New System in Concordatum

With Changes Made By Law No 7101 New System in Ordinary Concordatum *

*Updated According to the Changes dated 06.12.2018.

As summarised in the table above, the processes regarding the ordinary concordatum, which was published in the Official Gazette dated 15.03.2018; and which was revised with the Law No. 7101 on Enforcement and Bankruptcy and the Law on Amendments on Some Laws will be examined under 7 main headings:

1. Concordatum Request
2. Provisional Respite Verdict
3. Final Respite Verdict
4. Creditors Meeting
5. Concordatum Approval and Announcement
6. Concordatum's Provisions and Consequences
7. Termination of Concordatum

What is Concordatum?

It is an agreement approved by the court between the debtor, whose financial situation is impaired, and the creditor, to pay their debts at a certain rate and deferral. There are three kinds of concordatum by law:

• Ordinary Concordatum
• Concordatum After Bankruptcy
• Concordatum by means of Abandonment of Assets

Our subject of investigation here is Ordinary Concordatum, which is the most preferred in practice (to be used in place of previous bankruptcy suspension). Ordinary concordatum is how the debtor or the creditor agree to the debtor among themselves how and how long the debtor negotiates and approves their agreement.

In short, ordinary concordatum is a court-approved debt restructuring agreement between ordinary concordatum parties. Creditors receive their receivables within the approved concordatum.

The concordatum acceptance process will take maximum 2 years and 5 months by law.

Provisional Respite Trial                            Final Respite                               Court Trial

3 MONTHS + 2 MONTHS                    1 YEAR + 6 MONTHS                MAX. 6 MONTHS

Conkordatum Request 

1. Who Can Request Concordatum?

DEBTOR: Any debtor (including natural persons and private companies) who are unable to pay their debts even if they are due, or who are at risk of not paying in due time, may request concordatum to pay their debts or to get rid of a possible bankruptcy by deferral or discount.

CREDITOR: Every creditor who can request a bankruptcy can request the initiation of the concordatum proceedings about the debtor with a reasoned petition.

2. Where is the Concordatum Request Submitted?

According to the old law, the request for concordatum was made to the executive court. However, with the law numbered 7101, a commercial court of first instance was appointed by making changes in their regard.

FOR DEBTOR SUBJECT TO BANKRUPTCY: The commercial court of the company where the headquarters of the company is located. Enterprise Centre located abroad, the company's commercial court of first instance where the central branch or other branches in Turkey.

FOR DEBTOR NOT SUBJECT TO BANKRUPTCY: The first commercial court in the settlement of the debtor.

Application Fee and Costs: Concordatum application is a relatively costly process. As a matter of fact, according to the Ministry of Justice expense tariffs, whoever makes the application, must pay certain expenses to the court cashier during the application in advance. In general, according to the 2018 tariff, there is an expense cost starting from 20.000,00 - 25.000,00 TL for natural persons and 35.000,00 - 40.000,00 TL for companies, which do not include financial advisors for the process such as attorney fees and project-independent auditing..

3. What are the Documents to be Added to the Concordatum Request? (Bankruptcy and Enforcement Law, Article 286)

a) Preliminary Concordatum Project: Through the capital increase or credit provision of the financial resource necessary for the debtor to pay the debts at what rate or in the maturity, to what extent the creditors will give up their debts, whether the debtor will sell their existing goods for making payments, to continue the activity of the debtor and make payments to the creditors; or a concordatum preliminary project showing that it will be provided using another method. For more detailed information  you can visit our website www.kulahukuk.com.

b) Documents showing the status of the assets of the debtor: For those who are obliged to keep books, the final balance sheet, income statement, cash flow statement prepared according to the Turkish Commercial Code, interim balance sheets prepared on the basis of the continuity of the enterprise and on the possible sales prices of the assets, opening and closing of commercial books e-book certificate information regarding books, which are created electronically with their approvals, other information and documents explaining the financial status of the debtor, lists belonging to tangible and intangible assets and containing book values, lists and documents showing all receivables and payables with their due dates.

c) List showing creditors, amount of receivables and concession status of creditors.

d) Table Comparing the Project Proposal and the Debtor's Assets: Table showing the amount that is foreseen to be received by the creditors according to the proposal in the preliminary project, and the probable amount that the creditors may receive in the event of bankruptcy.

e) Financial Reports Prepared by an Independent Audit Firm: The audit report, which is prepared by an independent auditing firm authorised by the Public Oversight, Accounting and Auditing Standards Authority and provides reasonable assurance that the proposal included in the preliminary project will be realised and its basis. Their report, which was previously compulsory only for those who were outside the small business, has become mandatory for anyone applying to the concordatum with the amendment dated 06.12.2018.

You can look at https://denkur.kgk.gov.tr/ for Authorised Independent Audit Firms.

A. Provisional Respite Verdict 

IF THE DEBTOR REQUESTS CONCORDATUM: If the documents described above in five items and which are required to be submitted together with the concordatum request, have been submitted in full time, the first commercial court immediately gives the debtor a provisional respite. If the documents are not complete, the request for the concordatum is rejected by the court.

IF THE CREDITOR REQUESTS CONCORDATUM: The provisional debt verdict is made by the Debtor in case the above-mentioned documents and records are fully and within the reasonable time to be given by the court. In their case, the cost of preparing the said documents and records is covered by the creditor. In case the documents and records are not submitted on time and in full, the provisional respite verdict is not made and the concordatum request made by the creditor is also rejected.

THE Provisional RESPITE GIVES THE RESULTS OF THE FINAL RESPITE (Their topic will be examined under “the final respite” topic)

Verdicts Made (Simultaneously) with a Provisional Respite Verdict

• Implementation Verdict of the Measures of Conservation:

If the court deems it necessary, it makes a verdict to protect the debtor's assets along with the provisional respite verdict.

• Verdict to Appoint a Provisional Commissioner:

Provisional commissioners or commissioners are appointed to examine the probability of concordatum success within the provisional respite immediately issued by the court. Thus, the debtor can continue their work under the supervision of the provisional commissioner. If there are 3 commissioners, one of the commissioners must be an independent auditor authorised by the Public Oversight, Accounting and Auditing Standards Authority. Commissioner number cannot be double digits. Therefore, it consists of either 1 or 3 people.

Duration of Respite

The provisional respite duration is by law three months. The court can extend the provisional respite for a maximum of two months upon the request of the debtor or provisional commissioner before the three-month period expires. The duration of the provisional respite cannot exceed five months.

If the request for extension is made by the debtor, the opinion of the interim commissioner must be obtained.

Duties of the Provisional Commissioner

The main duties of the provisional commissioner are:

• To supervise the debtor and participate in some transactions with the debtor.
• To continue the activities of the business by replacing the debtor.
• Keeping books on the current assets of the debtor and appreciating the value of the goods.
• To be ready to present the verdict regarding the value of pledged goods to the receivables.
• To prepare interim reports.

THERE IS NO LEGAL REMEDY AGAINST VERDICTS REGARDING:

-    THE ACCEPTANCE OF THE PROVISIONAL RESPITE REQUEST

-    THE APPOINTMENT OF THE PROVISIONAL COMMISSIONER

-    THE EXTENSION OF THE RESPITE AND,

-    MEASURES OF CONSERVATION.

Announcement and Notification of Provisional Respite

ANNOUNCEMENT: The provisional respite verdict by the court is announced in the Trade Registry Gazette and on the official announcement portal of the Press and Advertisement Agency.

NOTICE: The announced provisional respite verdict is immediately reported to land registry offices in the Trade Registry Directorate, tax offices, customs and postal administrations, The Banks Association of Turkey, Participation Banks Association of Turkey, local (city-county) chamber of commerce, industry chambers, transported exchanges, Capital Markets and to other departments where it is needed.

Appeal Against Provisional Respite Verdict

Creditors can apply to the court with a petition within seven days from the announcement date and request a rejection of the concordatum request. However, they must submit their evidence to the court along with their petitions.

Verdicts regarding the extension of the provisional respite and the rejection of the request for the concordatum by removing the provisional respite are also announced on the official announcement portal of the Trade Registry Gazette and the Press-Advertisement Institution and notified to the relevant places.

B. Final Respite Verdict 

In order to make a verdict about the final respite, the court invites the debtor and the creditor who requests the concordatum, if any, to the hearing. The provisional commissioner presents their written report prepared during the provisional respite before the hearing and, if deemed necessary by the court, is present at the hearing for their statement. In its evaluation, the court also takes into account the reasons for the objection raised by the appealing creditors in their petitions.

THERE IS NO LEGAL REMEDY AGAINST THE FINAL RESPITE VERDICT: It is not possible to take action against the verdicts regarding the rejection of the demand for the rejection of the respite request.

THERE IS A LEGAL REMEDY FOR THE REJECTION OF THE FINAL RESPITE VERDICT: If the refusal request is rejected, the debtor or the creditor who requests the concordatum can apply to the appeal within ten days from the notification of their verdict. The verdict of the district courthouse is final, after sending the verdict, it sends the file to the local court.

Duration of Final Respite

In the event that it is understood that it is possible for the concordatum to succeed, the debtor is given a final one-year respite.

With their verdict, the court gives a verdict that the provisional commissioner or commissioners will continue to work in the absence of a situation requiring a new appointment and submits the file to the commissioner.

In special cases with difficulties, the final respite can be extended by the court up to six months upon the commissioner's reasoned report explaining the situation and a request. The debtor may also request an extension; in their case, the opinion of the commissioner is taken.

In both cases, the request for extension is made before the final respite is reached, and the opinion of the creditors' committee, if any, is sought before making an extension verdict.

Results of the Final Respite Verdict

1- Results in terms of Creditors;

No follow-up, including previous follow-ups, can be made, and any follow-up that has already begun will cease, and interim injunctions and interim seizure verdicts will not be applied. The timeout and rights decreasing periods regarding the follow-up transactions do not work.

However, creditors whose receivables are pledged have priority rights over the sales amount. The tax, which must be taken from certain goods and mites from State proposals such as customs and mite tax, come after pledged receivables. PROSECUTION CAN BE MADE BY MEANS OF SEIZURE.

Unlike the confirmed concordatum project, if there is no provision, interest processing will stop on any receivables that have not been provided with a pledge since the final respite.

Article 188 of the HRC (bankruptcy provisions) is applied to the extent that it fits the nature of the foreclosed goods.

If the transfer of a future receivable contract has been made before the concordatum respite is given and the transferred receivable was born after the concordatum respite, their transfer is null and void.

Non-money-related receivables are converted to the commissioner by the creditor by converting them to receive money of equal value. So far, the debtor is free to undertake the same performance of the commitment with the approval of the commissioner.

2- Consequences in terms of Pledged Creditors;

Due to the receivables obtained with pledge during the respite, the follow-up may be initiated or the proceedings may be continued by turning the pledge into money, but due to their follow-up, the conservation measures cannot be taken and the sale of the pledged goods cannot be made.

3- Consequences in Terms of Contracts;

Regardless of whether the counter-party of the contract is affected by the concordatum project or not, The provisions stating that the debtor is a party and which is important for the continuation of the operation of the enterprise and that the debtor's request for concordatum will constitute a contradiction to the contract, do not apply if the debtor applies for the concordatum. Even if there is no such provision in the contract, the contract cannot be terminated on the grounds that the debtor applied for concordatum.

The debtor may terminate its ongoing debt relationships to which it is a party and which prevents the concordatum from achieving its goal, at any time, with the approval of the commissioner and the court's approval. The compensation to be paid within their framework is subject to the concordatum project. Special provisions regarding the termination of service contracts are reserved.

4- Consequences in terms of Debtors;

The debtor can continue their work under the supervision of the commissioner. However, when giving a respite verdict or within the respite, the court may give a verdict that certain transactions should only be carried out with the permission of the commissioner, or that the commissioner will continue the operation of the enterprise instead of the debtor.

The debtor cannot establish a pledge, warrant, immovable, or transfer the permanent installation of the enterprise, even partially, without any permission, without the permission of the court. Otherwise, the transactions are null and void. The court must obtain the opinion of the commissioner and the creditors' board before deciding on these procedures.

If the debtor acts against their provision or the commissioner's remarks, the court may remove the debtor's power of disposition on the property of the debtor or give a verdict under Article 292.

Creditors’ Board And Its Duties

A court of creditors can be created by the court together with the final respite verdict or at a later time (within the final respite).

Their board;

• Consists of a maximum of seven creditors,
• They will be a free board member,
• It will consist of an uneven number of members.

The creditors' board meets at least once every month and makes verdicts by majority vote of those present. The Commissioner shall attend the meeting and report the verdicts taken by taking the signature of the participants. In some cases, the establishment of creditors board is mandatory. These situations are shown in the regulation enacted by the Ministry of Justice.

Its Duties Are as Follows;

The creditors' board oversees the commissioner's activities; they can advise the commissioner and, if required by law, gives their opinion to the court.

If the creditors do not find the commissioner's activities sufficient, they can ask the court to replace the commissioner with a reasoned report. The court gives a verdict on their request after hearing the debtor and the commissioner. For further information about the creditors' board, detailed information can be obtained from www.kulahukuk.com.

C. What are the Duties of the Concordatum Commissioner?

The Duties of the Commissioner Appointed During the Final Respite are as follows;

a) To contribute to the completion of the concordatum project,

b) overseeing the activities of the debtor,

c) To perform the duties given by their law,

d) Submitting interim reports on matters requested by the court and as deemed appropriate,

e) To inform the creditors' board regularly about the course of the concordatum,

f) To inform the other creditors who make the request about the course of the concordatum and the current financial situation of the debtor,

g) To fulfil other duties assigned by the court.

• Debtors or creditors can complain to the commissioner of the commercial court of first instance, which has made a final respite verdict on the commissioner's operations regarding the concordatum. The verdicts made by the court regarding the complaint are final, that is, they cannot resort to any other legal remedy.
• A person cannot serve as a provisional commissioner and commissioner in more than five files simultaneously.
• The provisional commissioners and commissioners appointed by the court are notified to the regional court of experts of the district courthouse where the court is affiliated to be recorded in their special registry.

D. Bookkeeping and Appraisal of Goods

The commissioner, who took part in the final respite process, makes a book of the debtor's presence and decides the assets and submits their report to the court, the court repairs or refuses the appraisal.

The appraisal verdict on pledges and other goods is notified to pledged creditors and the debtor prior to the meeting of the creditors.

Relevant persons may ask the court to reaffirm the value of the pledged goods within seven days and at the expense of the cost.

If the new appraisal has been requested and decided by a creditor, the creditor can request the payment of the expenses from the creditor.

The appraisal of the pledged immovable property under their article may be made to those authorised by a real estate valuation expertise license.

E. Notification of the Creditors and the Statement of the Debtor

An announcement is made by the Commissioner in the Trade Registry Gazette and on the official portal of the Press and Announcement Institution to inform the creditors of their receivables. They must declare that they will receive it within fifteen days from the relevant announcement date. In addition, one copy of the declaration is sent by mail to the creditors with an address.

Creditors who do not report their receivables based on the announcement cannot participate in the negotiations of the concordatum project unless their receivables are registered in the balance sheet.

After the creditors report their receivables, the commissioner invites the debtor and also listens to the debtor's statements about the reported receivables.

F.  Abolition Of The Final Respite After the Final Respite Verdict is Given

1- The Abolition of the Final Respite due to the Improved Financial Status of the Debtor

Upon notification to the court with the commissioner's written report that the intended improvement with the concordatum request was made before the end of the final respite, the court gives a verdict to reject the concordatum request ex officio. Their verdict is announced on the official portal of the Trade Registry Gazette and Press-Advertisement Agency.

2- Opening the bankruptcy with upon rejection of the concordatum request within the final respite:

With regard to the debtor who is subject to bankruptcy, the court gives a verdict ex officio the rejection of the concordatum request and the bankruptcy of the debtor, by removing the final respite, upon the commissioner's written report, in case the following conditions occur after the final respite:

a) If bankruptcy must be filed to protect the debtor's assets,

b) If it is understood that the concordatum cannot succeed,

c) If the debtor acts against the law (establishing a pledge, forgiveness, being a guarantor, transferring the property of the enterprise) or if it is understood that he is acting in order to damage the creditors of the commissioner's instructions or the debtor,

d) A capital company or cooperative that appears to have been submerged in debt waives the request for concordatum.

In the case of the debtor who is not subject to bankruptcy, in case the events in paragraphs (b) and (c) of the first paragraph take place after the final respite is given, the court gives a verdict upon the rejection of the concordatum request by removing the final respite.

The court invites the creditor and creditors' committee, if any, requesting concordatum, before the verdict under their article; it invites other creditors if it deems necessary.

Verdicts regarding the final respite, the extension of the final respite and the rejection of the demand for the concordatum by removing the final respite are also announced on the official announcement portal of the Trade Registry Gazette and the Press-Announcement Institution and notified to the relevant places.

Creditors' Meeting 

A. What is Creditors’ Meeting?

The purpose of their meeting is to provide the necessary majority to accept the concordatum project between the parties.

As explained earlier, the concordatum is primarily an agreement between the parties on how and how long the debtor will pay off their debts. After the parties agree, the concordatum project is approved by the court and after its approval, it will have its consequences.

The commissioner chairs the meeting and reports on the condition of the debtor. The debtor must be present at the meeting.

In order to establish a concordatum project between the parties, the majority of creditors and receivables are stipulated by law. Only the creditors affected by the concordatum project can take part in the voting. The concordatum report, which was formed as a result of the negotiations (meetings) of the concordatum project, is signed immediately, including the acceptance and rejection votes.

B. What is the Wanted Majority?

The agreement is deemed to be accepted only when signed by a number of people exceeding the;

a) half of the registered creditors and receivables or

b) One-fourth of registered creditors and two-thirds of receivables,

Even if they vote at the meeting, the creditors of the privileged receivables (worker receivables, SSI receivables, etc.) and the debtor's spouse and child, and even if he and their marriage bond have disappeared, the mother, father and brother of the spouse are not taken into account in the account of the majority of the creditor and creditor.

As a result of the verdict made by the commissioner for the receivables that are provided with pledges, the part that remains unsecured is taken into consideration for the majority of the creditor and the creditor.

The court gives a verdict whether to take into account whether or not to take into account controversial or delaying conditions or receivables subject to an undetermined term.

**This study is prepared by Kula Law Office. Please contact by e-mail ([email protected]) or call at +902324350604 for publication of the article in other channels, detailed information and questions about the subject.