Suspension of bankruptcy requests were temporarily suspended until the end of the state of emergency period with the Decree Law numbered 669 and dated July 31, 2016. Thereafter, the Law Amending the Code of Execution and Bankruptcy Law and Other Laws numbered 7101 and dated March 15, 2018 entered into force and permanently abolished the suspension of bankruptcy system while also introducing amendments to the concordatum procedure.
I. LEGAL BACKGROUND
Decree Law numbered 669 and dated July 31, 2016 (published in the Official Gazette dated July 31, 2016 and numbered 29787) (the “Decree”);
Law Amending the Code of Execution and Bankruptcy and Certain Laws numbered 7101 (published in the Official Gazette dated March 15, 2018 and numbered 30361) (the “Law”);
Code of Execution and Bankruptcy numbered 2004 (published in the Official Gazette dated June 19, 1932 and numbered 2128) (the “Code”);
Turkish Commercial Code numbered 6102 (published in the Official Gazette dated February 14, 2011 and numbered 27846) (the “TCC”).
II. SUSPENSION OF BANKRUPTCY
In previous system before the Decree, there were three instruments that an insolvent company could request; restructuring, suspension of bankruptcy and concordatum. In our experience, the most common instrument to avoid bankruptcy among these instruments was suspension of bankruptcy in the last decade.
Suspension of bankruptcy is an instrument where companies or creditors were able to request suspension of bankruptcy from the court by providing a detailed recovery project proving that the company has the potential to economically recover. However, suspension of bankruptcy instrument was temporarily suspended with the Decree. According to the Article 4 of the Decree; during the period of state of emergency, corporations and cooperatives cannot demand suspension of bankruptcy according to the Article 179 of the Code; such demands shall be rejected by the Courts.
Upon publication of the Law abolished suspension of bankruptcy and introduced the renewed version of the concordatum.
According to the Code; concordatum is an agreement executed in order to rescue debtors from insolvency through restructuring of debts and aims to improve financial situation of the other debtors and ensures that the creditors receive their receivables with a certain discount or in instalments and becomes binding for both parties upon approval of the court. Capital stock companies, cooperatives or non-merchants may apply for concordatum. According to Article 285 of the Law, creditors who may claim insolvency may also request concordatum with a reasoned petition.
A. TYPES OF CONCORDATUM
There are two types of concordatum; private concordatum and judicial concordatum. Private concordatum is where the debtor and creditors enter into an agreement regarding liquidation of debts and the agreement shall only be binding for the parties of the agreement.
Judicial concordatum is the official concordatum type and it shall be binding for the registered creditors. There are three types of judicial concordatum; the ordinary concordatum, the concordatum after the bankruptcy and the concordatum through asset abandonment.
The Ordinary Concordatum
The ordinary concordatum can be requested by the debtor or the creditor and in order to apply a concordatum request should be filed through a petition and accompanying documents such as concordatum pre-project and debtor’s financial information shall be submitted to the competent court.
There are two types of term granted by the court for concordatum; temporary and definitive. Temporary term shall be subject to the same conditions as the definitive term.
Upon receipt of the concordatum request, the court shall evaluate whether or not temporary term for concordatum shall be granted along with the provisionary appointment of commissioner. The temporary concordatum term shall be 3 months but the court may decide to extend for 2 more months. However, in total the term shall not exceed 5 months. Following the court’s decision, the temporary term shall be announced at the Trade Registry Gazette and notified to related parties. Otherwise, if the court does not foresee potential improvement in the debtor’s financial position or estimate that the concordatum will not be approved, may decline the temporary term request.
The competent court shall evaluate the reports and decide whether or not definitive term shall be granted during the temporary term. The definitive term shall be 1 year and shall not exceed 18 months including the extension period. The court’s decision on definitive term shall also be published in Official Gazette and notified to related parties.
The court may also decide to form a board consists of creditors but on the condition that the number of the members shall not exceed 7 to whom no payment will be made. Board of creditors shall meet at least once in a month and adopt decisions with the majority of votes. Appointed commissioner shall prepare a meeting minute and collect signatures from the attendees. Board of creditors shall also audit commissioner appointed by the court and if they decide that the commissioner is insufficient they may request change of the commissioner from the court.
In order to attend concordatum negotiations, creditors shall notify their claims within 15 days starting from the announcement of the definitive term.
Significant consequences of the concordatum for creditors, secured creditors, agreements that the debtor is a party are mentioned below.
- Within the temporary term or definitive term no execution proceeding can be initiated and no execution measure can be obtained against the debtor, former execution proceedings shall not continue except for the employee receivables and family maintenance payments related to last 1 year.
- Secured creditors may initiate or continue execution proceedings but it will not be possible to sell the pledged goods or obtain protective measure.
- Unless otherwise agreed in the concordatum project interests will not accrue on unsecured claims.
- In case the debtor has executed agreements with a third party, including clauses which set forth that a concordatum request shall constitute violation of the agreement, cause termination or cause financial burden to the debtor those clauses shall not be enforced. Also, the debtor may have a right to terminate the agreement upon the approval of the court.
- The debtor shall continue its regular activities under the supervision of the commissioner. However, unless approved by the court, the debtor shall not have a right to pledge its assets, dispose any part of its immovable assets that are important to its activities.
The court decisions granting temporary or definitive term of concordatum or the request for cancellation of definitive term are not appealable. However, courts rejection decision of the definitive term or approval of the concordatum decisions are appealable.
The Concordatum After the Bankruptcy
The concordatum after the bankruptcy applies for the debtors who are already bankrupt. The debtor applies for such process in order to liquidate his/her debts in scope of the payment offer and to have power of disposition over the assets. Also, the debtor aims to rescue from the restrictions stipulated by public law and to regain its business reputation.
In this type of concordatum, there is no term or commissioner. The officer of administration of bankruptcy shall act as a commissioner and perform its duties. The debtor shall submit the request regarding concordatum to the administration of bankruptcy in order to discuss at the second creditors meeting or afterwards. Receivables shall not be determined or order table shall not be prepared beforehand.
The Concordatum through Asset Abandonment
In this type of concordatum the debtor transfers its power of disposition and transfer rights of assets to the creditors and aims to get discharged from debt and consequences of bankruptcy. The debtor will no longer have power of disposition on its assets.
The information provided in this article is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. The information is not intended create, nor does receipt of it constitute, an attorney-client relationship.
For any questions regarding the article, please contact us: