Recent financial developments and especially the excessive increase in foreign currencies and interest rates have caused many companies (especially those with foreign currency debt) to fall into financial difficulties. It is vital for companies that could not take precautions in good times to take some precautions and quickly enter into the most appropriate financial restructuring processes in order to survive in such periods when financial difficulties are experienced. In this article, the measures that can be taken by companies experiencing financial difficulties and debt restructuring options will be discussed in general.
In this period when financial difficulties are felt heavily, companies must first go through a real financial analysis. In this way, the current and real situation of the financial statements should be reviewed, the assets and liabilities of the company should be clearly revealed and the cash flow should be determined. One of the most important questions to be answered at this stage is whether the company’s short and medium-term payment obligations are possible in the current situation. Companies that have difficulties in terms of both their current balance sheets and the payment of short and medium-term debts should take the necessary measures and initiate a restructuring process without wasting time.
The first of the measures to be taken by companies that have difficulties in paying their debts in terms of balance sheet and maturity is the regulation of the balance sheet in a way that reflects the real situation. With the limited-term regulation introduced by the Law No. 7143, businesses will be able to correct their records and also increase their tax and tax bases in order to avoid retrospective tax examinations. In order for such a transaction to be carried out in accordance with tax and other legislation, it is necessary to take action before 31 August 2018 and apply to the relevant Tax Office on this date at the latest. Otherwise, there is a risk of encountering both tax and judicial penalties.
Increasing liquid assets and improving the balance of operating income and expenditure are among the most important measures to be taken by companies in financial difficulties. A number of financial and legal measures should be taken, primarily to provide liquidity by disposing of fixed assets in the balance sheet, and to reduce some expenses.
After taking the above-mentioned measures, an evaluation should be made for the restructuring of the company’s debts and a payment plan should be determined that is suitable for the debt payment capacity and will allow the company to survive. It is useful to evaluate debts to financial institutions and debts to other real and legal persons separately.
Firms that are mainly indebted to financial institutions (Banks, Leasing, Factoring, Financing companies) have the opportunity to request the restructuring of their debts in accordance with the relevant legislation. In this context, with the Decision of the Banking Regulation and Supervision Agency dated 13/8/2018 and numbered 7931, the “Regulation on Restructuring of Debts to the Financial Sector†was adopted. The main purpose of this regulation is to prevent the bankruptcy of companies experiencing temporary financial difficulties and to continue their contribution to production and employment by restructuring their debts.
This Regulation, which is an important opportunity for companies experiencing financial difficulties, provides a number of opportunities to financial institutions and companies that have debts to them by mutual agreement. The most important of these possibilities are:
- Extending the maturities of loans,
- Renewing credits,
- To use additional credit,
- Deducting or waiving the principal, interest, default interest and dividends, as well as any other receivables arising from the loan relationship,
- Principal, interest or dividend receivables; to turn it into participation in part or wholly, to transfer or assign it in return for a price in kind, in cash or on condition of collection, to liquidate it partially or completely in return for the debtor’s or third parties’ in-kind values, to sell it, to take it off the balance sheet,
- Making protocols by acting with other banks and creditors,
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This opportunity brought by the regulation can be defined as a kind of contractual concordat or out-of-court concordat. As a matter of fact, if a certain part of the receivable amount is accepted, it becomes possible for the creditors to waive a part of the total debt ratio and to pay the debt in reasonable terms or to use the debtor’s assets in the most reasonable way to close the debts.
The last option that companies with financial difficulties can apply before bankruptcy is the Concordat option. In order for the debtor company to apply to the Concordat institution, which is a judicial process, it is essential for the debtor company to go through an important preliminary process and to start this process with a project that the courts can accept, in order to achieve the aim to be achieved with the Concordat. Within the framework of the concordat, it is possible for the creditors to waive a portion of their total receivables and to accept a payment plan with appropriate maturities for the debtor company to survive and to pay its debts within this framework.
It is vital for companies to get professional support in the financial restructuring process of debts and to apply the most suitable and advantageous solutions for the continuation of their businesses, before they get into a difficult situation or after they start to experience difficulties. As BaFin Consulting, we would like to emphasize that we are at your service with our expert staff.
Av. Dr. Mehmet S. YURTÇİÇEK Ramazan KÜÇÜK
Senior Consultant & Manager Financial Analysis and Risk Management Specialist