeed have a
voice in adjournment of bankruptcy, creditors in the United States are
obviously integral to reorganization.




      4.2.7. DISCLOSURE

Finally, when a plan is filed, the debtor must also file a disclosure statement. 107
This document is not separately required in adjournment of bankruptcy.
Influenced by a case’s complexity, this document often falls under the purview
of judicial discretion. This document’s purpose is to aid creditors to make
informed decisions regarding the debtor’s plan by listing the debtor’s assets,
liabilities, and other economic interests. 108 A plan’s confirmation is conditioned
upon judicial approval of the disclosure statement.

          Unsurprisingly, when a debtor seeks to reorganize, the Turkish
Bankruptcy Code and the U.S. Code differ in their respective procedures. Where
the United States has a regulated, but flexible timeline to file a petition, plan,
and associated documents, the Turkish Code is less forgiving and demands that
the debtor provide more information at the start. As noted earlier, this is, in
part, a likely side effect of the differing goals of each debtor. For instance, a
Turkish debtor seeks to delay bankruptcy and the American debtor seeks to
take refuge under it. However, while the two codes differ in timeline and
specific document requirements, the two codes do share a common goal of fair
and equitable creditor treatment through proper notice and participation in
both the adjournment of bankruptcy request and the reorganization plan.




107
    The small business debtor may be exempt from this requirement if the court finds sufficient
information is already within the plan. See 11 U.S.C. § 1129(f) (2010).
108
    See 11 U.S.C. § 1125 (2005).




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      4.3. CODE’S PROTECTIVE POWERS AND WHO CONTROLS

      4.3.1. THE AUTOMATIC STAY

When a U.S. debtor considers bankruptcy, the shelter and breathing room of
the automatic stay offers strong incentive for the debtor to file.               109
                                                                                       This device
protects the debtor at the time of filing and shields the debtor from creditor
collection efforts, repossessions, and foreclosures. The automatic stay thus
shelters the debtor and prevents further irreparable harm. Notably different
from adjournment, in the United States, the debtor must file for bankruptcy to
be protected. In Turkey, because the debtor seeks to avoid bankruptcy,
legislation addresses the need to temporarily protect debtors from aggressive
creditors by providing courts with a staying power, notwithstanding the
absence of an actual bankruptcy filing. Article 179(a) of the Turkish Code gives
a court the power to “take all appropriate actions required for the protection of
properties and assets of the corporation or cooperative to aid in the proper
execution of the recovery plan.”110 Undoubtedly, this includes the power to
order a stay.

          Next, and similar to Turkish law, the U.S. Code leaves room for a)
specific proceedings to be immune from the stay and b) specific creditors able
to request relief from the stay.111 Proceedings immune from the stay include,
but are not limited to, criminal proceedings, establishment of paternity,
domestic violence proceedings, domestic support obligations, and interception
of tax refunds.112 Creditors desiring relief from the automatic stay must file
with the court, a motion for relief 113 and cite one or more of the following: “for
cause, including the lack of adequate protection of an interest in property of
such party in interest . . . .”114 or, regarding a relief of an interest in property,
show that “the debtor does not have an equity in such property and such
property is not necessary to an effective reorganization.” 115 To compare, Article
179 (b)(2) of the Turkish Bankruptcy Code, dictates, in the spirit of balancing

109
     11 U.S.C. § 362 (2010).
110
    See supra pp. 7-10 for discussion on 2003 amendments.
111
    Supra note 109.
112
    Id.
113
    See FED. R. BANKR. P. 4001.
114
    11 U.S.C. § 362 (d)(1) (2010).
115
    Id. at § 362 (d)(2) (emphasis added).




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the rights of the debtor and creditor, that particular creditors are exempt from
the court’s stay.116 Clearly, regarding the staying power of the courts, there are
parallel goals sought by both codes.




      4.3.2. DEBTOR IN POSSESSION

After a Chapter 11 case is filed, the debtor usually assumes the role of D.I.P. . 117
A D.I.P. controls the entity during reorganization and has the duty to report
and “investigate the acts, conduct, assets, liabilities, and financial condition of
the debtor, the operation of the debtor’s business and the desirability of the
continuance of such business, and any other matter relevant to the case or to
the formulation of a plan . . . .”118. When a debtor maintains control, a case
trustee119 is not appointed and the D.I.P. may use special powers that a case
trustee, if appointed, would employ. 120 A D.I.P. may hold this title until the
plan’s confirmation, but will lose this identity if the plan is converted to
liquidation or if a trustee takes control of the entity (by election or
appointment). The idea of a D.I.P. does not exist in Turkey.

          Debtor     control     (albeit    with       judicial   oversight),         is     foreign          to
adjournment, where the court either a) appoints an administrative receiver to
manage the entity or b) makes every decision of the debtor contingent upon
the administrative receiver’s consent. 121 The administrative receiver’s role is
essential during bankruptcy adjournment. The receiver studies the presented
recovery plan to determine whether the financial progress of the entity is in
accord with the plan and will report to the court every three months on the
entity’s progress.122 If the receiver reports that the entity is not financially
viable the court will discontinue the adjournment, adjudge the entity bankrupt,
and proceed with liquidation.123 In sum, while the duties of the administrative


116
     See supra at 7-10 concerning Article 179 (b)(2) of the Turkish Execution and Bankruptcy Code
and discussion of the 2003 amendments.
117
    11 U.S.C. § 1101 (1978).
118
    11 U.S.C. § 1106(3) (2010); FED. R. BANKR. P. 2015.
119
    Note: a case trustee differs from a U.S. Trustee. The U.S. Trustee plays a great role in Chapter 11
administration.
120
    See 11 U.S.C. § 1107 (1984).
121
    See supra note 16, art. 179(a).
122
    Id.
123
    Id.




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receiver and the D.I.P. are comparable, the control bestowed upon the D.I.P. in
the United States is more beneficial for reorganization because, unlike the
Turkish receiver, the D.I.P. is familiar with the necessary day-to-day business
decisions that keep the insolvent business afloat.




      4.3.3. THE U.S. TRUSTEE AND EXAMINER

While the D.I.P. controls the assets and manages the bankrupt entity, the U.S.
Trustee plays a large oversight role to keep the entity on track in its case and
plan. To illustrate, the U.S. Trustee collects the debtor’s reports and conducts
the creditor’s meeting, “within a reasonable time after the order for relief in
the case”124 (341(a) meeting).125 Notably, the court has no involvement in 341(a)
meetings. The purpose of the meeting is to question the debtor under oath and
assure the propriety of its actions in management of the bankrupt entity. Here,
drawing comparison between the two codes, the duties and responsibilities of
the U.S. trustee and the administrative receiver are notably similar. Because the
administrative receiver has strong control over the debtor corporation or
cooperative in a bankruptcy adjournment, if the receiver is playing a
supervisory role, undoubtedly, the receiver must be able to question the
debtor’s actions. Because the receiver must consent to the actions of the
debtor, this is an inherent role. However, there is no formal meeting such as
the 341(a) established under the Turkish Code.

          Next, an examiner may play a role in Chapter 11. 126 Although rarely
ordered, an examiner has duties similar, but more limited, to those of a
trustee. At the request of either an interested party or the U.S. Trustee (so long
as a case trustee has not been appointed), the court may assign an examiner if
such appointment is in the interest of creditors and the debtor’s debts exceed
$5,000,000.00.127 The U.S. Code permits the examiner to investigate the
debtor’s actions and file a statement of investigation.128 A court has judicial
discretion in what an examiner may do when a D.I.P. cannot perform a

124
    S. Rep. No. 95-989, at 1 (1978).
125
    11 U.S.C. § 341 (2005).
126
    Id. § 1106(b).
127
    Id. § 1104(c).
128
    Id.




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required duty. Although rare, an examiner may play a valuable role, especially
under suspicion of a debtor’s fraud, dishonesty, and mismanagement. Under
Turkish law, it is likely that the administrative receiver would also fulfill this
role. However, prior to reaching a judicially approved adjournment, the court
performs an in-depth investigation of the corporation or cooperative. Any
signs of fraud, mismanagement, or dishonesty would likely be spotted by the
court and be resolved at an early stage.




      4.4 RIGHTS EXERCISED BY THE DEBTOR IN POSSESSION AND CREDITORS

      4.4.1 AVOIDABLE TRANSFERS

A Chapter 11 case is often riddled with claims, legal actions, and court
appearances. This is because both the D.I.P. and creditors have many legal
recourses under the U.S. Code. This allows for an even playing field for both
parties. For example, one power of the D.I.P. (or case trustee if assigned) in a
Chapter 11 case, is the avoidance power. Under the U.S. Code, the debtor may
avoid money or property transfers made within 90 days prior to filing. 129 The
purpose of this power is to regain monies or property of the debtor for the
benefit of paying creditors. While the U.S. Code dictates a 90-day period, the
period of transfer may be extended for transfers to insiders. 130 Avoidance
transfers are a complicated section of the U.S. Code and are dependent on the
kind of transfer, to whom the transfer was made, what law governs it, and how
long ago the transfer was made.

            To compare the U.S. debtor’s avoidance powers in Chapter 11 with those
of a Turkish debtor in adjournment of bankruptcy, there is not much
similarity. In Turkey’s adjournment of bankruptcy provision, the law fails to
clarify whether the administrator should (or must) ‘look back’ to the debtor’s
prior transactions to determine whether they are avoidable and recoverable for
the benefit of creditors. However, it can be reasonably gleaned that, in a
Turkish court’s analysis of whether or not an adjournment is the proper
manner in which to proceed, the court would employ a good faith standard and


129
      Id. § 547.
130
      Id.




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if corrupt acts (fraud, mismanagement, etc.) were suspected, a court may
overrule bad faith transactions for the benefit of the creditors. Notably, and in
direct contrast to a D.I.P., the over-indebted corporation or cooperative in
Turkey does not have avoidance powers, whether for good faith prior
transactions or for insider or bad faith dealings.




       4.4.2. DEBTOR IN POSSESSION’S POWER TO USE, SELL, OR LEASE PROPERTY

When the D.I.P. is operating a business under a plan of reorganization, there
will likely be costs associated within the sphere of the ordinary course of
business. Under § 363 of the U.S. Code, the D.I.P. (or case trustee if appointed),
may sell or lease property of the estate, without judicial approval, if such
action is within the “ordinary course” of the debtor’s business. 131 However, any
actions taken by the debtor that impact the estate’s property that are deemed
not within the ordinary course of business, must be approved by the court
following notice and a hearing.132 This section of the U.S. Code seeks to balance
case efficiency with creditor protection. Because the debtor must frequently
utilize the estate’s property within the ordinary course of business, it would
not be efficient to the debtor or the courts if the debtor were required to
constantly seek permission to act, as this would take time and flood the courts
with unnecessary motions and delay the debtor in its necessary endeavors.
However, to protect creditors, when debtors act beyond the ordinary course of
business, they must seek judicial permission prior to acting, as well as notify
creditors.

            In contrast, in Turkey, if an over-indebted entity is approved for
bankruptcy adjournment, the court will bestow one of two duties upon an
administrative receiver. First, if the debtor is permitted to manage the entity,
the debtor must seek the receiver’s approval for “all acts and decisions…[and
these acts will be]… valid and enforceable only if and when they [are] approved
by the administrative receiver.”133 Plainly, this is not an efficient provision. For
a business to succeed, the debtor must be unfettered in decisions made within


131
      Id. § 363.
132
      Id.
133
      Supra note 16, art, 179 (a).




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the ordinary course of business. Second, if the court divests the debtor of all
management powers and delegates them to the administrative receiver, the
receiver likely does not need to alert the court of actions taken upon the
entity’s properties, so long as they are within the ordinary course of
business.134 Because the receiver’s duties are to assure that the business follows
the recovery plan, any acts taken by the receiver are in support of that goal.
While the Turkish Code does not explicitly state, if the receiver wishes to use
the property outside the scope of the ordinary course of business, it is likely
that the receiver would be required to ask the court for judicial approval. 135
Clearly, critical to efficient reorganization under both codes are prompt
decisions regarding actions made within the ordinary course of business.



      4.4.3. CASH COLLATERAL

Next, necessary to reorganization under Chapter 11 is whether the D.I.P. may
use cash collateral. Defined under § 363 of the Code, cash collateral is:

            cash, negotiable instruments, documents of title, securities, deposit
            accounts, or other cash equivalents whenever acquired in which the
            estate and an entity other than the estate have an interest and
            includes the proceeds, products, offspring, rents, or profits of
            property and the fees, charges, accounts or other payments for the
            use or occupancy of rooms and other public facilities in hotels,
            motels, or other lodging properties subject to a security interest as
            provided in section 552(b) of this title, whether existing before or
            after the commencement of a case under this title.

To use cash collateral the D.I.P. must ask permission from the secured creditor
or the court. If the debtor seeks judicial approval, the court investigates
whether the secured creditor is adequately protected. 136 If the court deems that
the creditor is adequately protected, the creditor whose property interest is
being used, has the right to request the court to limit the use to the extent that


134
    This is arguably the better route to take in adjournment, as decisions in the ordinary course of
business may be made quickly. However, the negative behind the receiver maintaining control, is
that a debtor obviously has a better understanding of how the business functions. Thus, these are
considerations for the Turkish court to consider.
135
    Id.
136
    11 U.S.C. § 363 (2010).




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the creditor is adequately protected. The court monitors and oversees the
debtor’s use of cash collateral and imposes additional accounting requirements
upon the debtor.137

          When compared to the Turkish Code, the discussion here parallels the
discussion supra on the debtor’s use, lease, or sale of estate property. Again,
the focus is on the administrative receiver and the goals of the recovery plan.
While the section on adjournment of bankruptcy does not dictate how cash
collateral shall be used, it is probable that, if the use of cash collateral is in
pursuit of recovery, so long as the receiver deems that creditors are adequately
protected, the use is legitimate. However, the question of a creditor’s powers in
the use of cash collateral are ambiguous, as this section of the Turkish Code
does not specify whether creditors have the right to petition the court to
demand additional protection in the event of cash collateral . This absence
bestows great responsibility upon the receiver and the court, as both entities
are charged with assuring that creditors are protected during recovery.




      4.4.4. DEBTOR’S RIGHT TO CREDIT

Another power the debtor (or trustee) has, to maintain the bankrupt entity in
the United States, is the power to obtain credit. Governed by § 364, the D.I.P.,
in the ordinary course of business, may incur additional unsecured debts,
deemed administrative expenses.138 Prior to incurring additional debts not
within the ordinary course of business, the D.I.P. must seek judicial approval.139
Importantly, because a debtor often encounters challenges when seeking
additional funds, the court (after notice and a hearing, as authorized by § 364
(c)), may allow the debtor to obtain credit with either a) super priority over any
administrative expenses, b) secured by an unencumbered property lien of the
estate, or c) secured by a second junior lien on property of the estate already
encumbered by a lien. This provision of the U.S. Code is again in the spirit of
encouraging successful reorganization.




137
    Id. § 363(c)(4).
138
    Id. § 364(a).
139
    Id. § 364(b).




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Again, when compared to adjournment, there is ambiguity in the Turkish Code
on obtaining unsecured credit while in the recovery phase. If the debtor is not
in control and the administrative receiver is managing the entity, the spirit of
the recovery plan demands an analysis of whether the entity is sufficiently
viable to competently repay additional incurred debts. This would likely be a
strict analysis by the receiver and possibly the judiciary (in the event that the
receiver submitted such a request to the court).




      4.4.5. EXECUTORY CONTRACTS AND UNEXPIRED LEASES

In Chapter 11, another question the D.I.P. may face is whether the entity will
maintain executory contracts and/or unexpired leases. 140 Under § 365 (a) of the
U.S. Code, the D.I.P. (or trustee), “subject to the court’s approval, may assume
or reject any executory contract or unexpired lease.” This section of the U.S.
Code is riddled with complexity and debate. 141 Because of the intricacy of this
section and the limited space to dedicate to it here, it must suffice to generalize
and state that, the D.I.P. may have the power to assume or reject an executory
contract or unexpired lease, albeit, with adequate creditor protection.

          Here, consistent with the discussion supra, the Turkish Code is silent on
whether a debtor or receiver may assume or (assume and) assign executory
contracts or unexpired leases. However, pursuant to Article 179, because the
court requires the debtor to provide an in-depth recovery plan, this plan must
dictate the entity’s assets, debts, and due dates of debts. Here, likely at this
initial stage, the debtor must list the entity’s executory contracts and/or
unexpired leases. And, while possible, it is unlikely that a creditor with an
executory contract would object (at this early phase) to the debtor maintaining
said contract. Nonetheless, should a creditor wish to discontinue an executory
contract or unexpired lease, the court must analyze whether an adjournment of
bankruptcy alters the nature of their contractual relationship, is in the overall

140
    Executory contracts: in the context of bankruptcy filings, are usually between a debtor and
creditor, where both parties have yet to fulfill performance.
141
    For an in-depth look into the mire of the Circuit Split of section 365 and intellectual property
contracts, and whether the D.I.P. has the right to assume an executory contract when the debtor
has no intent on assigning it to a third party, notwithstanding non-bankruptcy law, and
notwithstanding a disagreeable creditor, see Kristi R. Sutton, To Assume or Assume & Assign? That is
the Question: A Critique of the Circuit Split of §365, NORTON BANKR. L. ADVISOR, Aug. 2014, at 8.




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best interests of the debtor and its creditors, and whether it is to the creditor’s
detriment to continue this relationship with a debtor in adjournment.




      4.4.6. ADEQUATE PROTECTION

Our investigation now turns to the rights and powers of creditors, creditor
committees, and how the U.S. Code seeks to protect their interests. First, and
related to a debtor’s use of cash collateral, is a creditor’s right to be adequately
protected. Sections 363 (c) (2) (a) & (b) prevent the D.I.P. (or trustee) from
using, selling, or leasing cash collateral unless “each entity that has an interest
in such cash collateral consents; or the court, after notice and a hearing,
authorizes such use, sale, or lease . . . .”. Further, § 361 outlines if the party in
interest risks a decline in property value as a result of the debtor using said
property, the debtor must make cash payments or periodic cash payments to
the interested party, to the extent of the declined value. Section 361 is clearly
geared towards assuring creditor protection.

            To compare the U.S. Code with Turkish law, it appears that creditors
involved in adjournment must rely on the administrative receiver’s duty to
maintain equity between the parties. During adjournment, because the receiver
is the principle guarantor of an entity’s ability to stay on track during recovery,
the receiver has the duty to assure creditors that they will be fairly and
equitably treated.142 Again, absent under Turkish law, is an exact explication of
the possible recourse creditors may seek in the event that their interests are
diminished by the indebted entity. However, because bankruptcy in Turkey
(automatic liquidation) holds a very different meaning from bankruptcy in the
United States, it can safely be adduced that, because the insolvent entity seeks
viability, it is in the best interests of creditors to encourage this pursuit, as
liquidation undoubtedly results in greater losses for all parties.




142
      See supra note 16, art. 179 (a).




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      4.4.7. CREDITORS’ CLAIMS

While the U.S. Code demands that the debtor list creditors at the initial filing,143
sometimes creditors are unwittingly omitted. If creditors desire to have their
claims recognized and they are not scheduled, they must file a proof of claim. 144
In addition, if creditors are scheduled, but their priorities on the debtor’s
schedules are incorrect, they may, in accord with Rule 3003 of the Federal
Rules of Bankruptcy Procedure, file a claim. If done correctly, “[a] proof of
claim or interest executed and filed in accordance with this subdivision [Rule
3003(c)(4)] shall supersede any scheduling of that claim or interest…” 145. Thus,
it is clearly in the best interests of creditors to be diligent on whether their
claims are listed on the debtor’s schedules and to investigate whether their
claims are scheduled correctly.

          Like the U.S. Code, Turkish law requires that the debtor list all creditors
and debts when requesting an adjournment of bankruptcy. 146 However, where
the creditors have a concrete role in Chapter 11 (e.g. plan confirmation),
creditors in an adjournment, do not maintain the same role. Further, the
priority of claims in a Chapter 11 case is central, as superior claims are given
precedence in payment over others in a plan. Because the Turkish recovery
plan is a mechanism to get the entity “back on track” without filing for
bankruptcy, creditors do not, at this stage, need to be so concerned about
whether (or in what manner) their claims are outlined. Rather, the purpose of
listing the creditors and debts in a recovery plan is not to provide information
for a repayment plan, but to notify the court of its over-indebtedness and to
prevent violations of a future “stay” by listed creditors. Clearly, the need to
provide creditors with the power to file claims is not so pressing at the Turkish
adjournment of bankruptcy stage as it is in a U.S. reorganization plan.




143
    See supra, discussion on requirements to list creditors; FED. R. BANKR. P. 1007(d).
144
    See FED. R. BANK. PRO. 3003(2).
145
    Id.
146
    See supra note 16, art. 179 (3), discussed supra.




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      4.4.8. ADDITIONAL CREDITOR RELIEF

Finally, creditors involved in a U.S. reorganization plan may motion the court
for relief from the automatic stay147 or may proceed with an adversary
proceeding.148 A creditor may request relief for cause or may seek relief
regarding property if the debtor has no equity in the property and the property
is not necessary for the debtor’s reorganization. 149 This is a powerful tool for a
creditor who is not adequately protected. Another common action by creditors
involves adversary proceedings. Governed by Part VII of the Federal Rules of
Bankruptcy Procedure, the scope of adversary proceedings is vast (as the term
is synonymous to a lawsuit, but in the bankruptcy context). 150 Here, on
occasion and with court approval, a creditors committee may pursue adversary
proceedings, to which a debtor must respond.

           Notably, mirroring the U.S. Code, Article 179 (b) of the Turkish
Bankruptcy Code dictates that specific creditors may seek relief from a court’s
stay.151 This section balances the interests of debtors and creditors and where a
creditor is at risk of loss, the Turkish Code’s provisions ensure protection of
those threatened interests. Further, regarding adversary proceedings, a stay in
an adjournment, like in a U.S. bankruptcy filing, largely prevents any further
proceedings that may hinder the entity’s recovery. However, Article 179 (b) of
the Turkish Code does leave room for specific creditors to initiate or continue
executive proceedings.

           In sum, while the goal of recovery is similar for debtors in the United
States and Turkey, the two codes differ in the expressed relationship between
debtor and creditor. Because a Chapter 11 plan requires creditor consent, the
U.S. Code’s express delegation of powers of debtors and creditors is of the
utmost necessity. This contrasts the adjournment of bankruptcy regime,
which, in its present form, does not evince such a necessary working
relationship between the parties.




147
    See 11 U.S.C. § 362(d) (2010).
148
    See FED. R. BANK. PRO. 7001.
149
    Id.
150
    Id.
151
    See supra pp. 5-17 for discussion of the development of Bankruptcy Adjournment in Turkey.




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To summarize, under a Chapter 11 plan, the D.I.P. may feasibly control the
insolvent entity for many years, but in adjournment, notwithstanding the
debtor’s        management         powers,   an     administrative      receiver’s          control         is
significantly shorter in time (at most, one to two years). Thus, the necessity of
a debtor needing credit, tapping into cash collateral, or conserving executory
contracts, is considerably greater in Chapter 11 reorganization than in
adjournment.            Further,   because   of     significant    creditor       involvement               in
reorganization, creditors must have access to adequate protection actions or
relief from the automatic stay. This contrasts with the needs of most creditors
in a bankruptcy adjournment because creditors in these actions simply do not
have a large role to play. Therefore, while the Turkish Code should explicitly
state, in greater detail, what debtors and creditors may do while an
adjournment of bankruptcy is proceeding, it is easily understood why the U.S.
Code, when compared to the Turkish Code, evidences greater concern to
identify and clarify the parties’ powers.



      4.5. PLAN CONFIRMATION

Plan confirmation, unsurprisingly, is the ultimate goal for the Chapter 11
debtor. Reorganization, devoid of plan confirmation, must either be dismissed
or converted to another Chapter. Section 1129 outlines the extensive necessary
obligations that must be met to confirm a plan and demands that the plan is a)
offered in good faith, b) is reasonable and workable, c) shows that any
payments made or to be made by the debtor (or other interested party) are
reasonable, d) the debtor has disclosed all possible controlling officers, e) all
impaired creditors have accepted the plan or are adequately protected to
receive, at least liquidation value of its interests, and f) other showings of the
protection of all classes of creditors, whether or not impaired. 152 This section of
the U.S. Code reflects the necessary cooperation of debtors and creditors and
assures that reorganization may not be exploited to avoid obligations. To
assure equal treatment of debtors and creditors, even at this stage, any party in




152
      11 U.S.C. § 1129 (2010).




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interest may still object to a plan’s confirmation at the court’s confirmation
hearing.153

        Importantly, there may be occasions where the debtor must modify the
confirmed plan. Once a plan is confirmed, the debtor may,

          modify such plan at any time after confirmation of such plan and
          before substantial consummation of such plan . . . . [so long as the
          plan is in accord with the Code and] . . . . becomes the plan only if
          circumstances warrant such modification and the court, after notice
          and a hearing, confirms such plan as modified . . . .     154



In the event that the debtor must cure omissions, fix errors, or acknowledge a
change of circumstance, this provision allows for the plan to be changed, so
long as it is in good faith, reasonable, and not objected to by interested parties.
Following confirmation, the debtor is discharged of the debts arising prior to
confirmation, as provided in § 1141. 155 Following confirmation, the D.I.P. no
longer exists and the newly discharged entity will continue to adhere to the
reorganization plan for the defined time that the confirmed plan dictates.

        In Turkey, a recovery plan may be modified once at the beginning of an
adjournment of bankruptcy156 and once more if extension is granted to the
entity.157 A modification at the initial stage occurs largely when a court analyzes
a recovery plan and finds that specific changes to the plan may result in
granting the adjournment request. However, because courts may not
themselves modify a recovery plan, this gives the debtor a second chance at
adjournment. Dissimilar to a debtor’s plan in Chapter, the Turkish recovery
plan is not “confirmed” in the same sense as in the United States. For a
recovery plan to be approved by the courts, it must adhere to statutory
guidelines and must be serious and persuasive. 158 Here, when compared to the
power of creditor committees in Chapter 11, creditors involved in an
adjournment, do not have much power over whether or not a court approves a


153
    Id. § 1128 (1978).
154
    Id. § 1127 (b) (2010).
155
    Note, there are exceptions to this rule, as provided in 11 U.S.C. § 1141 (2010).
156
    See supra note 16, 179 (a)(8). Article 179 (a)(8) of the Turkish Execution and Bankruptcy Code.
157
    Id. § 179 (b)(4).
158
    See supra, discussion: (iv) Submission of a Recovery Plan & Article 179 (3) of the Turkish
Execution and Bankruptcy Code.



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recovery plan. Creditors must instead, rely on the statutory demands of the
Turkish Code, a court’s strict adherence in assuring that creditors are fairly
and equitably treated, and an administrative receiver’s duties to maintain the
entity’s assets and assure that the business is operated in accordance with an
approved recovery plan. There are clearly positives and negatives to this lack of
power on behalf of the creditors. However, time will show, once the
adjournment of bankruptcy is again an available device to pursue in Turkey,
whether the 2016 amendments sufficiently protect all interested parties.




      4.6 OPTIONS IF CASE FAILS

The U.S. Code, with limited exception, permits a Chapter 11 D.I.P. to convert its
case to a Chapter 7.159 A court will convert a case to Chapter 7 if doing so is in
“the best interests of creditors and the estate, for cause, unless the court
determines that the appointment under section 1104(a) of a trustee or an
examiner is in the best interests of creditors and the estate.” 160 Here, the
definition of “for cause” is extensive and may include, but is not limited to, the
following: i) gross mismanagement of the estate, ii) failure to comply with an
order of the court, iii) failure of the debtor to pay domestic support; or iv)
failure to file a disclosure or have a plan confirmed within the statutory
timeline.161 When a Chapter 11 case is converted to Chapter 7 (liquidation), the
debtor’s assets are collected, sold, and the proceeds go towards compensating
creditors; this is essentially the death of the entity.162

          Under the U.S. Code, a Chapter 11 conversion to Chapter 7 is similar in
effect to when an over-indebted entity in Turkey fails to thrive under its
recovery plan. When the recovery plan fails, the corporation or cooperative is
deemed bankrupt by the court and liquidated. Article 179 (b) of Turkey’s Code
outlines when a court may dismiss the adjournment of bankruptcy request and



159
    11 U.S.C. § 1112(a) (2010).
160
    Id. § 1112(b)(1).
161
    Id. § 1112(b)(4).
162
    Note: while not as common as conversion to Chapter 7, in some circumstances, the U.S. Code
also permits the D.I.P. to seek conversion to Chapter 12 or 13 if the debtor meets the statutory
guidelines and such an action is fair and equitable to all interested parties. See 11 U.S.C. § 1112(d)
(2010).



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declare the entity as bankrupt.163 When the court receives reports from an
administrative receiver reflecting that the entity is unsalvageable or when the
court itself finds, at any time during adjournment, that the entity cannot be
saved, the entity may be declared bankrupt.164

         In addition to case conversion, the U.S. Code dictates that, if the court
finds that the best interests of the creditors are served by dismissal, the court
may order the dismissal. The effect of dismissal differs from conversion. When
a court dismisses a bankruptcy case, there is no discharge, the case ends, and
all adversary proceedings stop. A dismissal may be voluntary or involuntary. If
a trustee or creditor files a motion to dismiss and the court grants it, the case
is dismissed. Another effect of dismissal is that, depending on the Chapter, the
entity’s status, and circumstances of the dismissal, the debtor will face a
statutory time limit before it may file another case. Notably, the U.S. Code,
under § 349 (a) clarifies that:

           [u]nless the court, for cause, orders otherwise, the dismissal of a
           case under this title does not bar the discharge, in a later case under
           this title, of debts that were dischargeable in the case dismissed; nor
           does the dismissal of a case under this title prejudice the debtor with
           regard to the filing of a subsequent petition under this title, except
           as provided in section 109(g) of this title.

This section of the U.S. Code is critical in that it reflects the spirit of
bankruptcy in the United States, where the debtor may again seek a second
chance to reorganize and have a “fresh start.”

         Case dismissal in the United States and failed recovery in Turkey
operate similarly, but with some great differences. Noted supra, when a
Turkish court finds that an entity cannot successfully follow a recovery plan
and cannot be saved, the insolvent entity reaches the “end of the road” and is
liquidated; there are no second chances. While appeal is an option to pursue
(by debtors and creditors), due to the potential significant amount of time for
an appeal to be heard by the appellate court, an entity in financial woes may
not survive to appeal.165 This makes the appellate procedure, arguably,

163
    Supra note 42, art. 179(b).
164
    Id.
165
    Id. (c).




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ineffectual in adjournment. The inability for an over-indebted entity to seek
shelter under multiple modified recovery plans demonstrates the Turkish
Code’s desire to rid its economy of unviable businesses, even if it is not in the
best interests of the creditors to do so. Perhaps, if the Turkish Code modified
its sections on adjournment to allow the debtor to easily amend its recovery
plan, plans would be more likely to succeed; as daily changes in circumstance
may negatively impact the entity’s success in one plan but make it feasible to
succeed in a modified plan. Until the Turkish Code is more forgiving and
flexible in its implementation, an insolvent entity’s rate of realization in
bankruptcy adjournment will be minimal.




       5. CONCLUSION

While the Turkish Code experienced a positive overhaul in procedure when
Parliament amended the laws of bankruptcy adjournment, when compared to
the U.S. Code’s finely tuned Chapter 11, much legislative work remains to make
adjournment equally effective to the U.S. Code’s reorganization. Further, while
much ambiguity inherent in the 2003 amendments found clarification in the
2016 amendments, remaining uncertainties must be made plain. In light of the
comparative discussion of the Turkish Bankruptcy Code and the U.S. Code, the
following list outlines a few suggestions to build adjournment of bankruptcy
into a more effective and beneficial legal strategy for debtors and creditors.




   5.1 AUTHORS’ RECOMMENDATIONS AND CRITIQUE

       1) Definition of Debtor: Article 179 of the Turkish Bankruptcy Code
dictates that an adjournment of bankruptcy request may be made by a)
management and representative bodies (cooperative or corporation) or b)
creditors. To sufficiently cover all entities in need of financial aid, this
definition should expand to include small businesses and individuals. This will
provide smaller entities with an opportunity to take advantage of bankruptcy
adjournment and encourage growth in Turkey’s domestic economy.




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       2) Requirements to Adjourn Bankruptcy:

       a) First,   the   requirement   of    over-indebtedness        is    arguably           an
unworkable threshold that may dampen the percentage of possible recovery.
While over-indebtedness is a key aspect to request adjournment, this rule is
exceedingly strict. Under the U.S. Code, there are several Chapters ranging
from liquidation to reorganization. While Chapter 11 debtors must have debts
exceeding statutorily defined amounts, in excess of those outlined for Chapter
13, the Code’s spirit is to encourage financial recovery before the entity is too
deep in debt to be salvaged. This is critical for reorganization. Arguably, the
over-indebtedness threshold negatively prevents entities in financial distress
from seeking refuge in adjournment and inhibits the ability for the B.o.D. to
get a “jump-start” on financial recovery under the protection of a court’s
staying powers.

       b) Second, Turkish bankruptcy law requires a debtor to estimate how
long a recovery may take and provide the court with a timeframe. While the
court must be aware of a timeline for recovery, because the debtor has minimal
time to submit all necessary documents to the court and because the period of
adjournment is limited to one or two years, asking the debtor to provide this
timeline is both challenging and unrealistic. In contrast, while a reorganization
plan in Chapter 11 indeed has a timeline, there is significant time and planning
on behalf of debtor and creditor alike to carefully craft a workable plan and
timeframe. In some cases, Chapter 11 plans carry on for years. While some
critiques cite this as exploitation, taking time is not bad faith and is a
legitimate way to assure recovery. The adjournment of bankruptcy process
would benefit from acknowledging that simply because an entity is sheltered
for years, does not insinuate debtor corruption or exploitation.

       c) Third, adjournment of bankruptcy would benefit from being less
strict in the timeline of documents submission. While adjournment basically
delays bankruptcy, a debtor must be given more time, for cause, to submit all
required documents. Under Article 179 (3) of the Turkish Code, the debtor has a
mere two-week grace period to submit all documents and should the debtor
fail, the court has the right to liquidate the entity once over-indebtedness is
shown. This is a drastic and dangerous repercussion. In the United States,




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many debtors file emergency petitions and are unable to include all the
complicated documents and necessary schedules. The U.S. Code provides
breathing room for this situation and allots debtors additional time to collect
documents while under the shield of the automatic stay. In adjournment of
bankruptcy, there will be cases where a debtor is in serious financial troubles,
but still wishes to try recovery over liquidation. The Turkish Code should
acknowledge and understand this possibility and provide a more flexible
deadline to submit all papers.

       d) Last, the Turkish Code demands that debtors seeking to adjourn
bankruptcy must provide all up-front costs associated with adjournment. This
may prove cumbersome for a struggling entity. For example, these costs
include the administrative receiver’s retainer and because these costs are
established by the court on a case-by-case basis and depend on a case’s
complexity, this payment may prove impossible. Thus, the costs for a receiver
(or receivers) could be large. Here, legislation should look to Chapter 11 and
note that costs to the debtor may be treated within the reorganization plan.
While there are upfront statutory filing fees to be paid to the court, the very
purpose of Chapter 11 is to give the debtor the time and ability to repay its
debts. By forcing the debtor to provide the Turkish court’s treasury with
possibly a large sum of money at the beginning of a case, this undoubtedly
hinders its ability to recover and defeats the purpose of adjournment.

       3) Debtor Powers:

       a) When a debtor seeks adjournment, the court will either divest all
powers from the entity’s management body and place them into the
administrative receiver’s hands or will allow the entity’s management to stay
in place, but make their actions answerable to the receiver. In contrast, the U.S.
Code (usually) allows the D.I.P. to maintain control over the insolvent entity.
Because the D.I.P. is answerable to the U.S. Trustee, the creditors, and the
court, this oversight prevents mismanagement. Keeping the D.I.P. lowers costs
and maintains the business, as the debtor knows how the business functions
and what decisions must be made in the ordinary course of business. By
dictating that the D.I.P. must seek court approval for actions beyond the
ordinary course of business, the U.S. Code assures that all parties are protected.




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Keeping the debtor in control during adjournment would likely lower the costs,
lessen the court’s responsibilities, and increase the likelihood of success.

       b) Where the powers of the D.I.P., trustee, or examiner are clearly
outlined by the U.S. Code, there is great ambiguity in the powers of the
administrative receiver. For example, the U.S. Code states that an examiner
may conduct investigations of the debtor and that a D.I.P. (or trustee) may
avoid transfers, seek additional credit, use, sell, or lease property, or, with
court approval, use cash collateral. However, the Turkish Code is largely void in
what the administrative receiver may do with or without court approval. And,
while the adjournment process is presently much shorter than typical Chapter
11 reorganizations, the ability to pursue these powers may be essential to a
successful recovery. Thus, it would behoove Parliament to amend Article 179 to
address these powers and state clearly what an administrative receiver may do,
with or without court approval.

       4) Creditor   Involvement:     Creditor   power      and        involvement               in
adjournment of bankruptcy drastically differs from creditor action in Chapter
11 reorganization. Where creditor presence is almost nonexistent in Turkish
recovery, creditors involved in U.S. reorganization are present every step of the
way. Perhaps because the recovery timeline is short, the Parliament did not see
the need to have creditors control the plan or be influential players. However,
one of the main reasons Chapter 11 plans succeed is because, to confirm a plan,
all interested parties must be “on board” with the plan’s treatment of claims.
Where creditors have great express power in Chapter 11, creditors in Turkish
recovery have very little influence and rely on the administrative receiver to
assure their adequate protection. Here, if the adjournment of bankruptcy
process were extended in time, creditors could be similarly prioritized and
bestowed with powers to accept or reject proposed plans and assure their own
protection.

       5) Modification and Plan Confirmation: Under the Turkish Code, a
debtor is limited in the number of permitted plan modifications. The debtor
may modify a plan once prior to a court adjourning bankruptcy and once more
prior to an extension (if granted). This is not conducive to recovery. Businesses
change every day and a plan for one day may not encourage recovery on




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another day. The U.S. Code accounts for these changes in circumstance and
provides the D.I.P. with statutory rights to request plan modification. With
proper notice to all parties and a court hearing, a Chapter 11 debtor may modify
a plan prior to confirmation, after acceptance, and even post-confirmation.
This process assures that creditors are notified and provided with objection
power in the event they feel the proposed modification negatively impacts their
rights. In Turkey, failure of a bankruptcy adjournment equates to liquidation.
This drastic result should incentivize Turkish legislation to modify Article 179
to provide for “good faith” recovery plan modifications with the purpose of
aiding struggling cooperatives and corporations.

       6) Failed Plans: As made plain, failed bankruptcy adjournment in
Turkey equates to liquidation and death to the insolvent entity. However, in the
United States, the U.S. Code provides the debtor with several options. First, and
similar to the Turkish Code’s finding that an entity is bankrupt and will be
liquidated, Chapter 11 may be converted to Chapter 7 liquidation. However,
conversion to Chapter 12 or 13 may be a viable option to keep the case alive if
the debtor satisfies the statutory requirements and the court finds that it is in
the best interests of the creditors to convert to one of these Chapters. Further,
the court may dismiss the case. Depending on the circumstance of dismissal
and the statutory timeline for filing multiple cases, the debtor may file another
case, in search of a fresh start. Obviously, these options are less drastic than
liquidation. While Turkish law provides the debtor or creditor with an appellate
procedure to protest the initial court’s decision on adjournment, this is not
efficient. As a general rule, appellate cases take time; time that an insolvent
entity likely does not have. Thus, a probable result to an appeal is the entity
losing its viability and being forced to liquidate before a decision is rendered.

       To conclude, in a time of globalization, nations cannot ignore the
economic needs of their domestic and international institutions. A sound
bankruptcy law is a necessary step towards assuring a healthy economy. With
the amendments to the Turkish bankruptcy law, particularly in 2003 and 2016,
Turkish Parliament acknowledged this void in their bankruptcy law and
amended its code in hopes of pursuing a legal scheme that fairly and efficiently
served its citizens. These amendments improved the Turkish law because they




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gave creditors a voice, bestowed greater judicial power upon the court,
demanded a more inclusive recovery plan, and prevented the indebted entity
from exploiting time extensions to delay debt obligations. 166

            While these amendments to the adjournment of bankruptcy were
necessary, much still needs to be done to make the process competent,
impartial, and successful for both debtors and creditors. Thus, the U.S. Code
and Chapter 11 reorganization may act as an excellent template for many
nations, including Turkey, to adopt when building upon and developing a
recovery or reorganization process. Clear from the comparison of the two
codes, the U.S. Code could positively influence the Turkish Code in the areas of
debtor definition, debtors’ duties, and adjustments in the requirements of
bankruptcy adjournment.

            This study sought to illustrate the benefits that the U.S. Code may
provide for developing economies. It is clear from recent legislation that
Turkish legislators strive to build a stronger bankruptcy framework. By looking
abroad, and adopting other successful legal schemes, Turkish bankruptcy law
will be fortified and this strength will undoubtedly encourage domestic
economic growth and enhance the State’s international presence.




166
      See supra notes 16-18: Discussion of Article 179.




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