In Turkey, the concept of “Concordat” serves as a practical alternative to bankruptcy, offering a lifeline for individuals and businesses facing financial distress.
A Concordat agreement, once approved by the competent commercial court, carries binding implications for all of the debtor’s creditors, regardless of their initial stance on the agreement.
Eligibility for Concordat is open to any debtor, whether an individual or a legal entity. Additionally, creditors who have the right to request a debtor’s bankruptcy declaration may also initiate Concordat proceedings. In either scenario, two fundamental conditions must be met: either the debtor must be unable to meet some or all of its debt obligations upon maturity, or there must be a credible risk of impending insolvency.
The Concordat application submitted to the competent commercial court must encompass several crucial elements, including a temporary “Concordat plan.” This plan outlines a proposed timeline for the debtor to settle all outstanding debts and details the means by which this will be achieved, such as through capital injections, asset sales, or transfers. Furthermore, the application must include accurate financial statements reflecting the debtor’s insolvent financial situation, a comprehensive list of all creditors and their respective outstanding debts, ranked by priority, and an independent audit report.
In practice, Concordat agreements typically assume one of three forms: the extension of maturity dates for some or all debts, a reduction in the total debt amount (e.g., a commitment to pay a percentage of the original debt), or a combination of both approaches.
Concordat plans can secure approval through two alternative routes: first, by obtaining the agreement of more than 50 percent of all registered creditors (those who have officially registered their claims), who also collectively hold more than 50 percent of the total registered receivables; or second, by receiving the approval of more than 25 percent of all registered creditors, holding more than 66 percent of the total registered receivables.
During the temporary grace period, which typically commences from the date of the application to the commercial court, certain significant transactions, such as creating encumbrances over assets, require court permission. Furthermore, creditors are barred from initiating new enforcement actions against the debtor, and ongoing enforcement proceedings are suspended. However, a limited set of enforcement actions may continue, particularly those related to employment and family law matters, as well as foreclosure proceedings involving pledged assets.
Non-compliance by the debtor carries immediate consequences, including the termination of the Concordat plan by the court. In cases where other conditions are met, the court may also opt to declare the non-compliant debtor bankrupt in the same ruling, reflecting the seriousness of the situation.