What Is Concordat? What Are the Conditions and How to Apply?

What Is Concordat?

Concordat is a legal process that enables debtors who are unable to pay their debts on time or are at risk of default to restructure their debts through an agreement with their creditors. This process is regulated between Articles 285 and 309 of the Enforcement and Bankruptcy Law (İcra ve İflas Kanunu). Through a concordat, the debtor is placed under court protection and gains the opportunity to continue commercial activities by presenting a reasonable payment plan to creditors.

Purpose and Importance of Concordat

The primary purpose of concordat is to prevent the bankruptcy of the debtor and to ensure that creditors can recover their receivables within the framework of a structured plan. This process allows the debtor to continue operations while also protecting the interests of creditors. Especially during periods of economic crisis, concordat has become a significant restructuring tool for companies.

What Are the Types of Concordats?

Ordinary Concordat

Ordinary concordat (adi konkordato) allows debtors who are unable to pay their debts on time or are at risk of being unable to do so to restructure their debts through an agreement with their creditors. This type of concordat can be requested by all debtors, regardless of whether they are subject to bankruptcy proceedings. The debtor applies to the court to request concordat, and a payment plan is established upon the approval of a certain majority of the creditors.

Post-Bankruptcy Concordat

Post-bankruptcy concordat (iflastan sonra konkordato) refers to the restructuring of debts by a bankrupt debtor through an agreement with creditors during the liquidation of the bankruptcy estate. This type of concordat is used to enable the debtor to reach a settlement with creditors during the course of the bankruptcy liquidation process.

Concordat by Abandonment of Assets

Concordat by abandonment of assets (malvarlığının terki suretiyle konkordato) enables the debtor to liquidate debts by transferring all assets to the creditors. This type of concordat aims for the debtor's assets to be managed by the creditors for the purpose of satisfying the outstanding debts. By abandoning their assets, the debtor seeks relief from their financial obligations.

How to Apply for a Concordat?

Required Documents for Application

The following documents must be prepared for a concordat application:

• Concordat Petition: A properly drafted petition containing essential information and documentation such as the debtor's financial condition, the amount and maturity of debts, and a list of creditors.
• Preliminary Concordat Plan: A detailed plan outlining how the debts will be restructured, including the payment schedule and maturity information.
• List of Creditors and Amounts Owed: A complete list of all creditors and the respective amounts of their claims.
• Debtor's Financial Statements: Balance sheets and income statements (if available) for the last 3 years, cash flow statements, and documents showing the capital structure.
• Statutory Ledger Documents: Statutory books that the debtor is legally required to keep.
• Expert Assessment: A feasibility report prepared by a team of experts, including a certified public accountant, a lawyer, and an auditor.
• Receipt of Concordat Expense Advance: A document showing the payment of the expense advance calculated according to the tariff determined by the Ministry of Justice.

These documents must be prepared in accordance with Article 286 of the Enforcement and Bankruptcy Law. Other documents and records that may be requested by the court or the concordat commissioner must also be submitted during the concordat process.

Concordat Application Process and Stages

• Application: The debtor files a concordat request with the Commercial Court of First Instance (Asliye Ticaret Mahkemesi) located in their place of residence.
• Preliminary Suspension of Proceedings: Upon reviewing the application, the court grants a preliminary suspension of proceedings for a period of 3 months. This period may be extended by an additional 2 months if necessary.
• Appointment of a Concordat Commissioner: The court appoints a concordat commissioner to oversee the concordat process.
• Meeting of Creditors: The commissioner organizes a meeting with the creditors and presents the concordat plan for voting.
• Definitive Suspension and Ratification Decision: If a specified majority of the creditors approve the plan, the court grants a definitive suspension and ratifies the concordat.

This process is regulated under Articles 285 to 309 of the Enforcement and Bankruptcy Law.

The concordat process is complex and requires careful attention. For a successful application, it is essential that all documents are prepared completely and accurately, the financial condition is presented transparently, and professional advisory services are obtained.

How Does the Concordat Process Progress?

Preliminary Suspension and Definitive Suspension Periods

When a concordat application is filed, the court first issues a preliminary suspension of proceedings (geçici mühlet). This period is generally 3 months and may be extended for an additional 2 months if deemed necessary. During the preliminary suspension period, the debtor is protected from enforcement proceedings by creditors, and transactions involving the debtor's assets are restricted. During this stage, the court appoints a concordat commissioner to review the debtor's financial situation.

At the end of the preliminary suspension period, the court evaluates the feasibility of the concordat plan submitted by the debtor. If the plan is approved by a qualified majority of the creditors and found appropriate by the court, a definitive suspension of proceedings (kesin mühlet) is granted. The duration of the definitive suspension is 1 year and may be extended by the court for an additional 6 months. During this time, the debtor continues to make payments in accordance with the concordat plan.

What Is a Concordat Commissioner and What Is Their Role?

The concordat commissioner is the individual appointed by the court to supervise the concordat process. The commissioner's main duties are as follows:

• To examine and report on the debtor's financial situation
• To manage meetings and negotiations with creditors
• To assess the feasibility of the concordat plan
• To organize the meeting of creditors and present the results to the court

The commissioner ensures that the concordat process is conducted in a transparent and fair manner.

Creditors' Committee and Approval Process

The concordat plan is put to a vote by the committee of creditors. For the plan to be accepted, the approval of a majority representing at least two-thirds of the total amount of claims is required. While evaluating the concordat plan, the creditors' committee considers the reality and feasibility of the debtor's payment schedule. Following the committee's approval, the court ratifies the concordat plan, and the process officially commences.

Who Can Request a Concordat?

Conditions for Natural and Legal Persons

Whether the applicant is engaged in commercial activity or their current legal status may affect their eligibility to request a concordat. However, in general, the following parties may apply for a concordat:

• Natural persons who are unable to pay their debts on time or are at risk of default
• Legal entities (such as companies, cooperatives, etc.)
• Debtors, whether or not subject to bankruptcy, who are facing the risk of insolvency

In addition, the debtor must act in good faith, demonstrate honesty, and ensure that the concordat proposal respects the rights of creditors.

Conditions for Filing a Concordat Request

To file a concordat request, the debtor must apply to the court with documents demonstrating their financial situation. Additionally, the concordat expense advance must be paid, and the concordat plan must be prepared. The debtor must either be unable to pay their debts on time or be at risk of default.

Differences Between Concordat and Bankruptcy

Comparison of Concordat and Bankruptcy

Which Method Should Be Preferred in Which Situation?

For companies that are unable to pay their debts but wish to continue their operations, concordat is a more suitable option. However, if the debtor's financial condition is such that continuing operations is no longer viable, the bankruptcy process may become inevitable.

Key Considerations During the Concordat Process

The concordat process is a sensitive procedure aimed at improving the debtor's financial condition and ensuring that creditors collect their receivables. The following are some important points to consider during this process:

Tips for a Successful Process

1. Prepare a Realistic and Feasible Plan: The concordat plan should be designed in a way that improves the debtor's financial condition and enables creditors to recover their claims.
2. Establish Effective Communication with Creditors: Transparent and open communication is essential to gaining the trust of creditors and securing acceptance of the concordat plan.
3. Maintain Financial Discipline: Preserving financial discipline during the concordat process is critical to its successful completion.
4. Seek Professional Advice: As the concordat process involves complex legal and financial matters, it is advisable to obtain support from an experienced attorney and certified public accountant.

Common Mistakes and Pitfalls to Avoid

1. Submitting Incomplete or Incorrect Documents: Providing incomplete or inaccurate documentation in a concordat application may result in the rejection of the application.
2. Preparing Unrealistic Payment Plans: Payment plans that are not feasible and unlikely to be accepted by creditors may lead to the failure of the concordat process.
3. Neglecting Communication with Creditors: Insufficient communication with creditors can lead to a loss of trust and the rejection of the proposed plan.
4. Losing Financial Discipline: Losing financial discipline during the concordat process damages the debtor's credibility and may cause the process to fail.

CottGroup^® Guidance in Wage Guarantee Fund Applications During the Concordat Process

The declaration of a concordat is not only a matter of financial restructuring but also a critical process in terms of safeguarding employee rights. In cases where the employer becomes insolvent during this process, the Wage Guarantee Fund (Ücret Garanti Fonu) intervenes to secure up to three months of unpaid wages for employees. At CottGroup®, we provide expert guidance in the Wage Guarantee Fund application procedures for employees of companies that have declared concordat. From the preparation of application documents to legal follow-up, we ensure that all procedures are carried out completely and in full compliance with applicable regulations. In doing so, we help employers fulfill their obligations effectively and support employees in completing the process without any loss of rights.

Click here for detailed information.

Frequently Asked Questions (FAQ)

How long does the concordat process take?

The concordat process begins with a preliminary suspension period of 3 months from the date of application. This period may be extended by an additional 2 months by court decision, provided that the necessary conditions are met and upon request. During the preliminary suspension, the debtor's financial situation, creditor relations, and payment capacity are thoroughly examined. Subsequently, if the concordat plan is approved by the creditors, a definitive suspension period of 1 year begins. This period may also be extended by up to 6 months by court decision. When well-managed, the entire process can typically be completed within 15 to 18 months.

How does declaring concordat affect a company's reputation?

Concordat is a legal restructuring tool used by companies that intend to pay their debts in good faith. However, since it is often confused with "bankruptcy" in the public eye, declaring concordat may result in temporary reputational loss in certain sectors or among stakeholders. For this reason, the application process must be carefully managed, transparent communication strategies should be implemented, and stakeholders must be clearly informed of the legal nature of the process. When conducted under expert guidance, the concordat process can preserve—and even enhance—the long-term credibility of the company.

What are the rights of creditors during the concordat process?

During the concordat process, the rights of creditors are carefully protected. In particular, through the creditors' committee, they have the authority to review, vote on, and approve the concordat plan. Creditors are kept informed about the activities carried out by the concordat commissioner and may raise objections when necessary. Creditors are classified, and a payment plan is prepared in accordance with the principle of equality. Additionally, creditors may exercise their rights to file objections and notifications to ensure their claims are duly recorded.

What happens if a concordat application is rejected?

The court may reject the concordat application if it finds the plan unrealistic, doubts the debtor's good faith, or if the required majority approval is not obtained from the creditors. In such a case, if the debtor is subject to bankruptcy and their financial condition warrants it, the court may, under the applicable conditions, issue a bankruptcy decision ex officio. For persons not subject to bankruptcy, creditors may proceed to collect their receivables directly through enforcement and seizure procedures. Therefore, it is critically important that the application is prepared with legal experts and that the process is managed with utmost care.