TYPES OF CONCORDATUM 30 January 2025

Types of Concordat: Ordinary, Concordat by Abandonment of Assets, and Post-Bankruptcy Concordat

Concordat is a crucial legal mechanism that allows debtors to overcome financial difficulties while protecting the rights of creditors. To address different financial situations and needs, concordat is categorized into three main types: Ordinary Concordat, Concordat by Abandonment of Assets, and Post-Bankruptcy Concordat. This article examines the characteristics and application areas of these types.

Ordinary Concordat

Ordinary concordat is the most common type, where debtors attempt to restructure their debts through agreements with creditors. It is regulated under Articles 285 and subsequent articles of the Execution and Bankruptcy Law (‘‘EBL’’). If the debtor is subject to bankruptcy, they may apply for a concordat before the bankruptcy is declared. The debtor aims to recover financially and avoid bankruptcy by paying a portion of their debts or extending payment deadlines.

A concordat proposal must be accepted by a certain majority of creditors. According to Article 302 of the EBL, a concordat proposal is considered approved if it is accepted by:

• More than half of the registered creditors and claims, or
• At least one-quarter of the registered creditors representing more than two-thirds of the total debt.

Ordinary concordat can be further categorized into three subtypes based on its structure:

• Maturity Concordat: The full amount of debt is to be paid at a later date or in installments.
• Debt Reduction Concordat: Creditors agree to waive a certain percentage of their claims.
• Mixed Concordat: A combination where creditors waive a portion of their claims, and the remaining debt is scheduled for payment at a later date, giving the debtor additional time to settle their obligations.

Concordat by Abandonment of Assets

Concordat by abandonment of assets is a type in which the debtor transfers control over their assets to creditors or a third party to settle their debts. This form is particularly preferred when the debtor's assets primarily consist of easily liquidated items. It is regulated under Article 309/a of the EBL, which states:

"With concordat by abandonment of assets, creditors are granted the authority to manage the debtor's assets or transfer some or all of them to a third party. Creditors exercise their rights through the concordat liquidation officers and the creditors’ committee. The liquidation officers and the creditors’ committee are elected by the creditors who decide on the concordat proposal. The liquidation officer assumes duty after the commercial court of first instance approves the election decision. The concordat commissioner may also serve as the liquidation officer."

In this type of concordat, the debtor cedes their assets to creditors under a concordat plan. The transferred assets are liquidated in a process similar to bankruptcy liquidation, with the proceeds used for debt repayment.

Concordat by abandonment of assets is an effective solution when the debtor’s assets are sufficient to cover their debts.

Post-Bankruptcy Concordat

Post-bankruptcy concordat is a legal process that allows a bankrupt debtor to reach an agreement with creditors to restructure their debts in accordance with the provisions of the EBL. It is governed by Articles 302, 307, 308/a, and 308/g of the EBL. This type of concordat enables the debtor to present a structured repayment plan during the bankruptcy liquidation process, aiming to have the bankruptcy annulled.

The request for post-bankruptcy concordat can be submitted to the court either by the debtor or by one of the creditors. Once submitted, the bankruptcy administration takes over the process and initiates negotiations on the concordat proposal among creditors. During this process, the bankruptcy administration acts in a role similar to that of a concordat commissioner. During the concordat proceedings, the liquidation of the debtor's assets is suspended for a maximum of six months.

The concordat proposal, once approved by creditors, is submitted to the court overseeing the bankruptcy liquidation. The court evaluates whether the proposal is legally valid and satisfactory for creditors. If the court finds the proposal feasible and beneficial for creditors, it issues an approval decision, leading to the initiation of bankruptcy annulment procedures. However, a debtor can apply for post-bankruptcy concordat only once.

Conclusion

The different types of concordat play a significant role in the legal system by providing tailored solutions to various financial difficulties faced by debtors. Ordinary concordat serves as a general restructuring tool, whereas concordat by abandonment of assets and post-bankruptcy concordat are designed for more specific financial situations. These mechanisms help balance the rights and interests of both debtors and creditors, ensuring a fair and structured debt resolution process.