The Concordat Process in Terms of the Debtor and Creditor
Article 4 “Postponement of Bankruptcy” of the Statutory Decree No. 669 published in the Official Gazette dated 31.07.2016 numbered 29787, states that a request cannot be made to postpone bankruptcy during the state of emergency. The concordat mechanism was established as a result of the current economic changes and the wrong implementation of the postponement of bankruptcy and subsequent removal of right to demand with the statutory decree. Amendments were made in to the provisions regarding the concordat process with the Enforcement and Bankruptcy Law No. 7101, published in the Official Gazette Law dated 15.03.2018 and numbered 30361, and the Law on the Amendment of Certain Laws. The general preamble of the enacted bill is as follows; “the postponement of bankruptcy applied in our county since 2003, has not provided the desired result in achieving its purpose. Therefore, an amendment has been made on the postponement of bankruptcy with Law No. 6728 dated 15.03.2016. It has been concluded that; as creditors have no say in the postponement of bankruptcy, and the process is handled between the debtor and due to the issues arising from the proceedings, this process should be abolished and instead the creditors and the debtor’s should negotiate an agreement and that the more effective and active use of the concordat process based on court approval is seen as a necessity for commercial and social reasons.”
The term concordat derives from the Italian Word “concordato” coming from the Latin phrase “concordare”. Its definition in the dictionary is “arrangement of bankruptcy”. The Bankruptcy and Enforcement Law regulates three types of official (judicial) concordat; such as ordinary concordat, concordat after the bankruptcy, concordat through asset abandonment, while the most common form of concordat is ordinary concordat. The types of ordinary concordat are; deferred concordat, acquitted concordat and combined concordat. Deferred Concordat; the debtor is granted a period of time pay the entirety of its debts or to pay them in installments without any reduction from the debt to the creditors. Acquitted Concordat; the creditor accepts to reduce a percentage from the debts and after the payment of the agreed part of the debt the debtor gets rid of the entire debt. As seen in the draft preamble, no limitation was brought with the articles of the law in relation with the resources of a debtor, who can pay all of its debts, to request an acquitted concordat. It’s possible for a debtor who is able to pay assets and liabilities to request an acquitted concordat. Combined Concordat; is combination of deferred concordat and acquitted concordat. The debtor pays the debts at a certain rate and within a certain period.
Individuals that are able to request concordat are debtors and creditors. As a debtor; not only companies that are legal entities but also real persons who are not traders can request concordat. The applicants must be individuals who are unable to pay their debts (insolvent) or who are at risk of not being able to pay them. The concordat process is more effective in reaching a wider audience than the postponement of bankruptcy. For example, in the lawsuit filed due to the risk of insolvency, it may be decided that the individual shall pay large amount of compensation. Creditors can also request concordat on behalf of the debtor. If a creditor applies for concordat on behalf of the debtor, items such as the notice expenses requested from the court, expenses for announcements, postal expenses to institutions and organizations, commissioner fee, concordat advance shall be paid by the plaintiff-creditor. If the expense advance determined by the concordat expense advance tariff is not paid, according to Article 115 of the code of civil procedure, the case will be rejected by rule and the temporary respite decision will be lifted.
For the temporary respite; the court will make a procedural review for the documents that shall be submitted by the party requesting concordat. Provided that the mandatory documents are fully submitted, the court shall decide for a temporary respite.
After decision for the temporary respite, measures will be taken by the court to protect the debtor’s assets. These measures are not limited with the conditions indicated in paragraph 2 of article 297 of the Bankruptcy and Enforcement Law. The judge may also take other measures if deemed necessary. For example; proceedings initiated or to be started against the debtor can be stopped by the court. An executive proceeding will not be carried out during the temporary respite period, meaning that the payment order will not be sent.
The temporary respite shall be decided as three months by the court. A two month extension might be made if requested within the temporary respite period. The two-month extension will be made at the request of the debtor or appointed temporary concordat commissioner. In addition to the request of the debtor the concordat commissioner shall also be consulted. The temporary respite can be up to five months.
Creditors; can request the rejection of the concordat request with a petition to the court within seven days of the announcement of the temporary respite decision. Evidence to prove that there is no reason for a concordat request must be included in the petition.
Just as the decision for temporary term to be extended for two months is taken within the temporary respite period, also the definite respite decision shall be taken within the temporary respite period.
Definite respite decision; shall be made at the hearing in the presence of debtor and the creditor requesting concordat. An interim report will be presented by the temporary commissioner, if the court deems it necessary; the temporary commissioner shall also be present at the hearing. The court examines the objections made by the claimants. If it is decided that the concordat will be successful after the hearing, the court will give the debtor a definite one-year respite period. If it’s not deemed necessary, the same commissioner will be assigned for the duration of the definite respite period.
Just like the temporary respite, by request of the court and the commissioner or if there is request only by the debtor, with the consultation of the commissioner, a six month extension shall be possible. A reasoned report will be presented in addition to the request of the concordat commissioner. If there is a board of creditors, the opinion of the board of creditors is also taken before an extension decision is made on the definite respite. The definite respite extension decision will be made within the definite respite period.
Before the affirmation of the concordat, if the financial conditions of the debtor improve during the definite respite period, the definite respite is lifted and the concordat request is revoked by the court. A hearing involving the debtor and the board of creditors is held to lift this term. A creditor requesting concordat is also present at the hearing.
During the respite period, no legal proceedings will be made against the debtor by the creditors and previously started proceedings will also stop. Even if a proceeding has started a payment order shall not be sent to the debtor. As the creditor will not lose the rights, the deduction of the time-limit and statutory limitation shall not be applicable. Decisions on cautionary judgment and provisional seizure will be inapplicable. The reason for all these precautions is so that the debtor is able to improve the conditions. By this way the creditors will be paid as agreed on upon. However, preferential creditors will be able to start proceedings during the period and continue proceedings initiated before the respite period. No interest will be charged for any receivables that are not provided with pledge unless otherwise agreed in the project. Pervious attachments determined before the concordat period shall continue. Pledgee-creditors will also be able to initiate proceedings by converting the pledge into money, limited to the amount of pledges provided, and continue previous proceedings.
The decision to approve or reject the concordat project must be made within the definite respite period. If it is deemed that the decision cannot be made within the definite respite period, it may be decided to continue the deadline for up to six months. The decision to approve the concordat project is made at the hearing.
Even if one of the creditors does not vote in approval of the concordat, and the concordat is approved, the creditor will also give up the part of the claim envisaged in the concordat.
There is a legal remedy against both the approval and rejection of the concordat. The time for appeals for the requesting party starts form the notification date of the request of concordat, and for demurrer-claimant starts from the time of decision for the approval.
As a result, the unused concordat process, although present in the bankruptcy-enforcement law, has become more effective with new the amendments and the removal of the postponement of bankruptcy. The concordat process was drafted to provide protection to debtors, in good faith, able to improve financially. The balance of interests of creditors and the debtor is the primary concern that should be present in this mechanism. Keeping track of procedures by the claimant and debtor during the concordat process will lead to better results.
Şengün & Partners Attorney Partnership