Concordat is an agreement between the debtor and the creditors to receive their receivables according to a certain plan and approved by the court as a result of the deterioration of the financial structure of the debtor. This concept appears as an institution where companies whose financial structure has deteriorated have the opportunity to pay by restructuring their debts. With the Law No. 7101, amending Articles 285 and the following provisions of the Enforcement and Bankruptcy Law numbered 2004 regarding concordat, debtor who is under pressure by their creditors is allowedto work and pay his debt as a result of the deferral of the debts of individuals and companies.
In other words, Concordat is anagreement enforcibly concluded between an honest debtor and a certain majority of its creditors under certain circumastances and which is effective upon the approval of the commercial court. Consequentlythe creditors waive some of their receivables against the debtors and / or give the debtor a certain period of time to pay the debt. It is a legal institution that allows the debtor to get rid of all of his debts by paying the accepted part of his debt within this period.
BRIEF INFORMATION ABOUT THE CONCORDATO INSTITUTION AND CONCORDATO IN OUR LAW
The Act numbered 7101 and dated 28.02.2018 amended Article 285 et al. of The Enforcement and Bankruptcy Code numbered 2004, in order to revive the concordat institution, which seemed completely have been abandoned in practice. With Lawnumbered 7155 dated 06.12.2018, Articles 286, 287, 290 and 292 of the Turkish Execution and Bankruptcy Code, which were previously amended by the Act numbered 7101, were amended again, and a provisional article was added to the Enforcement and Bankruptcy Code numbered 2004.
In the Official Gazette dated 30 January 2019 and numbered 30671, the «Regulation on Documents to be Attached to the Request for Concordat» and «Regulations on the Concordat Commissioner and the Board of Creditors» were published, and it was envisaged to enter into force on 30.01.2019. It is aimed to fill the gap that emerged with the abolition of the “postponement of bankruptcy” institution regulated in articles 178-179c of the Enforcement and Bankruptcy Code and applied since 2003. With these amendments made for the said purpose, it was aimed to make the concordat institution functional again, taking as example the most recent changes made in the Swiss Law in 2013 and entered into force on 01.01.2014.
The authorized and competent court of the concordat is held in Art.285/3 of the Enforcement and Bankruptcy Code. According to this article, the law makes a two-prong distinction. In accordance with this distinction, the authorized and competent courts are;
1) For the debtor subject to bankruptcy, it is regulated in the Enforcement and Bankruptcy Code. Art.154/1 and 154/2 which set out that
- Enforcement and Bankruptcy Code Art.154 / 1: The competent authority in the pursuit of bankruptcy is the enforcement office at the location of the debtor’s transaction center.
- Enforcement and Bankruptcy Code Art..154 / 2: Centers authorities about commercial enterprises located abroad, the branch in Turkey, if there is more than one branch, the executive branch of the center circle at the location.
2) For the debtor who is not subject to bankruptcy, it is the Commercial Court of First Instance in the settlement.
Before applying for concordat, a pre-project for concordat must be prepared by a specialized technical team (a team of lawyers, executive and bankruptcy law professors actively working at universities and financial advisors) with whom our office co-operates this process.
The Concordat Preliminary Project is a document that shows the amount or term to which the deptor will pay his debts, to what extent the creditors will give up their receivables within this scope, whether the debtor will sell the existing goods to make payments, the necessary financial resources for the debtor to continue his activities and make payments to the creditors through capital increase or loan provision or it will be provided by using another method and is presented to the court in the annex of the petition for concordato application. It is presented to the court together with the project assets, the documents showing the creditors and the receivable status, the table showing the success of the concordat and the audit report giving reasonable assurance.
After the preparation of this project, a concordat application is made in the relevant commercial court of first instance by adding this project to the case petition and depositing the necessary court advances and fees.
The court that receives the application, if necessary, examines it ex-officio or immediately submits the file to an expert or expert committee, to examine the case petition and the concordat preliminary project, whether the mentioned issues and the project reflect the reality.
In the event of a positive result either in its own examination or in the examination of the expert, the court will immediately stop all the enforcement proceedings opened or to be opened against the applicant during the temporary deadline by giving a 3-month Provisional Deadline Decision and a Preliminary Precautionary Decision to put the applicant under protection, and also the court It decides to appoint “trustee in composition” to manage the applicant in this process and to submit monthly status reports to the court. The fee of the Concordat Commissioner to be determined by the court is paid by the applicant to the concordat. The temporary grace period is three months. This period can be extended for two months by the court upon the request of the concordat commissioner or the debtor.
With the expiration of the temporary respite, in accordance with Article 289 of the Execution and Bankruptcy Law: “In order to make a decision on the final deadline, the court invites the debtor and the creditor, if any, requesting concordat, to the hearing. The provisional commissioner submits his written report before the hearing and, if deemed necessary by the court, the trustee in composition is present at the hearing to receive his statement ”. According to this regulation, the court examines the reports received from the trustee in composition or decides that the applicant passes to the Final Term of Concordat which will last for 1 year. If s/he thinks that the applicant cannot succeed in this process, s/he refuses the concordat application. In case of rejection of the application, if the applicant is deeply in debt, a bankruptcy decision is issued for the application. Again, if the application is rejected, if the applicant is not deeply in debt, it continues its activities from where it left off. If there is a possibility that the concordat will be successful, the court decides to give a definite deadline to the debtor. With this decision, the court decides that the temporary trustee in composition/commissioner or commissioners should continue their duty, unless there is a situation requiring a new assignment and submits the file to the commissioner. In addition, the concordat is announced as a definite deadline decision.
After the final deadline is decided, the creditors are invited to declare their receivables within fifteen days from the date of announcement by the commissioner. The commissioner invites the debtor to make a statement about the claims claimed. The commissioner makes the necessary examinations on the books and documents of the debtor about whether the receivables are real and states the results in the report.
In addition, a board of creditors may be established by the court with the opinion of the commissioner, provided that it does not exceed seven creditors, no fee is appreciated and in an odd number, with the decision of the court or within the definite deadline. Creditors that differ from each other in terms of legal nature and pledged creditors, if any, will be equitably represented in the creditors board.
The board of creditors will convene at least once a month and make a decision with the majority of votes present at the board. The commissioner or commissioners appointed by the court will also be present at the meetings of the board of creditors and will record the decisions taken by the board into the minutes by taking the signatures of the participants in the meeting.
The creditors board has the authority to supervise the activities of the commissioner, to advise the commissioner, to give an opinion to the court in cases stipulated by the law, to request the replacement of the commissioner from the court in cases where the activities of the commissioner are not sufficient, and may also use other powers specified in the law.
According to the 5th paragraph of Article 289 of the Enforcement and Bankruptcy Code, the definite deadline may be extended up to six months by the court upon request and the reasoned report of the commissioner explaining this situation. An application to the concordat can also request an extension; In this case, the opinion of the commissioner is also taken. As with the extension of the temporary term, a request is also required for the extension of the definitive deadline. While the court can give the final deadline decision ex-officio, the court cannot give the decision of extending the final deadline ex-officio. The request for extension of the final deadline can be made by the concordat commissioner or the debtor. The creditors do not have the right to request an extension of the concordat deadline. In case the creditors want the concordat period to be extended, they may notify their request to the concordat commissioner. Unlike the temporary deadline decision, the opinion of the board of creditors, if any, will be taken in order to extend the final deadline.
After the expiry of the final deadline, the party applying to the concordat can request the court to approve its concordat, claiming that this process was carried out positively by it. The conditions sought for the approval of the concordat are as follows:
- Understand that the amount offered will be more than the amount likely to be received by creditors in the event of the debtor’s bankruptcy.
- The amount offered is proportional to the resources of the borrower.
- The concordat project is accepted by a majority of more than half of the registered creditors and receivables or one-fourth of the registered creditors and two-thirds of the receivables.
- The full payment of the receivables of the privileged creditors and the execution of the debts concluded with the consent of the commissioner within the deadline, unless the creditor explicitly relinquishes this.
- The legal expenses required by the approval of the concordat and the fee to be collected on the money decided to be paid to the creditors in the case of the approval of the concordat must be deposited by the debtor at the court before the approval decision.
In the approval decision of the concordat, the extent to which the creditors give up their receivables and the schedule within which the debtor will pay his debts are stated.
The decision may appoint a trustee to ensure that the approved concordat is carried out. In this case, the trustee reports to the court that made the approval decision 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. The creditors can review this report. The approval decision is announced by the court and notified to the relevant places.
According to these determinations, the total duration: 3 months + 2 months (optional) temporary deadline, 1 year + 6 months (optional) definite deadline, 6 months in the concordat approval phase, if deemed necessary by the court, the maximum total duration can be extended up to 29 months.