Composition with Creditors (Konkordato) Process

Concordat (konkordato) is a restructuring procedure that allows a debtor in financial distress to agree with its creditors on a court-supervised payment plan. The goal is to keep the business operating without pushing it into bankruptcy, and to pay creditors more than they would receive in a bankruptcy. Because the process involves technical documents, short deadlines and many parties, it is important to plan it together with a concordat lawyer.

Concordat does not concern only the debtor. Once a moratorium is granted, enforcement proceedings are stayed, and creditors must make important decisions such as registering their claims, objecting to the draft plan and voting. On this page, we walk through the process step by step from the perspective of both sides.

Who can apply for concordat?

Under the Enforcement and Bankruptcy Law (İİK), any debtor who is unable to pay its debts when they fall due, or who is at risk of being unable to pay them when due, may apply for a concordat moratorium. Concordat is not limited to merchants; in practice, however, it is most commonly used by companies and commercial businesses. A creditor who is entitled to request the bankruptcy of a debtor subject to bankruptcy may also apply for concordat by attaching the required documents.

As a rule, the application is filed with the commercial court of first instance at the location of the management center for debtors subject to bankruptcy, and at the place of residence for debtors not subject to bankruptcy. The court assesses the likelihood that the concordat will succeed; it should be kept in mind that requests with no clear prospect of success may be rejected.

Documents required for the application

The seriousness of a concordat request is measured by the documents attached to the petition. The main documents listed in the law are as follows:

• A preliminary concordat draft plan showing the debtor's financial position and payment proposal,
• Documents showing the financial position, together with an up-to-date balance sheet and income statement,
• A detailed list of assets and receivables,
• A list of creditors, including privileged creditors, and the amounts of their claims,
• A reasoned report prepared by an independent audit firm on the feasibility of the payment proposal in the preliminary draft plan,
• A comparative table showing the amount creditors could obtain through bankruptcy if the concordat is rejected.

Inconsistent or incomplete documents can lead to an unfavorable outcome right at the start of the process. For this reason, close coordination is needed between the financial advisor, the independent audit firm and the legal team. At the time of application, the concordat expense advance set out in the Ministry of Justice tariff must also be paid.

The timing of the application is just as important as the documents. When applications are made after enforcement proceedings and seizures have intensified, the cash flow needed to keep the business running has often already run out. When the first signs of payment difficulty appear, the debt structure, the distribution of creditors and the business's revenue outlook should be examined together to determine whether concordat or a direct restructuring negotiation with creditors is more appropriate. For other protective steps in commercial relationships, you can also take a look at our Commercial Law page.

Provisional moratorium and final moratorium

If the request is procedurally in order, the court grants a three-month provisional moratorium without delay and appoints a provisional concordat commissioner. Where necessary, the provisional moratorium may be extended by two more months. During this period, the commissioner supervises the debtor's business and reports on whether the concordat is likely to succeed.

If the commissioner's report is favorable, the court grants a one-year final moratorium. If the circumstances of the case require it, the final moratorium may be extended by a further six months. At the final moratorium stage, a concordat commissioner is appointed; if deemed necessary, a creditors' committee may also be formed.

Consequences for the debtor and creditors during the moratorium

The most important effect of the moratorium decision is that no new enforcement proceedings can be initiated against the debtor and proceedings already begun are stayed. Precautionary attachment and injunction orders are likewise not enforced during this period. Secured creditors may initiate or continue enforcement through realization of the pledge; however, during this period no preservation measures can be taken and no sale can be carried out.

During the moratorium, the debtor continues to operate its business under the commissioner's supervision. Significant transactions such as transferring or encumbering real property, providing guarantees and making gratuitous dispositions cannot be validly carried out without court permission. A moratorium decision also does not mean that the counterparties to the debtor's contracts automatically gain the right to terminate them.

Creditors' meeting, approval majority and court confirmation

The commissioner invites creditors to register their claims and holds a meeting based on the registered claims. The concordat draft plan is deemed accepted if it is approved by a majority exceeding half of the registered claims in both number and amount, or by one quarter in number of the creditors who represent two thirds of the claims in amount.

The court then holds a confirmation hearing. The court examines whether the proposed payment exceeds what would be obtained in a bankruptcy, whether payment of privileged claims is adequately secured, and whether the plan is feasible. A confirmed concordat binds all creditors with respect to claims that arose before the concordat request, as well as claims that arose during the moratorium without the commissioner's permission, subject to statutory exceptions such as first-rank privileged claims, the portion covered by a pledge, and public claims. If the debtor fails to comply with the payment schedule in the plan after confirmation, a creditor whose claim remains unpaid may ask the court to annul the concordat with respect to its own claim. If the request is rejected or the concordat is not confirmed, a bankruptcy decision may come onto the agenda for a debtor subject to bankruptcy, provided the conditions are met. For this reason, the likelihood of the concordat's success should be assessed realistically before applying.

What should you pay attention to as a creditor?

• Follow the moratorium announcement and register your claim, with supporting documents, within the stated period.
• If the amount or privileged status of your claim is contested, take the necessary steps in time to protect your rights.
• Evaluate the payment proposal in the draft plan alongside the debtor's actual financial position and the bankruptcy comparison table.
• If you hold checks or promissory notes as collateral, have their status reviewed separately; for details, you can look at our check and promissory note law page.

How our firm can help

On the debtor side, we handle the preparation of the application file, communication with the commissioner and the management of the process up to the confirmation hearing; on the creditor side, we provide advice on claim registration, objections and voting. Concordat can lead to very different outcomes depending on the structure of the business and the distribution of its debts; every case is unique and the specific circumstances must be assessed individually.