What is Bankruptcy Postponement?

Definition and Legal Nature of Bankruptcy Postponement

Instead of a business going bankrupt due to inability to pay its debts, there is the institution of "postponement of bankruptcy" as a solution that allows it to continue operating and improve its financial situation. Postponement of bankruptcy is a mechanism aimed at preventing bankruptcy for a capital company or cooperative that cannot pay its debts, by temporarily delaying a potential bankruptcy decision under certain conditions. Insolvency is regulated as a specific cause of bankruptcy in the law. The purpose of this regulation is to prevent further losses for creditors and to ensure their protection.

The legal entities that can request a postponement of bankruptcy are joint-stock companies, limited liability companies, and cooperatives. For a postponement of bankruptcy to be granted, the company must be insolvent and its financial situation must be remediable. Furthermore, the competent court for requesting a postponement of bankruptcy is the Commercial Court of First Instance located where the insolvent company is headquartered. The authority to request a postponement of bankruptcy belongs to the persons entrusted with the management and representation of the company, the liquidators, or the creditors.

The Purpose and Significance of Bankruptcy Postponement
There are differing views in legal doctrine regarding the purpose of bankruptcy postponement. These views focus on whose benefit it serves. Despite these differences, there is no significant disagreement on the general purpose of the bankruptcy postponement institution. There are four main views on the purpose of the bankruptcy postponement institution:

1. Postponing bankruptcy primarily benefits the company granted the postponement;
2. It primarily protects the interests of creditors;
3. It protects both the company and the creditors;
4. The postponement benefits everyone who has an interest in the company's continued operation.

Supreme Court rulings also emphasize that postponing bankruptcy is beneficial to both the insolvent company and its creditors.

For a company unable to pay its debts, allowing it to continue operating instead of going bankrupt would benefit many parties, primarily the company and its creditors. Given the devastating and negative consequences of bankruptcy, and the fact that it is an expensive and often unsatisfactory liquidation process, using the institution of bankruptcy postponement as an appropriate tool would contribute to the healthy functioning of the economic system and provide greater satisfaction for creditors in terms of their own interests.

 Conditions for Postponing Bankruptcy
**The capital company or cooperative must be in a state of insolvency:**
Article 376 of the Turkish Commercial Code No. 6102, which regulates the postponement of bankruptcy, includes the concept of "insolvency" in its third paragraph, and this concept is defined as "the assets being insufficient to cover the claims of the company's creditors."

Notification of insolvency to the court:
Submitting a notification of insolvency to the Commercial Court of First Instance located where the company's headquarters are situated is a necessary formality for requesting a postponement of bankruptcy proceedings and for the related legal action to commence. The purpose of this notification to the court is to determine whether the company reported as insolvent is actually in a state of insolvency.

Requesting a postponement of bankruptcy:
A request for a postponement of bankruptcy is a statement that a company in a state of insolvency must make to the court in order to postpone its bankruptcy proceedings. While not mandatory by nature, a request for a postponement of bankruptcy is one of the necessary formal requirements for bankruptcy to be postponed. Those responsible for administration and representation, as well as creditors, have the authority to request a postponement of bankruptcy. In joint-stock companies, the authority to request a postponement of bankruptcy rests with the board of directors. Creditors are also granted the right to request a postponement of bankruptcy because it is considered to be in the best interest of creditors as well.

Preparation and submission of the restructuring plan to the court:
Article 179 of the Bankruptcy Law states that whether or not the company's financial situation can be improved must be determined within the framework of a restructuring plan that meets the characteristics specified in the law. Furthermore, in order to request a postponement of bankruptcy, it is mandatory to submit not only the restructuring plan but also information and documents demonstrating that this plan is serious and credible to the court. The restructuring plan must clearly state the measures and methods by which the financial situation can be improved. The plan must be serious, credible, and objective. The information and documents supporting the restructuring plan must be submitted to the court.

Failure to utilize the extraordinary moratorium:
According to the first paragraph of Article 329/a of the Bankruptcy Law, a capital company or cooperative that has been granted an extraordinary moratorium cannot benefit from the provisions regarding the postponement of bankruptcy within one year from the end of the moratorium. Similarly, according to the second paragraph of the same article, a capital company or cooperative that has benefited from the provisions regarding the postponement of bankruptcy cannot benefit from the provisions regarding the extraordinary moratorium until one year has passed from the end of the postponement period.

Payment of postponement costs:
In order to benefit from the possibility of postponing bankruptcy and for the proceedings regarding the postponement of bankruptcy to take place, the person making the request must pay the postponement costs in advance to the court treasury.

Decision to Postpone Bankruptcy:
When deciding on a bankruptcy postponement case, the Commercial Court of First Instance will consider whether the proposed measures can improve the company's insolvency, its financial situation, and whether creditors will be less satisfied than if bankruptcy were declared. If the company's insolvency is established and the restructuring plan is deemed feasible, a decision to postpone bankruptcy will be made. If insolvency is established but restructuring is deemed impossible, the request for postponement will be rejected, and the company will be declared bankrupt. The postponement decision, according to Article 179/b of the Bankruptcy Law, will be granted for a maximum of one year, and this period can be extended for a maximum of four more years based on reports submitted by the receiver.

Impact of the Decision on Company Dispositions
: Unlike bankruptcy, when a company's bankruptcy is postponed, the company fully retains the right to dispose of its assets. However, the court may restrict the company's power to dispose of its assets in order to protect the company's assets and the interests of its creditors. This restriction must be appropriate and proportionate to the purpose of protecting the company's assets and creditors.

 The Impact of the Decision on Enforcement Proceedings
: One of the most important effects of postponing bankruptcy is the suspension of enforcement proceedings, as regulated in Article 179/b of the Bankruptcy Law. According to this article, no new enforcement proceedings can be initiated against the debtor, including for public receivables, and existing proceedings will be suspended.

 Impact on Bankruptcy Proceedings
: In legal doctrine, it is stated that a request for postponement of bankruptcy proceedings should be considered a preliminary issue in relation to the bankruptcy proceedings. Since a request for postponement of bankruptcy proceedings creates a legal obstacle to the issuance of a bankruptcy decision, the court should consider this obstacle as long as it remains in place.

The court will not be able to issue a bankruptcy decree. After a decision to postpone bankruptcy is made, the bankruptcy proceedings that are initiated cannot continue, nor should a new bankruptcy case be filed. Allowing a bankruptcy case to be filed for reasons other than insolvency after a decision to postpone bankruptcy should not be accepted, as it would contradict the institution of postponement of bankruptcy.