This is the English version of an article originally published in Turkish: Konkordato İlan Eden Şirket Karşısında Haklarınız.
When a Turkish customer in financial difficulty applies for concordat (konkordato), its creditors, including foreign suppliers, suddenly find that they can no longer enforce their claims in the usual way. Concordat is governed by the Enforcement and Bankruptcy Law (No. 2004, “İİK”). A creditor who follows the court’s announcements and acts within the time limits keeps its rights and its voice in the process. A creditor who waits passively may lose both. This article explains what happens and what a creditor should do.
What concordat is
Concordat is, in essence, a court-supervised debt restructuring arrangement. The debtor company applies to the court for a moratorium (mühlet) in order to restore its financial position. If the court accepts the request, it grants a temporary moratorium and appoints a commissioner, or a panel of commissioners, to supervise the company’s financial records. During this period the company is protected from enforcement. For creditors, this is not a time to remain passive but a time to secure their position in the file.
Temporary and final moratorium
The court first grants a temporary moratorium of three months, which can be extended by a further two months if necessary. The process then moves to the final moratorium of one year. During these periods:
- no new enforcement proceedings can be started against the debtor;
- pending enforcement proceedings are stayed;
- precautionary attachment orders (ihtiyati haciz) are not enforced;
- as a rule, interest stops running on ordinary unsecured claims, which affects the real value of the claim.
Certain privileged claims fall outside these restrictions. Employee receivables and maintenance claims can still be enforced, and special rules apply to creditors holding a pledge or mortgage.
The temporary moratorium is announced publicly and notified to the relevant authorities. Under Article 288 İİK, the announcement also states that creditors may, within a strict period of seven days from the announcement, file a petition with evidence arguing that there are no grounds for granting a moratorium, and ask the court to reject the concordat request.
Declaring your claim
The commissioner invites creditors by public announcement, usually published through the Press Advertising Agency (Basın İlan Kurumu), to declare their claims. A 15-day period runs from the announcement. Missing it has serious consequences: a claim that is not declared is not taken into account in the concordat project and the creditor loses its vote.
The declaration should be supported by every document that proves the claim, such as invoices, cheques, promissory notes and contracts. Incomplete documents delay the process, and an inaccurate declaration can later be used against the creditor. If the claim is disputed, the creditor’s right to challenge that position is preserved. Creditors based abroad should allow time for translations and apostille formalities, which add cost and delay.
Cheques and promissory notes
Cheques must still be presented to the bank within the legal presentation period; otherwise they risk losing their legal character. For promissory notes, protest records the existence of the claim officially. The originals of these instruments should be kept safe and copies attached to the declaration. They are the main evidence of the amount and maturity of the claim.
The creditors’ committee
Where the court considers it necessary, it forms a creditors’ committee. The committee supervises the commissioner’s activities, monitors the company’s spending and business, and is consulted on important decisions. Membership is a strategic advantage, since it gives closer insight into the debtor’s assets, but it also brings responsibility towards the other creditors. Committee members should attend meetings, review reports and, where the commissioner acts improperly, complain to the court.
Voting on the concordat project and court approval
The concordat project sets out how the debts will be paid. Creditors are called to a meeting to vote on it, and both the number of creditors and the amount of their claims count. If the required majorities are reached, the project is submitted to the court. Once the court approves it, the project binds all creditors.
Before voting, a creditor should assess whether the company can realistically make the proposed payments. If the project is inadequate, the creditor can vote against it and should have its objections recorded in the minutes. Those objections will be the basis of its position before the court at the approval stage, and should be supported by concrete figures.
Rejection of concordat and bankruptcy
If the court does not approve the concordat and the company is found to be insolvent, it declares the company bankrupt. All the company’s assets then pass to the bankruptcy estate, creditors must register their claims with the estate, and the assets are sold and the proceeds distributed in the statutory order of ranking. Ordinary unsecured creditors usually recover only a small proportion of their claims in bankruptcy. For this reason, reaching an arrangement at the concordat stage is sometimes the better outcome for a creditor.
Practical steps for creditors
- Find out the court file number and the identity and contact details of the commissioner.
- Consider whether to object within seven days of the announcement of the temporary moratorium.
- Collect the documents proving the claim and declare it within the 15-day period.
- Follow the moratorium decisions and read every report filed in the case.
- Notify the court by petition of any deficiencies you identify.
- Attend the creditors’ meeting in person or through a representative.
- Plan your own cash flow on the assumption that the process may take a long time.
Frequently asked questions
Can I start enforcement proceedings against a company in concordat? Not after a temporary or final moratorium has been granted. Proceedings already started are stayed.
What if I miss the 15-day period for declaring my claim? The claim is not taken into account in the concordat project and you lose your vote.
Are employee claims affected by the moratorium? Employee receivables are privileged claims and can be enforced during the moratorium.
Who is the concordat commissioner? An independent person appointed by the court to supervise the company’s finances and act as a link between the creditors and the debtor.
More information for foreign clients: English-speaking lawyer in Ankara.
This article provides general information on Turkish law and is not legal advice. Outcomes depend on the facts of each case.
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