What is Concordat? Who Can Apply?
Concordat is an enforcement and bankruptcy law institution that enables honest debtors experiencing financial difficulties to make a court-supervised agreement with creditors in order to avoid bankruptcy.
The concordat system, which was reorganized in 2018 with the Law No. 7101, offers a legal restructuring opportunity to individuals or companies that cannot pay their debts on time or are in danger of not being able to pay them. Thus, it is planned to prevent the disintegration of the financial integrity of companies.
What are the Conditions for Requesting Concordat?
In order to apply for concordat, some basic conditions must be met:
- Financial Difficulty: The debtor should not be able to pay its debts as they fall due or should be at risk of not being able to pay them in the near future.
- Restructuring Facility: The debtor’s financial position must be recoverable through partial payment or maturity of debts.
- Application to the Competent Court: For debtors subject to bankruptcy, the commercial court of first instance where the company headquarters is located should be applied.
- Concordat Preliminary Project: A detailed file including payment plan, balance sheet, income-expense statements and independent audit reports should be prepared and a realistic concordat project should be presented to the court.
How to Apply for Concordat?
The debtor (or creditor) applies to the competent commercial court of first instance with a petition containing the necessary documents. Some of the documents that must be included in the application file are as follows:
- Concordat preliminary project and payment plan
- Documents showing the financial status of the company (balance sheet, income statement, cash flow statement)
- List of creditors and documents showing the maturity of debts
- Independent audit report (except for small businesses)
Following the application, a temporary respite may be granted by the court and a concordat commissioner is appointed. The process proceeds under the supervision of this commissioner.
What Does the Company Do During the Concordat Process?
Within the concordat grace period, the debtor continues its activities; however, important transactions are subject to the supervision of the commissioner. In this process:
- The plan approved by the court shall be followed.
- Debts are restructured by reaching an agreement with creditors.
- If necessary, company assets can be sold to raise funds.
- Some transactions cannot be carried out without the approval of the Commissioner.
What are the Advantages of Concordat?
Debtor’s Perspective:
- Ability to avoid bankruptcy and continue operations
- Restructuring of debts or payment of debts with a discount
- Suspension of execution proceedings filed by creditors
From the Creditor’s Perspective:
- The chance to recover their receivables without incurring the costs of bankruptcy and foreclosure
- Structured, predictable and planned payment process
Conclusion: Concordat Offers Opportunity to Both Debtor and Creditor
Concordat is a balancing mechanism that aims both to protect the debtor company from bankruptcy and to enable creditors to collect their receivables to a reasonable extent. When appropriate conditions are met, this process provides both financial restructuring and legal security.
The concordat process has a complex structure and is a legal process that must be meticulously managed. For this reason, it is extremely important to get support from an expert lawyer from the application stage to the court process.
