Legal Reform in Turkey

Turkey has had an un-interrupted commercial law tradition since the 1920s. According to the EBRD assessments, Turkish laws are advanced in a number of areas, including corporate governance, which was further strengthened when the new Commercial Code entered into force in July 2012. In other areas, the system would benefit from upgrading and modernising in order to fully support market activities. Through its Legal Transition Programme, the EBRD helps create an investor-friendly, transparent and predictable legal environment in transition countries. Programme activities may include policy dialogue, legal assessment, and technical cooperation with the country’s authorities.

Turkey: Access to Finance

The Civil Code is the main source of law governing secured transactions– both pledges (security rights over movable property) and mortgages (security rights over immovable property). Taking security under Turkish law remains a fairly inflexible process, which limits the type of collateral that borrowers may be able to offer and the parties’ contractual agreements over the security package. Practitioners have proposed ways to circumvent legislative limitations, but these alternatives are complex and apply under restricted circumstances. There is a need to build a consensus among the Turkish authorities and the private sector over the best way to simplify and modernise the secured transactions regime. The mortgage market too would benefit from a reform in the mode of enforcement, which is lengthy and costly.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Turkey.
 

 

 

Turkey: Contract Enforcement and Judicial Capacity

One of the key concerns about the effectiveness of the Turkish judicial system has been the large backlog of cases and the slow speed of proceedings, particularly in relation to appeals. The latest EBRD–World Bank Business Environment and Enterprise Performance Survey (BEEPS) revealed that only 25% of business respondents believe the Turkish legal system is sufficiently fast. In order to address this problem, the parliament passed amendments in 2011 restructuring the Court of Appeal and providing it with greater resources. In particular, the number of chambers at the Court of Appeal was increased from 32 to 38. A further reform which could assist the authorities to tackle the backlog problem would be the introduction of a system of mediation of civil disputes.

 

Turkey: Corporate Governance

The 2007 EBRD assessment on corporate governance placed Turkey in “High Compliance” with the OECD Principles of Corporate Governance category and indicated only minor shortcomings. The relevant legislation is to be found in the Commercial Code, a new version of which entered into force in July 2012. The new Commercial Code introduced important changes such as strengthened shareholder rights, use of information technology in commercial transactions and applying international standards for auditing. In particular, it will allow both limited liability companies and joint stock companies to be established with one person, to hold their own shares by creating treasury stocks, and will allow minority shareholders to request a court decision to dissolve the company for a justified reason. The new Commercial Code further introduces an independent audit requirement, which is expected to bring more transparency to Turkish corporate practices.

Legal reform projects in Turkey

The Legal Transition team is developing a new technical cooperation project, aiming at providing technical assistance to the Capital Market Board of Turkey (the “CMB”), in developing procedures and guidelines as well as a set of tools and templates which would assist the companies listed on the Istanbul Stock Exchange to implement the Corporate Governance Principles identified by the CMB as mandatory.

 

Turkey: Debt Restructuring and Bankruptcy

The insolvency regime is governed by the Execution and Bankruptcy Code (EBC) of 1932, subsequently amended in 2003 and 2004. The Turkish Commercial Code, the Code of Obligations, the Code of Civil Procedure and the Banking Act also govern someaspects of the insolvency system. In the wake of the Turkish economic crisis of 2000-2001, the Turkish authorities reviewed insolvency procedures. The crisis was far reaching and led to various corporate bankruptcy proceedings, prompting a strong effort to reform and modernise Turkish insolvency regulation and enforcement. The 2003-2004 amendments resulted in a number of measures (e.g. postponement of bankruptcy, reorganisation procedures), whose objectives were to rejuvenate the national economy by providing regulatory and legal tools to rescue and rehabilitate financially distressed companies. However, the general view on these is that they disproportionately favour debtors at the disadvantage of creditors. In addition, practitioners in Turkey report that there are shortcomings in the system that can hamper its efficiency. The bankruptcy process is seen as relatively slow and it appears both common and easy for debtors to delay the process even further. The courts are also overburdened, resulting in breaks of several months between hearings.

 

Turkey: Electronic Communications

The sectoris regulated by Law on Electronic Communications of 2008, together with supplementary subordinate legislation. The legislative framework is largely based on the 2003 EU Electronic Communications Regulatory Framework. Competition has been slow to take hold in the sector in Turkey, owing mainly to the fact that full voice liberalisation and introduction of 3G mobile did not occur until 2009. Now that those policies are in place the competitive market is advancing. In the future, however, the authorities should focus on finalising and adopting primary and secondary legislative amendments, strengthening the institutional independence of the regulatory authority and effective implementation of relevant competitive safeguards. The focus of the authorities should be on implementing the policy and regulatory measures which support a more rapid development of broadband infrastructure and services.

 

 

Turkey: Energy and Resource Efficiency

The Turkish Government adopted an Energy Efficiency Law in 2007 and its Energy Efficiency Strategy 2011-2023 has been sent to High Planning Council for approval, with a target to reduce Turkey’s energy intensity by 20 per cent by 2023. The Energy Efficiency Law and its secondary regulation provide the legal basis and measures to promote and support energy efficiency enhancements. Those enhancements are crucial for Turkey’s competitiveness and long-run sustainable economic growth. There is a significant need for more Government engagement and mainstreaming of energy efficiency and demand side management across the economy. Specific sectors requiring attention are energy efficiency in the industrial, power, natural resources and the municipal sector.

 

Turkey: PPPs/Concessions

There is no general framework for PPPs/Concessions in Turkey but Concessions have been commonly used for a long time. Policy framework for PPPs is the domain of the State Planning Organisation per the following policy documents: the 9th 2007-2013 Development Plan and the 2010-2012 Medium-Term Implementation Programme. Based on the results of the EBRD Concessions Sector Assessment, the Turkish concessions legislation was found to be in medium compliance with international standards. Turkey seems to be one of very few EBRD countries of operations (if not the only) where there is a ‘legislation gap’ in the sense that PPP practice so far has been more positive than the proximity of Turkish laws with international best standards. This may be explained by the relatively well developed administrative and judicial system along with a long history of private sector involvement.

 

 

Turkey: Public Procurement

Public procurementin Turkey is governed by the Public Procurement Law Act and the Law on Public Contracts. Since 2002 these laws have been amended several times. The most significant and extensive amendment was adopted in October 2008, in order to align the national law with the EU Public Procurement Directives. The institutional framework in public procurement is comprehensive and well-managed and local contracting entities in Turkey are clearly increasing their procurement capacity and learning new procurement techniques (i.e., eProcurement).Public procurement legislation is in high compliance with international standards. However, some key regulatory matters still need attention, and implementation problems were identified by the EBRD survey of local practice. The main weaknesses in public procurement legislation are preferential treatment of domestic tenderers, a far-reaching black listing system, and insufficient independence of the public procurement remedy procedures (the review proceedings are conducted by the regulatory authority).

Legal reform projects in Turkey

Development and implementation of policies for sustainable procurement

Following successful implementation of the eProcurement system, the Turkish public procurement authority is currently working on developing a strategy for the implementation of modern sustainability policies for public contracts.

As requested by the Turkish authority the EBRD will share its experience in implementing environmental and social standards in infrastructure projects financed by the Bank. The project will include a workshop for 35 Turkish regulatory officials and will be delivered in cooperation with recognized international sustainable procurement experts (Switzerland, Denmark) together with experienced regulatory officials from the EU member states that have recently implemented green procurement policies.