What is a concordat?

What is a concordat and how to apply for one?

1) The Purpose and Legal Framework of a Composition Agreement

A concordat is a bankruptcy avoidance and restructuring mechanism designed to allow the debtor business to continue operations, protect employment, and satisfy creditors to a greater extent than in bankruptcy . The basic principle of the institution is as follows: The debtor offers to pay its debts over a period of time and/or with a discount, through a structural and financial recovery plan submitted to the court; new debt collection proceedings are limited throughout the process , the business is given breathing room, and the effectiveness of the plan is tested through independent auditing, oversight by the concordat commissioner, and the court.

In this explanation, the relevant provisions are summarized without quoting verbatim , based on the specific regulations of the Enforcement and Bankruptcy Law regarding concordat (Articles 285 and onwards) .

2) Who can apply for a composition with creditors?

Debtor: Anyone, whether a merchant or not, who is unable to pay their debts on time or is clearly at risk of being unable to pay them, can request a concordat. In practice, the institution's main target audience commercial businesses; however, its scope is not limited to this.
Creditors: Creditors with the right to initiate bankruptcy proceedings can also file a request for a composition with creditors against the debtor. This approach allows creditors to act collectively in the event of the debtor becoming inactive.

3) Competent and Authorized Court

A request for a concordat is made to the Commercial Court of First Instance . The general principle regarding jurisdiction is that the place of business is taken as the basis for debtors subject to bankruptcy proceedings , and the place of residence for those not subject to bankruptcy proceedings . In practice, for group companies and foreign-based companies with branches in Turkey, the determination of jurisdiction should be clarified from the outset; in cases of doubt, all evidence should be presented systematically in the petition.

4) Application Strategy: A Seriousness Test for a Second Chance

A concordat is not a tool for "buying time" that is open to abuse. The court and the commissioner conduct a rigorous scrutiny of the plan, examining aspects such as its veracity , the practicality of cash flow forecasts , the accurate representation of debt/asset quality , the management plan for secured receivables , and sustainability . Therefore, honest answers to the following questions must be provided before filing:

Can my business model generate positive cash flow after bankruptcy proceedings?
only a payment term , or a discount also mandatory?
secured receivables ? What is my proposal for the partially unsecured portion?
disputed receivables and litigation risks affect the project?
How will operational discipline be maintained after certification ?

Convincing answers to these questions will determine the fate of the case.

5) Essential Documents Required for Application

A well-structured bankruptcy filing rests on the following main pillars:

Preliminary Draft of Bankruptcy Proceedings
- Debt categories (secured/unsecured, preferential, public, defaulted, etc.) should be separated.
- The amount to be paid , the payment term , and any discount rate should be clearly stated for each category
- There should be a comparison table that compares the potential collections creditors can expect in a bankruptcy scenario with the composition proposal .
- Cash flow projectionsshould include sales and profitability assumptions, financing requirements, inventory turnover ratios, and currency/financing cost sensitivity analyses (e.g., impacts of 10-20% deviations).
Financial Statements and Interim Balance Sheets
- The latest balance sheet and income statement; monthly/quarterly trial balance summaries if possible.
- Valuation approach for inventory, receivables and fixed assets ; doubtful receivables provision policy.
- If there is a consolidated structure, then the domestic debt/receivables balance.
Creditor List
- For each creditor, amount, legal nature, priority/lien status, maturity date , and default information.
- If there are transferor, recourse, or endorser relationships, the chain of transmission must be clearly shown.
Independent Audit Report (Reasonable Assurance)
- Audit results regarding the accuracy of the financial data and the reasonableness of the assumptions in the project.
- The standard , scope , and limitations of the report should be clearly stated in the document.
Other Supporting Documents
- Pledge agreements, mortgage deeds, appraisal reports, business licenses, important contracts (allocation, dealership, supply, franchise, etc.), licenses and trademark/patent documents.
- Summary table of major cases and enforcement proceedings (case value, stage, likely outcome).
Procedural Requirements
- advance fees and court costs, and coverage of notification/publication expenses.
- Internal decisions demonstrating power of attorney and representation authority (especially management/representation decisions in companies).

6) Stages of the Process

A) Temporary Stay

If the application is deemed complete and sufficient , the court will issue a provisional stay order and appoint one or more provisional commissioners . In practice, this leads to three main outcomes:

Prohibition of enforcement proceedings: As a rule, no new enforcement proceedings can be initiated against the debtor; ongoing proceedings are suspended.
Special regime for collateral: Transactions involving the liquidation of collateral are restricted; enforcement actions such as sale and preservation are suspended.
Supervision of the commissioner in transactions: The debtor conducts its ordinary commercial activities; transactions exceeding the ordinary are subject to the commissioner's approval.

The temporary moratorium acts like a safety net, testing the plan's consistency in a "laboratory setting." During this period, cash flow must be disciplined, unnecessary costs eliminated, negotiations with secured creditors must be conducted on a reasonable basis, and the debt notification process must be managed correctly.

B) Definitive Deadline

A final deadline may be granted following the commissioner's initial assessment and the court's review . This period is essentially during which the project is discussed and voted on by the creditors . The commissioner;

It manages the process of reporting and investigating receivables .
the valuation and collateral assessments, as well as the margins for collateral.
They organize creditors' meetings and submit their reports to the court

The prohibition of prosecution, the supervision of the commissioner, and the fundamental principles regarding the execution of contracts also remain in effect throughout the specified period.

7) Accounts Receivable Notification, Meeting and Voting

Notification : Creditors notify their claims within the period specified by announcement (and additional notification for those whose addresses are known) . Creditors whose claims do not appear in the balance sheet and who fail to notify within the specified period are, as a rule, ineligible to participate in negotiations.
Meeting: Chaired by the commissioner; the debtor presents their plan and arguments for recovery. Secured creditors participate in a vote on the portion for which they remain unsecured.
Quorum for Acceptance : The law adopts a two-alternative majority system. The concordat is considered "accepted" when one of these is met .
1. A simple majority (more than half) in the number and amount of creditors,
2. One quarter in the number of creditors + two thirds in the amount owed.

In practice, the strategy is based on developing “ class-based ” persuasion plans, taking into account the heterogeneous nature of creditors , establishing early agreements in principle with key creditors, and managing the expectations of secured creditors in line with the collateral

8) Consequences of the Grace Period: Proceedings, Contracts, Interest, and Procedures

Prohibition of Enforcement Proceedings: During the temporary and definitive moratorium period, no new enforcement proceedings can be initiated against the debtor; ongoing proceedings are suspended. Special regimes apply to privileged claims and secured claims.
Interest and Ancillary Charges: Interest accrual is limited, particularly for unsecured receivables. This makes the financial projection of the plan more predictable.
Contracts : The debtor may continue its ordinary business operations ; however, commissioner's permission is required for extraordinary transactions . Maintaining critical contracts such as supply and dealership agreements is a priority for the survival of the business.
Employment: Job losses impair the sustainability of the plan; therefore, payroll management and production/service continuity are within the commissioner's purview.
Pledgees: Steps such as sale/custody in the process of converting the pledge into money are protected under the moratorium; however, the priority of the collateral is preserved, and negotiation is encouraged based on reasonable collateral.

9) Confirmation Stage: Court's Review Criteria

Even if a majority of creditors has been secured, the court will also review the following substantive criteria :

Comparative Advantage: Does the plan offer a better outcome for creditors than they would in the event of the debtor's bankruptcy?
Realism and Proportionality: Do the offered discounts and terms align with the borrower's resources and business model?
Protection of Prioritized Claims: Is the full and timely payment of priority claims legally guaranteed?
Payment of Costs: Have the court costs and statutory fees been covered?
Compliance with Procedural Processes: Were the notification, objection, and voting procedures carried out without errors?

These filters ensure that concordat is allocated only to “viable” projects

10) Types: Ordinary Composition Agreement and Composition Agreement by Surrender of Assets

Ordinary Composition with Creditors : Debts are paid off with a grace period/discount; the business continues operating . The strategy is based on operational improvement by strengthening operating profitability and cash flow
Composition with Creditors through Surrender of Assets : The debtor relinquishes their assets to creditors for liquidation; liquidators and the creditors' committee manage the process. This type of arrangement aims for orderly and transparent liquidation in businesses that can no longer continue their operations

11) Implementation Roadmap (Step-by-Step)

Step 1 – Preparation

Financial data is cleaned up; the preliminary project is finalized.
A cash flow projection is generated; conservative and stress-tested scenarios are included.
independent auditing firm is contracted; data is consolidated prior to the audit.
Preliminary discussions are held with secured creditors and critical suppliers to explore a realistic basis for agreement.

Step 2 – Application

to the competent Commercial Court of First Instance with a petition, supporting documents, and advance payment for expenses .
To improve file readability, attachments category folders (A-Preliminary Project, B-Financial Statements, C-Creditor Lists, etc.).

Step 3 – Temporary Stay Management

Transparent communication with the commissioner; weekly cash flow reports; for transactions requiring authorization .
Gathering responses to debt collection requests; preparing expedited evidence for disputed debts.

Step 4 – Final Deadline and Meeting

Valuations and collateral margins are updated.
Prior to the vote, a written agreement in principle is reached with key creditors
Creditor communication is conducted in presentation, table, and FAQ formats .

Step 5 – Certification and Implementation

Following the approval decision, the payment schedule and reporting discipline will be put into effect.
The consequences of a breach and the backup measures that will be activated "in the event of a default" are defined at the contractual level.

12) Advantages and Risks for SMEs

Advantages

The pressure to track is reduced; daily operations are maintained.
Supply and customer relationships can be maintained through a “controlled restart”.
The aim is to achieve higher creditor satisfaction compared to bankruptcy .

Risks

Overly optimistic plans quickly cash flow problems .
If secured receivables management is weak, certification becomes difficult.
If transparency cannot be ensured in communication with the commissioner, trust will be eroded.

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