“CONCORDAT,,
- Barış Kaşka
- Apr 7, 2023
- 21 min read

With the Law No. 7101 Amending Execution and Bankruptcy Law and Certain Laws published in the Official Gazette dated 03/15/2018, the existing concordat institution was reorganized and the postponement of bankruptcy procedure was completely abolished. In this context, the provisions of concordat in the Execution and Bankruptcy Law and other laws have been amended. Concordat, which replaces the postponement of bankruptcy procedure, contains some similarities and differences with/from the postponement of bankruptcy. According to the new provisions, in the concordat system, enforcement proceedings are not allowed against the debtor, and if the debtor is subject to bankruptcy, he will be able to get rid of bankruptcy and the sanctions of bankruptcy and continue his business. On the other hand, with the concordat institution, although the creditor does not fully receive his receivables, he will be able to get more amount compared to bankruptcy. In this context, all debts of the debtor will be able to be paid to all his creditors, that is, the debtor will be able to get rid of all his debts. In bankruptcy institution, the expense is higher and the creditors are satisfied to a much lesser extent. In addition, while bankruptcy is for merchants only, concordat is an institution that can be applied for those who are not subject to bankruptcy as well. As can be seen, the concordat is more advantageous compared to the postponement of bankruptcy. Although with the bankruptcy postponement, it had been aimed to enable the companies that had economic difficulties to continue their business, unfortunately, this aim could not be achieved in practice. The proceedings continued for a long time, the creditors could not receive their receivables and many creditors faced economic difficulties due to the bankruptcy postponement case. As Lexius Legal Law Firm, we aim to explain the concordat institution, which is put into practice instead of postponement of bankruptcy in its simplest form, and to provide information on how the system will work.
Concordat means reconciliation and, in its simplest form, it is an institution put into practice to protect honest debtors whose business did not go well and whose financial situation has been deteriorating due to reasons beyond their control. The aim here is to restructure the debts of these bonafide honest debtors. Through this institution, the honest debtor makes an agreement with his creditors and offers to pay some of his debts. In other words, the debtor will be able to apply for concordat for his debt that is due and he could not pay or for the debt that is not due yet. Concordat does not necessarily require a court decision; if the creditor believes that the debtor will pay his debt, concordat institution can be applied without applying to a court. However, it is not very common in practice that the creditor and the debtor reach an agreement without applying to the court. In fact, the environment of insecurity experienced between the creditor and the debtor made it almost necessary for the creditor or the debtor to apply to the court. According to Article 285 of the Execution and Bankruptcy Law, which is regulated under the title of concordat request, “Any debtor who does not pay his debts even though they are due or is in danger of not being able to pay on due date may request a concordat in order to be able to pay his debts or to avoid a possible bankruptcy by giving maturity or deduction.” formatted. The concordat request is divided into three types, according to both the Enforcement and Bankruptcy Law and the practice. These are acquitted (reduction) concordat, deferred concordat and combined concordat. In acquitted concordat, debtor offers the creditors to pay a certain percentage of the debts. In fact, in acquitted concordat, the creditors accept not to collect a certain part/percentage of their receivables, and after the payment of the agreed part/percentage of the debt, the debtor gets rid of the entire debt. In deferred concordat, on the other hand, the debtor requests the creditors to grant additional period of time to pay his debts. In other words, the debtor requests a period of time to pay the entirety of his debts, or requites to be allowed to pay his debts in installments. The situation in which the debtor requires to be allowed to pay a certain percentage of his debts and be granted a certain period of time is called combined concordat. It should be noted that, apart from the debtors, the creditors can also request a concordat from the court on behalf of the debtor. However, since the debtor has to submit the necessary documents specified in Article 286 to the court, if the debtor does not agree to apply for concordat or does not submit the necessary documents, the request of the creditor will not reach a conclusion; the court will reject the request for concordat in this case. On the other hand, unlike the postponement of bankruptcy institution, non-merchant debtors can also request a concordat. The competent court for the concordat requests, that is, the concordat applications, is the Commercial Court of First Instance. If the debtor is not a merchant, the competent court is the Commercial Court of First Instance where the debtor is domiciled.
In the Enforcement and Bankruptcy Law, after the article related to "Concordat Request” section, naturally, "Documents to be Attached to the Concordat Request" are regulated. As Lexius Legal, we particularly specified these documents one by one according to Article 286 of Enforcement and Bankruptcy Law. This is because in the absence of these documents, your concordat request may be rejected. Therefore, these documents are of great importance in terms of concordat institution. Documents to be attached to the concordat request are as follows:
a) Concordat preliminary project containing following information: At what percentage or term the debtor will pay his debts, at what percentage the creditors will have waived their receivables, whether the debtor will sell his existing goods in order to make the payments, the method of obtaining the necessary financial resources for the debtor to continue his activities and make the payments to the creditors (such as by means of capital increase or loan supply or another method).
b) Documents showing the current status of the assets of the debtor are as follows: If the debtor is among those who are supposed to keep books, the last balance sheet, income statement, cash flow statement prepared in accordance with the Turkish Commercial Code, the intermediate balances prepared on the basis of the continuity of the operation and the possible sale prices of the assets, the opening and closing approvals of commercial books and information on e-book certificates for books kept electronically environment, other information and documents explaining the financial situation of the debtor, lists containing the book values of tangible and intangible assets, and lists and documents showing all receivables and debts together with due dates. (***An interim balance sheet should be prepared by the financial adviser (probably over the selling price) of the assets.)
c) A list containing the information on the creditors, the amounts of their receivables and the privilege status of the creditors.
d) A table showing comparatively the amount expected to be paid to the creditors according to the proposal in the preliminary concordat project and the amount that could be received by the creditors in the event of the debtor's bankruptcy.
e) The financial analysis reports and the supporting documents that are prepared by an independent audit firm authorized by the Capital Markets Board or Public Oversight Accounting and Auditing Standards authority and show that the results proposed in the preliminary concordat project are highly possible to achieve.
The debtors subject to bankruptcy shall submit the documents and tables listed in sub-paragraphs in first paragraph of Article 286. If the debtor is non-merchant, he will have to submit documents showing the status of his assets. These documents are the minimum documents and tables that must be submitted to the court together with the concordat request. In addition, according to the provision of Article 286 of Enforcement and Bankruptcy Law, the dates of the documents and tables submitted to the court with the concordat request must be at most 45 days before the application date. In addition, in accordance with the last paragraph, the debtor has to submit other documents and records that may be requested by the court or the commissioner during the concordat process. Although it has been listed in paragraphs above, it is useful to reiterate: the debtor must specify how he will restructure the debt (in which term, at what rate, in what way) when requesting a concordat. It should also specify whether there are privileged creditors among his creditors.
When the competent Commercial Court of First Instance determines the fully existence of the documents specified in the Enforcement and Bankruptcy Law, it shall immediately give a ruling for temporary respite and take all measures it deems necessary for the preservation of the debtor's assets. The temporary respite period is 3 months, however, it can be extended for 2 more months upon request. As a result, the debtor gains a total of 5 months. This ruling is notified to Trade Registry Gazette and many other institutions, and announced in the Trade Registry Gazette. For example, Land Registry Office, Tax Office, Banks Association of Türkiye, etc. The creditors may claim that there is no situation that requires the give a ruling for temporary respite period by submitting their evidence "within peremptory term of 7 days" starting from this announcement, and may request the court to reject the concordat request. Court rulings regarding the extension of the temporary deadline or the rejection of the concordat request by cancelling the ruling regarding temporary respite period are also announced in the same way and notified to the relevant authorities. A temporary concordat commissioner is determined to control the whole process. After the temporary respite period begins, the debtor tries to reach an agreement with the creditors. During this time, he continues to run his business. At the end of the 5-month period, the creditors are called to the hearing.
As mentioned above, if the concordat request has been made by the creditor, the debtor shall be given a reasonable time to submit the documents and records specified in Article 286. If the debtor submits the necessary documents in full and within a reasonable time, no problems will arise, and a ruling for temporary respite shall be given. However, if the debtor does not submit the necessary documents to the court in a timely and complete manner, then the court shall not give a ruling for temporary respite period, and the concordat request made by the creditor shall also be rejected.
Pursuant to article 289 of the Enforcement and Bankruptcy Law, titled definite respite, the court gives its ruling on the definite respite within the temporary respite. In order to give a ruling on the definite respite, the court invites the debtor and, if any, the creditor requesting the concordat to the hearing. The temporary commissioner submits a written report before the hearing and, if deemed necessary by the court, is present at the hearing to be heard. In its evaluation, the court also takes into account the reasons for the objection mentioned by the objecting creditors in their petitions.
If a conclusion that the concordat will be successful has been reached, the debtor is given a definite respite of 12 months. In special cases where there are certain difficulties, this period may be extended for another 6 months upon the reasoned report and request of the commissioner. These periods are given for the debtor and creditor to negotiate and reach an agreement. For example, negotiations on whether or not interest will be paid and on the percentage of the debt to be paid (for example, when the debtor expresses that he can pay 70% of his debt, while the creditor demands 75% of his receivable) should be completed within 5 Months + 18 Months.
The debtor as well may request an extension of the respite, in this case, the commissioner's opinion is also taken. In both cases, the request for extension is submitted before the end of the definite respite, and the opinion of the board of creditors, if any, is taken before the extension decision is made. Unless there is a situation that requires the appointment of a new commissioner, the temporary concordat commissioner continues his duty. Upon the ruling on the final respite has been given, the court forms a board of creditors consisting of 7 creditors at most (in odd numbers). This committee works together with the commissioner and meets at least once a month. Decisions are taken by the majority of the attendees (votes of more than half of the attendees). The commissioner invites the creditors to the meeting 15 days in advance, reports to the creditors about the process; the debtor is also present at the meeting.
Who can be a commissioner is determined primarily in Enforcement and Bankruptcy Law and secondarily in the Concordat Regulation. All complaints about the commissioners shall be submitted to the Commercial Court of First Instance. Duties of the Commissioner listed in the Law (Enforcement and Bankruptcy Law/Article 290):
a) To contribute to the completion of the concordat project.
b) To supervise the activities of the debtor.
c) To perform the duties given in this law.
d) To submit interim reports on the subjects requested by the court and at times the court deems appropriate.
e) To inform the creditors board about the course of the concordat at regular intervals.
f) To inform other creditors about the course of the concordat and the current financial situation of the debtor.
g) To perform other duties assigned by the Court.
A Commissioner cannot be assigned for more than five cases at the same time. The main obligations of the commissioner can be listed as follows: The commissioner must be objective, protect the confidentiality of the debtor, not gain benefits on behalf of others or on his own behalf, and pay attention to the obligation of confidentiality and care. Complaints against the commissioner's actions are made to the Commercial Court of First Instance. On the other hand, if the debtor smuggles goods, the commissioner must intervene and report regularly to the board of creditors. The commissioner must also fulfill other duties determined by the court within the framework of the duty of care.
On the other hand, the board of creditors supervise the commissioner's activities and may make recommendations to the commissioner. If the creditors' board is not satisfied with the commissioner's activities, it may request the court to replace the commissioner by presenting a reasoned report. The court gives a final ruling regarding this request after hearing the debtor and the commissioner.
In the event that the commissioner determines that the debtor's financial situation has improved while the process continues, the definite respite is canceled and the concordat request is rejected due to the improvement of the debtor's financial situation (Enforcement and Bankruptcy Law/Article 291). It can also be the opposite of this situation; If the commissioner decides that the debtor’s financial situation has deteriorated, the definite respite is cancelled, the concordat request is rejected and the debtor's bankruptcy is decided.
Article 292 of Enforcement and Bankruptcy Law regulates “Rejection of Concordat Request within the Definitive Respite, Opening of Bankruptcy”. In the event that the following situations occur in terms of the debtor that is subject to bankruptcy after the definite respite ruling is given, upon the written report of the commissioner, the court decides ex officio to reject the concordat request, cancels the definite respite ruling and rules the bankruptcy of the debtor:
If opening of bankruptcy is required to protect the debtor's assets
If it is concluded that the concordat process will not be successful.
If the debtor acts in violation of article 297 or does not follow the instructions of the commissioner.
d) If a Capital Company or cooperative, which is understood to be deeply in debt, waives the concordat request. In terms of the debtor that is not subject to bankruptcy institution, in the event that the situations in subparagraphs (b) and (c) of the first paragraph occur after the definite respite ruling has been given, the court, upon the written report of the commissioner, ex officio cancels the definite respite ruling and rejects the concordat request.
Right to appeal cannot be used against rulings to accept definite respite request and reject the request for canceling the definite respite. However, in accordance with the provisions of the same article, in the event that the debtor's request for concordat about which bankruptcy has not been ruled is rejected as a result of the evaluation of the definite respite request, the debtor or the creditor requesting the concordat, if any, may appeal to this ruling before regional court of justice within 10 (ten) days from the notification of this decision. The rulings of regional court of justice on these matters are definite. In cases where the ruking of the first instance court is annulled by the Regional Court of Justice, the file is sent to the court of first instance for the execution of the proceedings, including the appointment of the commissioner. Within the concordat system, “deadlines” are of great importance in terms of the issues which we try to explain from the beginning as Lexius Legal. Therefore, attention should be paid to the deadlines in order not to miss any deadline and to avoid loss of rights as a result.
According to the Execution and Bankruptcy Law, the consequences of the final deadline are divided into four, which are creditors, pledgee-creditors, contracts and debtors. The consequences of the concordat respite for the creditors are as follows: No execution proceedings can be made against the debtor, including the proceedings made in accordance with the Law No. 6183 on the Procedure for the Collection of Public Claims, the enforcement proceedings that have already been started are stopped and the interim injunction and provisional attachment decisions become void. However, the following receivables, which are listed as first rank receivables in Article 206 of the Execution and Bankruptcy Law, can be pursued through foreclosure: employee receivables incurred in the year prior to the bankruptcy judgment and statutory severance pay related to seniority and termination without sufficient notice arising as a result of the termination of the employment relationship due to the bankruptcy; debts of employers to facilities or charity organizations that have been formed for the purpose of establishing or maintaining charity funds or other charity organizations for workers and have gained legal personality; and all kinds of alimony receivables arising from family law that have accrued in the last one year before the opening of the bankruptcy and must be performed in cash.
The consequences of concordat respite for pledgee-creditors are as follows: For the receivable, enforcement proceedings can be made, but no measures of preservation can be taken, the goods cannot be sold, but interest continues to accrue. No interest accrues on receivables not secured by pledge.
The consequences of concordat respite for contracts are regulated in Article 296 of Enforcement and Bankruptcy Law. According to the provisions of this article; regardless of whether the counterparty of the contract is affected by the concordat project or not, following provisions of contracts to which the debtor is a party and which is important for the continuation of his business shall not be applied when the debtor applies for concordat: the debtor's request for concordat shall constitute a violation of the contract or shall be considered as a valid reason for termination of contract or shall make the debt due. Even if there is no such provision in the contract, the contract cannot be terminated on the grounds that the debtor has applied for concordat. The debtor may terminate the permanent debt relationships that he is a party to and that prevents the concordat from achieving its purpose at any time with the approval of the commissioner and the approval of the court. The compensation to be paid as a result of this termination shall be subject to the concordat project. Special provisions regarding termination of service contracts are reserved.
Finally, the consequences for the debtor are as follows: The debtor can continue to its business under the supervision of the commissioner. However, while ruling for the respite, or within the respite period, the court may rule that some transactions be carried out only with the permission of the commissioner, or that the commissioner continue the operation of the business instead of the debtor. In this concordat process, the debtor cannot dispose of his assets without the permission of the court. In other words, without the permission of the court, the debtor cannot establish a pledge, cannot be a guarantor, transfer the permanent installation of the immovable and the enterprise even partially, cannot encumbrance or make gratuitous dispositions, without the permission of the court. Otherwise, the transactions shall be void. Before ruling on these transactions, the court has to get the opinion of the commissioner and the board of creditors.
There are preliminary preparations to be completed before hearing to be held to approve the concordat. The most important of these preparations is to record the debtor's goods in the book and to determine the value of these goods. Article 298 of Enforcement and Bankruptcy Law is regulated under the heading of "Keeping books and valuation of pledged goods". As soon as the being appointed, the concordat commissioner shall keep the book of the debtor's goods and valuate all these goods. If the debtor's goods are another location that is out of the jurisdiction of the enforcement office, this valuation is made by the enforcement office where the goods are located. Pledged goods have a special importance in terms of valuation to be performed by the commissioner. Pursuant to the second paragraph of the article, the commissioner shall valuate the pledged goods and notify the pledgee-creditors and the debtor in writing before the meeting of the creditors. Pursuant to third paragraph of article 298, provided that they pay for the expenses in advance, those who have interest in the concordat process can request the court to re-valuate the pledged goods. If the re-valuation has been requested by a creditor and the valuated amount has changed significantly, the creditor may request the debtor to indemnify the expenses he borne.
An announcement is made by the commissioner pursuant to article 288. The creditors are invited to declare their receivables within fifteen days from the date of this announcement. In addition, a copy of the announcement is sent by mail to the creditors whose addresses are known. A warning shall be written in the announcement, it is stated in which the creditors who do not declare their receivables will not be accepted to the negotiations on the concordat project unless they are registered in the balance sheet. In other words, in the simplest terms, the commissioner invites the creditors who have receivables from the debtor about whom concordat decision has been made, within 15 days to declare their receivables. Creditors who are not registered in the balance sheet will lose their rights. Therefore, creditors must have the commissioner to record their receivables on the book. Creditors whose names are not included in the petition filed by the debtor to the court and who do not have their name recorded in the list lose their rights.
The invitation to be made to the debtor about the receivables is regulated in article 300 of Enforcement and Bankruptcy. Pursuant to this article, the commissioner invites the debtor to make a statement about the claimed receivables. The commissioner makes the necessary examinations on the debtor's books and documents about whether the receivables exist or not, and indicates the results of these in the report he will submit in accordance with Article 302. After the preparation of the concordat project, declaration of the receivables and verification of the receivables have been completed, the commissioner will invite the creditors to discuss the concordat project with a new announcement to be made pursuant to article 288. The Commissioner will determine the schedule of the meeting to be held with the pledgee-creditors and other creditors. The first meeting day must be at least one month after the announcement. The announcement also states that the creditors can review the documents within 15 days before the meeting. The debtor shall also be present at this meeting.
The required majority of votes for the meeting of creditors and the approval of the project are specified in Article 302. The concordat project shall be submitted to the vote of the creditors. Accordingly, half of the registered creditors with affirmative votes and the sum of creditors who cast affirmative votes must exceed half of the total amount of receivables. For example, if there are TRY 60.000 of total receivables and 60 creditors, at least 31 people must accept this project and the total amount of their receivables must exceed TRY 30.000. Another required majority is that the affirmative votes exceed 1/4 of the registered creditors and the total of their receivables exceeds 2/3 of the total receivables. Again, to explain with an example, if there are TRY 60.000 total receivables and 60 creditors, at least 16 people must vote affirmatively and the total receivables of those who voted must exceed TRY 40.000. The court examines the commissioner's report and gives his ruling within 18 months; it approves or rejects the concordat project decision.
The approval of the concordat based on the votes given at the meeting held in accordance with Article 302 and within the period of joining is subject to certain conditions. These are as follows:
a) That it is understood that the amount offered in the ordinary concordat will be more than the possible amount that would be paid to the creditors in the event of the debtor's bankruptcy; that it is understood that the revenue obtained in the event of the convert to money in concordat through abandonment of the asset or the amount offered by the third person has to be more than the amount that can be obtained in liquidation by bankruptcy. In short, the amount offered by the debtor in the concordat must exceed the amount to be obtained in bankruptcy. For example, the percentage to be paid to the creditors should be 60 % of their receivables in concordat while it would be 20% in the bankruptcy.
b) That the proposed amount is proportional to the resources of the debtor (in this
context, the court shall rule on whether the expected rights of the debtor will be taken into account and on, if so, to what extent ). For example, if the assets of the debtor is capable to pay 70% of the debts and the debtor propose to pay 40%, then the proposal shall be rejected.
c) That the concordat project must be accepted by majority stipulated in article 302.
d) That the payment of the receivables of the first-ranked privileged creditors who are stipulated in article 206 have been fully paid, and that the execution of the debts contracted with the consent of the commissioner within the respite have been adequately guaranteed unless the creditor expressly waives his right (the sixth paragraph of the article 302 shall be applied by analogy).
e) That litigation costs required for the confirmation of concordat and the fee to be paid based on the determined amount to be paid to creditors upon the approval of the concordat have been deposited to the court cashier before the approval ruling.
If the court finds the concordat project insufficient, it may request ex officio, or upon request, that the necessary correction be made on the project.
In the ruling on the approval of the concordat, the percentage of the receivables that the creditors have waived and the schedule within which the debtor will pay his debts shall be stated. In the ruling, a trustee may be appointed to take the necessary supervise, management and liquidation measures to ensure the fulfillment of the approved concordat. In this case, the trustee shall present a report to the court, which has given the ruling on the approval of the concordat every two months, on the status of the debtor's business and whether it retains its ability to pay its debts in accordance with the project; creditors are entitled to review this report. The ruling on the approval of the concordat is announced by the court in accordance with Article 288 and notified to the relevant authorities.
With the approval of the concordat, it becomes binding, but the creditors may request that the concordat become binding after it is finalized. The concordat, which has become binding, is obligatory for all receivables having arose before the concordat request, or within the respite without the permission of the commissioner. However, pursuant to the provision of Article 308/c -3, the concordat shall not be binding for the privileged receivables stipulated in article 206/1, the receivables in the amount that meets the value of the pledged receivables, the public receivables within the scope of the Law No. 6183, and the debts arising from the contracts made with the permission of the Commissioner. In short, all workers' receivables must be paid, the approval decision shall not be valid for them. In addition, the same is valid for pledged receivables, collection of public receivables and receivables to be foreseen by the commissioner.
In case of the failure to approve the concordat, the court rules to reject the concordat request; and if the debtor is subject to bankruptcy and there are direct bankruptcy reasons, it shall ex officio rule bankruptcy. The decisions regarding the approval of the concordat may be appealed before the regional court of justice and then the court of cassation without any amount or value limit. The creditor requesting a concordat, or the debtor may enforce legal remedies within 10 days from the notification of the decision, and other creditors within 10 days from the announcement of the decision.
Undertakings beyond the stated in the concordat project are void. For example, assume the debtor undertook to pay 40% and the concordat project was approved. If, the debtor later undertakes to pay one of the creditors to pay 70%, it will be void and cause termination.
The concordat may be terminated in in two ways; partial termination and complete termination. Partial termination Assume that the Debtor offered to pay 40% of his debt and did not pay the installment of 40%; the creditor may request the termination of the concordat for himself. This is called partial termination. Each creditor may request the termination of the fraudulent/legally fault concordat. This is called complete termination (Enforcement and Bankruptcy Law, Article 308/f). Examples of fraudulent/legally fault concordat can be as follows: In case where the debtor agrees with some of the creditors to pay or undertake to pay more money if the concordat is accepted, in order to obtain majority of votes of the creditors, or in cased where the debtor presents the non-creditor third parties as if they were creditors and gets the majority of votes.
After the bankruptcy has been ruled, the debtor can request a concordat to avoid bankruptcy. This is also called concordat in bankruptcy. If the debtor bankruptcy of whom has been ruled requests a concordat, the creditor may request the bankruptcy administration to initiate the concordat process. The bankruptcy administration fulfills the duties of the commissioner. In other words, the commissioner shall not be appointed.
As can be seen, the existing concordat institution has been comprehensively reorganized with The Law No. 7101 on The Amendments in Enforcement and Bankruptcy Law and Certain Laws. As briefly mentioned above, like bankruptcy, concordat also requires a court decision, however, in rare cases, the debtor can make a protocol with his creditors without applying to the court. Expenses to be borne in concordat process are less than those in bankruptcy, the consequences are less destructive compared to bankruptcy, and the creditors are satisfied more. On the other hand, bankruptcy is a procedure that can be applied for merchants; concordat can be applied for anyone regardless of whether he is subject to bankruptcy; and a concordat procedure can be applied while the bankruptcy process continues. The concordat system, which has replaced the postponement of bankruptcy institution, has become an important institution in terms of commercial and social life as well as legal life, with its features and rules such as improving the investment environment in our country, the agreement of the creditor and the debtor as a result of a negotiation, and the approval of this agreement by the court. We, as Lexius Legal, tried to explain in the simplest way how the newly created concordat system works, namely the whole process, the follow-up and execution of the process, following the legislative amendment. In this context, considering the entire process of the concordat, both the deadlines and the documents requested by the court have an important place in the concordat system. For this reason, we recommend that you seek legal advice so that you do not experience any loss of rights in this process.
Att.Deniz Pırıl AKCAN
Lexius Legal Law Firm
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