Turkey: Concordat Provisions Amended In Accordance With The Enforcement Law No. 7101 And The Law Regarding The Amendment In Certain Laws

Last Updated: 11 October 2019
Article by Melih Evrensel
  1. In General

With the intention of filling the deficiency arouse from the deduction of "postponement bankruptcy" institution (effective since 2003) from our judicial system, our new concordat has been reshaped with the Enforcement and Bankruptcy Law No. 7101 and the Law Regarding the Amendment in Certain Laws entered in force by a publication in the official gazette dated 15.03.2018. In this regard, amendments made in concordat with the Law No. 7101 shall be emphasized and unamended provisions shall not be mentioned in our hereby regulation. In this context, concordat may be defined as;

"A compulsory agreement made between a debtor and a certain majority of his creditors and taken effect with the approval of commercial court; with this agreement, the creditors disclaim a proportion of their dues and/or they give a particular time to the debtor for the payment; it is a legal institute that enables the debtor to clear all his debts by refunding the determined amount within this period".

  1. The Court Concordat shall be Claimed from:

Before the Law No. 7101, creditor/debtor who wanted to claim a concordat according to Enforcement and Bankruptcy Law (EBL) Article 285/4 was supposed to apply to enforcement court and adjudgment was delivered by the enforcement court. This regulation has been ended with the new regulations; the court to be authorized and commissioned in concordat has been designated as the spot mentioned in first or second paragraph of article no. 154 for the debtor subjected to bankruptcy and commercial court of first instance around his residential area for the debtor not subjected to bankruptcy (EBL Article 285/3).

  1. Legal Situation of the Debtor whose Concordat Claim is Rejected:

A real person or a corporate entity who failed to pay his debt which already became due or under the risk of failing to pay at due date, whether he was a merchant or not, was capable to claim concordat. Commercial Court of First Instance was entitled to decide to approve the concordat as well as to reject it and the applicant was adjudged bankrupt by the court regardless of his subjection to bankruptcy before Law No. 7101 [1].

This regulation has been ended with the Law No. 7101 and according to the new regulation, if the demand of a debtor who is not a merchant and who claims concordat is rejected by the court, he shall not be adjusted bankrupt. With the new regulation, bankrupt adjudication of any applicant who is not a merchant is ended. None the less, in the case that the claim of any debtor who is subjected to bankruptcy is rejected, if a reason concerning the bankruptcy of the debtor is found, direct bankruptcy of debtor shall be adjudged along with the rejection of concordat judgement given by the court.

  1. Documents to be Attached in Concordat Claim:

Based on the restrictedness and inadequacy of the provision in Law no. 2004 Article no. 286 regulating the documents to be attached to concordat claim of the debtor, a few amendments bearing resemblance with the Law no. 7101 in general terms is also brought about.

  1. Temporary Respite

Probably the most fundamental amendment made in our Concordat Law with the Law No. 7101 is the inclusion of "temporary respite" stage in concordat. Regulated in the article 287, temporary respite is;

"Adjudged by the court if the documents mentioned in article 286 are determined to be completely available in a situation of concordat claim and all precautions considered necessary for the protection of debtor's assets, including the circumstances in the second paragraph of article no. 297, shall be taken by the court.

If the initiation of concordat process is claimed by one of the creditors, temporary respite shall be adjudged if the debtor submits the documents and archives mentioned in article no. 286 in reasonable time and completely. In this situation, the expense required for the preparation of mentioned documents and archives shall be compensated by the creditor. In the event that the documents and archives are not submitted in time and completely, temporary respite shall not be adjudged, and concordat claim of the creditor shall be rejected either. The court charges a concordat commissioner following the temporary respite decision with the aim of inspecting closely whether concordat will be possible to succeed. Considering the number of the creditors and the amount of the dues, three commissioners might be charged as well. Article no. 290 shall be practiced by comparison in this respect.

Temporary respite lasts three months. Court can prolong the temporary respite for maximum two extra months upon a claim from the debtor or temporary commissioner before the expiration of three-month period. If prolongation is claimed by debtor, temporary commissioner is conferred on. The length of temporary respite shall not exceed five months in total.

Articles no. 291 and 292 are enforced by comparison regarding temporary respite.

There shall not be appealed against the decisions regarding admission of temporary respite claim, assignment of temporary commissioner, prolongation of temporary respite and measures."

As can be seen from the regulation; if documents are submitted completely and precisely, 3-month temporary respite decision shall be given by the court. Before the expiration of 3-month notice, temporary respite decision might be prolonged for two more months upon the claim of debtor or temporary commissioner. In each case, the duration of temporary respite shall not exceed five months. Together with the decision, required precautions regarding protection of assets of the debtor shall be taken.

Temporary respite decision is effective as definite respite decision is. According to that, provisions foreseen in EBL. Art. no. 294-297 shall find a field of application, previous prosecutions initialized about the debtor shall be suspended, provisional injunction and charging orders shall not be applied and no prosecutions shall be done against the debtor.

In a similar way with temporary respite, temporary concordat commissioner shall be appointed upon court decision within that respite and hereby commissioner shall serve to make concordat project meet the objective within temporary respite. Temporary respite decision shall be announced in trade registry gazette and official announcement portal of Press Announcement Institution and immediately announced to directory of land registry, trade registry office, tax office, customs and postal administrations, Banks Association of Turkey, Participation Banks Association of Turkey, local chamber of commerses, association of manufacturers, movable asset markets, Capital Markets Board and other institutions required by law (EBL. Art. 288/2).

Law foresees a legal remedy only regarding the refusal of demand in terms of temporary respite decision with the same article; however, the decisions on admission of temporary respite claim, commissioner assignment and court decisions regarding the precautions to be taken are not foreseen. On the other hand, according to EBL. Art. 288/2, it is also stated that the creditors might demand dismissal of concordat claim by objecting to the commercial court with a petition within 7 days and submitting the required documents demonstrative of absence of a situation requiring a concordat respite after the announcement.

  1. Notice of Definite Respite

One of the reasons for not applying to concordat before the amendments in Law no. 7101 was due to the short notice of definite respite. With the new regulation, it is envisaged that this period can be extended up to six months in difficult cases where the definite deadline shall be given for a year. With the new regulation, hereby six-month extension shall be given only once as it is understood from the literal of extension law.

  1. Board of Creditors

One of the most important amendments made with new regulation is the "board of creditors". According to EBL. Art. 289/4;

An additional board of creditors might be formed accordingly with definite respite decision or at an available time within definite respite with the conditions of not exceeding seven debtors, not being appraised to any charges and being in odd number. In this case, their receivables, creditor classes which are different from each other in respect of legal qualifications and pledgee-creditors if available are represented righteously in the board of creditors. The commissioner is also conferred with during the process of constituting the board of creditors. Board of creditors gather at least once in a month and the decisions are made by large the majority of those present at the meeting. The commissioner writes the decisions given by the majority of the attendants with their signatures to minute. The cases where board of creditors shall be compulsorily constituted and the other matters regarding the board of creditors are indicated by the regulation brought into force by Ministry of Justice by considering the number of creditors, the debt amount and the diversity of the debts".

According to the regulation, as soon as the definite respite is determined or in the event that it is found necessary, board of creditors shall be constituted within the respite. Provided that there are at least three creditor classes, in the event that the number of the creditors exceed two hundred and fifty or the amount of debt exceeds a hundred million Turkish Liras, the board of creditors shall be compulsorily constituted by the court.

The board of creditors supervises the activities of commissioner, might give advices to the commissioner and presents an opinion to the court for the cases foreseen by the court. Meanwhile, in the event that board of debtors do not find the activities of the commissioner adequate, it has an authorization to claim for changing the commissioner from the court.

  1. Improvement of the Debtor's Status During the Respite

Another amendment made by the Law no. 7101 is for the reasons regarding rescission of decision. Before the amendment, the fact that what would happen in the case that the financial situation of the debtor acquired the targeted recovery within the respite period, was not being regulated. With the amendment made, in the case that the financial situation of the debtor recovers within the respite period, hereby situation shall be determined with a commissioner report and the court shall decide on revoking of the decision ex officio together with the report and rejection of concordat claim. (EBL. Art. 291).

  1. Alteration Regarding Creditors Meeting

Articles no. 301 and 302 of the Laws No. 7101 and 2004 has been altered and since the negotiation of the pledgee-creditors are arranged distinctively, the section regarding convention of pledgee-creditors in this Article has been deducted from the text. According to that, it is emphasized that only the unsecured part of the due that secured with pledge shall be subject to concordat according to the value appraised by the commissioner and also, shall be accepted as a procedure of intervention following the conclusion of creditors convention.2

According to the Law No. 7101, it is determined that the sibling of the debtor and even if the bond of marriage is removed, his/her spouse's mother, father and sibling shall not be considered in the majority of the due or creditor's debt. With this law-protector provision is intended to ensure that the reliability of concordat project is not reduced.

  1. Examination of concordat file

According to EBL. Art. 304, "The court commended the reasoned report of the commissioner and the file, shall begin judging so as to decide on concordat. After listening to the commissioner, the court is obliged to give a decision within the shortest time and the definite respite. The settled trial date shall be announced according to the Article no 288. It shall be also included in the announcement that the petitioners may be present in the trial on condition that they notify their ground for petition in written at least three days before the trial."

Within the frame of new regulation, it is made obligatory by the court that the reasoned report of the commissioner shall be examined, and the concordat claim shall be decided on within the definite respite after listening to the commissioner. Unlike the current regulation, the presence of the petitioners in trial depends on their notification of their ground for petition to the court at least three days before the trial day and in written. With this limitation, possible prolongation of the trial with the reason of objections to be brought forward by the debtors present in the court, is aimed to be prevented.

Confirmation of Concordat

a- Warranty to be Given to Debtors

One of the conditions for the confirmation of concordat is that the debtors be pledged warranty. In this scope, the Law no 2004 article 298/3 had a phrase involving; "the full payment of privileged creditors shall be done and required warranty be provided unless each creditor desists from their own due privately and evidently in order to perform an obligation with the confirmation of the commissioner within the respite." In the scope of this article, the debtor was obliged to provide warranty for both the privileged and unprivileged creditors and that aggravated the warranty load of the debtor.

With the Law no. 7101 EBL. Art. 305/1-d, a regulation has been made with the phrase of "binding of the full payment of dues of privileged creditors mentioned in article 206, line 1 and discharge of negotiated debts with the consent of commissioner within the respite, unless the creditor evidently desists from this".

b- Honesty Condition in the Concordat Claim of the Debtor

The condition that the debtor shall be "honest" in his concordat demand has been a question of debate since the first regulations. Even though an opinion is formed that the "honesty" condition shall not be considered in granting definite respite with the deducting of "integrity of the debtor in his works" with the regulation of Law no 4949, a covert "honesty" condition was used to be demanded for granting of the definite respite even if it was based on the fault of the debtor for the reason that the phrase "whether the project is free from the intention of damaging the creditors" was kept after the regulation.

For the reasons that "the debtor displays a suspicious behavior within the concordat respite" is deducted from the reasons of removal of concordat claim and the phrase "the project is free from the intention of damaging the creditors" is deducted, "honesty" condition has been deducted from the conditions regarding the granting of definite respite with the Law no 7101. This regulation has enhanced applicability of concordat claim and become more important in keeping the balance of commercial life by the deduction of "honesty" condition with the reasons that concordat institution is both for the good of the debtor and creditors, enables the creditors more protected in comparison to bankruptcy institution and saves the debtor from the legal and criminal results of the bankruptcy.

c- Comparative Table

In the concordat preliminary project, making the creditors an offer would be in question. The comparative table, sought for concordat only by means of abandonment of assets before the regulation, shall be the confirmation condition in respect to basic concordat hereinafter. According to EBL. Art. 308/1-a line, a condition for the confirmation of basic concordat has been included with the phrase of "realizing that the offered amount would be more than the possible amounts to be received by each creditor in the event of bankruptcy of a debtor."

[1] TANRIVER, S. 4949 sayılı İcra ve İflas Kanununda Değişiklik Yapılmasına Dair Kanunun, Âdi Konkordato ile İlgili Hükümlerde Getirmiş Olduğu Değişikliklerin Tespiti ve Değerlendirilmesi (Tür. Bar. Bir. Der. Mart-Nisan/2004, S: 51, s: 69 - Yeditepe Ünv. Huk. Fak. Der. 2005, C: 1, S: 2, s: 530) – Tanpınar, S. Adi Konkordato Hakkında İcra ve İflas Kanununda Yapılan Değişiklikler (BATİDER, Aralık/2003, C: XXII, S: 2, s: 57) – ALTAY, S. age. C: 1, s: 7

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.

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