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Second Circuit defers to executive will on application of sovereign immunity
The Second Circuit recently held that federal common law protections of sovereign immunity did not preclude prosecution of a state-owned foreign corporation.
A summary of developments in the week ending September 20, 2018
Global | Publication | September 2018
New restriction on foreign currency-denominated or indexed contracts: Turkey requires certain contracts between Turkish residents to be valued in Turkish Lira
On September 13, 2018, the Turkish Presidential Decree No. 85 (the Decree No. 85) amending the Decree No. 32 on the Protection of the Value of the Turkish Currency (the Decree No. 32) was published in the Official Gazette and introduced new restrictions on certain contracts between Turkish residents, requiring the contract price and other payment obligations arising from the below contracts not to be denominated in, or indexed to, foreign currency:
Save for circumstances to be determined by the Ministry of Treasury and Finance (the Ministry), existing contracts which fall within the scope of the Decree No. 85 must be redenominated by the parties in Turkish Lira within 30 days of the effective date of the Decree No. 85 (October 13, 2018).
As of the date of this note, the Ministry has clarified that (i) this recent restriction only applies when both parties of a contract are Turkish residents, which cover, among others, Turkish companies with foreign capital and foreign individuals deemed domiciled in Turkey, (ii) contracts that are to be redenominated in Turkish Lira are those between individuals and/or legal entities that were both Turkish residents at the time the contract was entered into, and (iii) while setting forth exceptions to the requirements introduced under the Decree No. 85, foreign currency denominated revenues, costs and liabilities of the parties will be taken into account, in parallel with the provisions of the Decree No 32, which set out certain eligibility requirements for Turkish residents to be able to obtain foreign currency denominated loans.
The Communiqué on Procedures and Principles on Implementation of Article 376 of the Turkish Commercial Code No. 6102 (the TCC) was published in the Official Gazette on September 15, 2018. Article 376 of the TCC governs mandatory remedial measures in case of capital loss and insolvency of Turkish companies.
The new communiqué is in response to an increasing number of companies suffering from significant capital losses resulting from the depreciation of the Turkish Lira. The new communiqué allows, as an interim measure effective until January 1, 2023, foreign exchange losses arising from outstanding foreign currency denominated liabilities, which are not yet performed (e.g., loans not repaid), not to be factored into capital adequacy and insolvency tests under Article 376.
As a follow up to our previous alert, the Turkish Banking Regulation and Supervision Agency (BRSA) has lowered the restrictions on currency swaps of Turkish banks made with non-Turkish residents. The BRSA had previously limited the swap transactions to 25 per cent of the equity of the banks concerned. The BRSA announced on September 17 that foreign currency swaps with a maturity of between 90 and 360 days may amount up to 75 per cent of the equity of banks, and those with maturity longer than 360 days may amount to a maximum of 50 per cent of the equity.
Following, and pursuant to, the BRSA Regulation on Restructuring of Debts Owed to Financial Sectors numbered 30510 published in the Official Gazette dated August 15, 2018 (the Regulation), Turkey’s Banking Association (the TBA) prepared a framework agreement which Turkish banks and financial institutions signed on September 11, 2018 (the Framework Agreement).
The Framework Agreement sets out the terms and conditions applicable to refinancing and/or restructuring of debts payable to banks, financial leasing, factoring and financing companies, aiming to help businesses having difficulty in debt servicing, and includes material terms and conditions relating to the financial restructuring; eligibility criteria which must be met by the borrowers; scope and value thresholds of receivables to be restructured; main obligations of the parties concerned; events of default under the framework agreement; termination events and effects under individual restructuring agreements; and material elements to be included in and the scope of obligations to be governed by the restructuring agreement.
Implementation of the Framework Agreement depends on the subsequent execution of agreements to be signed with borrowers whose debts are restructured. In order to be valid, such restructuring agreements must be executed within two years of the approval of the relevant Framework Agreement by the BRSA.
Debtors who demand a restructuring will be subjected to an assessment to make sure that they will regain the ability to repay the outstanding debt after such restructuring or repayment plan. Those who are assessed to be unfit to pay their debts upon restructuring or repayment plan shall not be eligible for a restructuring. This assessment will be made by an independent institution specified under the Framework Agreement and approved by the BRSA. Approval by two thirds of creditor institutions is sufficient for the restructuring of the outstanding debts of a borrower, which will force all creditors to agree to restructure the debts concerned.
According to the Framework Agreement, only borrowers whose principal of the debt (cash and non-cash) is –at the time of application for a restructuring- greater than 100 million Turkish Liras (US$15.9 million ) will be eligible for a financial restructuring. Debtors within a risk group may take part in a restructuring as a whole or partially.
In its statement on September 19, 2018, the TBA announced that banks and financial institutions that have signed the agreement account for 90 per cent of the outstanding loans, with the remainder expected to sign shortly.
With a recent amendment to the Regulation on Procedures and Principles of Central Bank of Turkey’s Monitoring of Transactions that Impact Foreign Currency Positions, Central Bank of Turkey started monitoring the foreign currency positions of metropolitan municipalities, municipalities, public economic enterprises and universities.
The Treasury and Finance Minister, Berat Albayrak, announced the New Economic Plan on September 20, 2018, which was subsequently published in the Official Gazette on September 21, 2018. The New Economic Plan will be in effect for the three year-period covering 2019-2021. Berat Albayrak explained that the program is based on three foundations: balance, discipline and shift.
The Turkish authorities are planning to save 60 Billion TL (1.3 per cent of the GDP) in 2019 by taking certain precautions (the Minister declared that the GDP growth in 2018 is expected to be 3.8 per cent, 2.3 per cent in 2019, 3.5 per cent in 2020 and 5.0 per cent in 2021). In order to cut imports and increase exports, the Turkish government plans to boost development and production in most import-intense sectors, such as pharmaceuticals, energy, petrochemicals, machinery and equipment, and software sectors.
Two million new jobs will be created by the end of 2021, with an unemployment rate target of 10.8 per cent in 2021.
The New Economic Plan devotes a section for "restructuring financial debts", which includes plans to restructure Turkey's Development Bank and to expand Turkish Eximbank funding, as the public sector is to undertake the debts of commercial banks as well as the private sector to some degree.
A recent regulation published in the Official Gazette on September 21, 2018 introduced amendments to the requirements to acquire Turkish citizenship. First, the fixed capital investment limit, which was previously US$2 million, has been reduced to US$500,000. Also, foreigners who purchase real estate worth US$250,000 may now obtain citizenship. The monetary amount used to be US$1 million. For those foreigners who are eligible for Turkish citizenship because they have contributed to job creation, the requirement has been decreased from 100 employees to 50 employees.
The amount of money required to be deposited into a Turkish bank for at least three years has been reduced from a minimum of US$3 million to US$500,000.
Publication
The Second Circuit recently held that federal common law protections of sovereign immunity did not preclude prosecution of a state-owned foreign corporation.
Publication
Facing the fast-growing development of AI across the globe, particularly Generative AI (GenAI), the G7 competition authorities and policymakers (Canada, France, Germany, Japan, Italy, the UK and the US) and the European Commission met in Italy on 3-4 October 2024 to discuss the main competition challenges raised by these new technologies in digital markets.
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