Turkey: Concordat As An Alternative To Suspension Of Bankruptcy

Introduction

As per the state of emergency declared in the Republic of Turkey on July 20th, 2016, and under Article 4 of Decree Law numbered 669 and dated 31.07.2016, corporations are prohibited from requesting, and the courts are prohibited to rule upon, suspension of bankruptcy. Through this prohibition, yet another opportunity, namely, the concordat, has again come into effect. The meaning of the word 'concordat', is a restructuring option for debtors in a poor financial situation, but one that has been rarely applied due to the advantages of suspension of bankruptcy.

A concordat is regulated under Articles 285-309 of the Enforcement and Bankruptcy Code, and aims to protect both the debtors in poor financial standing, as well as their creditors. In the event that a debtor and a creditor agree on a concordat, the debtor clears his/her debts by paying the debt in line with the agreement stipulated under the concordat. Therefore, a concordat may be defined as a reconstruction agreement between the debtor and his/her creditors.

Even if some creditors do not take a part or agree to the concordat, it will be binding upon them. Therefore, in order to have a concordat, two different quora of creditors, and the amount of debt must be agreed upon. Within this scope, the validity of a concordat is subject to approval of one-half of the creditors whose receivables exceed two-thirds of the total debt of the debtor.

Types of the Concordat

The official (judicial) concordat can be made in three different ways: the ordinary concordat; the concordat after bankruptcy (in bankruptcy); and the concordat through asset abandonment. An ordinary concordat can be made in two ways: As per the first option, the creditors may waive some portion of their receivables, and debtor clears his/her debt entirely by paying the agreed amount. As per the second option, the amount remains the same, but the payment is withheld, subject to payment terms. In such case, the payment of the debt can be postponed or split into installments. It is also possible for both types of concordat to be utilized in one case.

Apart from the official concordat, the debtor and the creditors may agree upon, and reconstruct, the debts together. In such a case, the government agencies would not get involved in the agreement amongst the parties. This concordat, which is viewed as the private or special concordat, is subject to the terms of the law of obligations.

The Ordinary Concordat

This concordat is applicable for both debtors who are subject to, or not subject to, the provisions of bankruptcy. The request for concordat can be made by either the debtor or the creditor. If the debtor is a person (real person or legal entity) who is subject to bankruptcy, the provisions of concordat may save itself from becoming bankrupt. Therefore, the ordinary concordat may be used in order to prevent probable risks of bankruptcy.

The debtor wishing to apply a concordat, or any creditor who can request the bankruptcy of the debtor, is entitled to file a concordat proposal through a petition to the Execution Court. If the conditions are met, the Execution Court can grant a term for concordat up to three months in favor of the debtor, and will appoint one or several concordat commissars. The appointed commissars invite the creditors to discuss the concordat proposal. In these meetings, the creditors will decide either to approve or to reject the proposal of concordat. Upon approval of the creditors, the concordat is submitted to the Commercial Court for approval. The Commercial Court who examines the conditions of the concordat either approves or rejects the concordat. Following the approval of concordat by the Commercial Court, the debtor pays its debts in line with the concordat, and will be free from the remaining part of its debts.

The requirement for a term of concordat is to have a probable success through a concordat, with no intention to cause any damage or loss to the creditors. The requirements for the approval of concordat are a ratio between the proposed payment amount and the current of the debtor, an approval of one-half of the creditors whose receivable exceed two-thirds of the total debt, providing necessary security, and depositing litigation expenses and fees.

Even if the concordat is approved, the creditors remain entitled to request the cancellation of the concordat if they realize that the debtor had sought approval of the concordat in bad faith. The cancellation of the concordat may be requested with regard to one creditor, or in whole.

The concordat is binding also upon the creditors who are not parties to the agreement. However, for the pledgee-creditors, the creditors holding a right in rem arising from the state receivables, as well as all other preferential creditors, are not bound by the concordat. Therefore, these creditors have the right to collect their receivables, in their entireties. Those creditors who are bound by the concordat may only collect their receivables from the co-debtors, guarantors or sureties in line with the terms of the concordat. With few exceptions, execution proceedings may not be initiated against the debtor, and execution proceedings that were previously initiated will be suspended. The foreclosure executions will resume, but the assets of the debtors cannot be attached or sold. During the term of the concordat, the provisionary attachments are not implemented, and the lapse of time will not resume. Unless otherwise stipulated in the concordat, interest on the debts that are unsecured with a pledge right will not accrue. Despite such protections in favor of the debtor, to file or resume an action against the debtor remains to be an option.

During the term of the concordat, the debtor's authority on his/her assets is under the control of the concordat commissar. However, some transactions require the permission of the Court of Execution.

The Concordat after the Bankruptcy (The Concordat in the Bankruptcy)

The concordat after the bankruptcy (the concordat in the bankruptcy) is regulated for those debtors who are already bankrupt. If the concordat is approved, the bankruptcy for the debtor is cancelled with all its effects and outcomes. The debtor submits the request for concordat to the administrator of bankruptcy. The administrator of bankruptcy then informs the creditors of its own opinion concerning this request during the next creditors meeting, or at a later time. In this option, there is no term for the concordat, and neither is a commissar appointed. The provisions of the concordat enter into force not after the concordat's approval decision, but after the cancellation of the bankruptcy. The bankruptcy concordat is subject to the provisions regulating ordinary concordat terms, as much as they are in conformity thereof.

The Concordat through Asset Abandonment

If the parties agree on this type of concordat, the debtor transfers to the creditors his/her rights to dispose of, or to transfer, the asset, entirely, or in part, to third persons. Through this means, the creditors collect their receivables by disposing of the assets of the debtors that have been transferred to them. The creditors may appoint liquidators; however, the right to dispose of the assets is transferred to the creditors and the liquidators, after the approval of the liquidator by the Court of Execution. The liquidators will dispose of the assets of the debtor in manner that is similar to liquidation in bankruptcy, and will distribute the amount received from the sale to the creditors. Unless they are contradictory, the provisions regulating ordinary concordats are applied to the concordats through asset abandonment. The concordats, through asset abandonment, protect the debtor against the risk of underpriced sales of its assets during the bankruptcy period, and the creditors are protected against the risk of enduring a long bankruptcy period during which they are unable to collect on their debts.

Conclusion

Concordats, which are regulated in detail in the code, have been forgotten for a long while, due to the implementation of suspension of bankruptcy in recent years. However, as the suspension of bankruptcy is prohibited during the state of emergency, concordats will be used more often in the upcoming days.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Herguner Bilgen Ozeke Attorney Partnership
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Herguner Bilgen Ozeke Attorney Partnership
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions