A New Era for Companies Instead of Bankruptcy Postponement: Composition with Creditors

Legal Aspects

Law No. 7101 on Amendments to the Enforcement and Bankruptcy Law and Certain Other Laws was adopted on February 28, 2018, and entered into force upon its publication in the Official Gazette No. 30361 dated March 15, 2018.

Scope of the Law

The Enforcement and Bankruptcy Law No. 7101, enacted to clarify the relationship between debtors and creditors , sets out the principles to be followed during the execution of these activities. In debt-credit transactions carried out under this law:

• The procedure to be followed,
• The time required for the transactions to be completed,
• How the appeals mechanism works in activities deemed illegal
• The process of bankruptcy proceedings,
• Seizure procedures involve many issues, such as determining sales transactions

Function

A concordat, which is a contract approved by the court, is essentially an agreement between debtors and creditors due to the deterioration of the debtors' economic structure, according to which creditors collect their debts according to a specific plan.

In summary, a concordat allows financially distressed companies to restructure their debts, thereby providing them with opportunities to repay their debts.

The Aspect of Concordat in Turkish Law

In Türkiye, concordat procedures have not been actively implemented during the last 12 years that the "bankruptcy postponement" institution has been in use.

With the amendments made to the Enforcement and Bankruptcy Law, companies experiencing economic difficulties have been given the opportunity to apply for a concordat as an interim solution. In its current form, it allows for a debt repayment agreement for good-faith debtors who, due to reasons beyond their control, cannot finance all their debts. This agreement provides the debtor with the opportunity to repay their debts according to a payment schedule, with the possibility of extending the payment period or receiving a reduction in the amount owed. However, the newness of the law and the lack of clarity in certain aspects have contributed to the development of some practical problems.

One of these situations is the issue of "temporary moratorium." With the concordat regulation, a new institution called the temporary concordat moratorium has been established, not exceeding five months, and within this scope, protection is provided by law to debtors acting in good faith. It is stipulated that this period will be considered "temporary," provided that it does not exceed five months with extensions. With the deactivation of bankruptcy proceedings, which were applied in the past, the concordat practice has become actively used and has become an important institution resorted to by companies experiencing economic difficulties.

Time Limits in Concordat Proceedings

A significant amendment has been made to the law regarding the duration of concordat proceedings, of "temporary concordat moratorium ." This temporary moratorium, which produces the same results as the definitive concordat period, is generally three months long, but can be extended by another two months.

If the concordat is deemed successful, the definitive one-year grace period granted to the debtor may be extended by up to six months in special circumstances.

The debtor or the creditor requesting the concordat may appeal the decision within 10 days of its notification, while other objecting creditors may appeal within 10 days of the announcement of the confirmation decision; an appeal to the Supreme Court may be filed within 10 days against the decision of the Regional Court of Appeal.

The law states that simplified trial procedures will be applied in commercial cases involving amounts below 100,000 TL. Furthermore, to ensure that trials are completed within a reasonable timeframe, the expert's term of duty in cases and matters subject to simplified trial procedures is set at two months

At this point , it would be beneficial to seek advice from an experienced Bankruptcy and Enforcement Law Attorney for more detailed information