Is It Possible To Terminate An Agreement Due To Declaration Of Concordat? 24 October 2018

Provisions of Enforcement and Bankruptcy Law (“EBL”) on “postponement of bankruptcy” was abrogated and the scope of concordat institution was extended with “The Law Amending the Enforcement and Bankruptcy Law and Other Certain Laws” published in the Official Gazette and entered into force in 15 March 2018.

The concordat which can be defined as the reconstruction of the debts of a debtor, who is in critical financial condition and is deprived of the ability to pay his outstanding debts, upon the acceptance of the payment proposal by its creditors and the approval of the Court, is generally included as a termination clause in most of the agreements. Since the biggest risk of a contractual party is the loss of solvency of the debtor or a substantial weakening of such ability, the parties of the agreements are generally do not want to undertake such risk, and want to terminate the commercial relationship with a company the solvency of which is weakened due to the declaration of concordat.

However, the legislator aims to prevent such practice with the latest amendments and to prevent the termination of the agreement which will weaken the economic power of a company that has declared concordat. According to the amendment on Article 296 of EBL, the provisions of the agreement stating that the concordat request “shall constitute a  breach of the agreement” , “shall be accepted as a valid reason for the termination of the agreement”, ”all receivables will become due in case of a concordat” shall not be enforced and shall be deemed void. The said provision is intended to ensure that the economic activities of the debtor are not interrupted due to concordat and to maintain agreements that provide goods or services to the debtor.

The exception of such provision is regulated under the Article 296/2 of EBL. In compliance with the relevant provision, the agreements that keep the debtor in a continuous debt relation and prevent the success of the concordat process can be terminated at any moment given that an approval from the commissar and the court has been obtained. In that case, if the agreements where the debtor is a party, negatively affects economic stations of the debtor, such agreement can be terminated at any moment given that the damages of the other party are covered. If the concordat is approved, the compensation to be paid to the other party because of the termination of the agreement shall be considered as a receivable subjected to the concordat.

Considering the purposes of the Article 296, it can be said that while the first clause of the relevant provision aims to ensure the continuity of agreements which is necessary for the success of the concordat process, the second clause of the same aims to terminate agreements which negatively affect the success of the process, as soon as possible. In this respect two clauses complement each other.

In order to ensure that the provision achieves its purpose, the term of “agreement” should be interpreted broadly by including any kind of agreements where the debtor is a party and which are necessary for the continuity of the business.

As stated in the justification of the Article 296, concordat commissar should only approve the termination of the agreements which become a burden to the debtor and prevent the success of the concordat process due to the economic changes, in order to prevent the debtor from misusing the protection provided by the legislator. On the other hand, service agreements constitute an exception to this rule and it is not possible to terminate service agreements by this way.

In summary, by taking into account that the main purpose of the concordat is to enable the debtor to pay his debts by maintaining the economic activities, it is aimed that debtor continues his commercial activities in the course of the concordat period and in principle it is intended that agreements are not terminated due to the concordat. Even if it is decided by the parties that in case of the declaration of concordat the agreement shall be terminated or the receivables shall become due, such provisions shall not be enforced in case of the concordat.

Türkçe Versiyonu İçin

http://www.kasaroglu.av.tr/tr/konkordato-ilani-nedeniyle-sozlesme-feshedilebilir-mi-fesih-konkordato