Concordat in Our Legal System 5 January 2018
The application of equity companies for suspension of bankruptcy and the court decisions on suspension of bankruptcy have been prevented with the Statutory Decree numbered 669 which was published within the scope of the state of emergency declared in our country on the date of 31.07.2016. The debtors who cannot benefit from the suspension of bankruptcy due to the mentioned Statutory Decree have begun to apply the concordat institution which is not preferred even though it has been in our legal system for a long time due to the existence of the bankruptcy suspension institution, and because of that the debtors have provided an application area in our legal system again.
Concordat is a collective compulsory liquidation institution regulated in Enforcement and Bankruptcy Law (“EBL”) and it is characterized by softened debt liquidation rather than the bankruptcy which is the classical compulsory enforcement institution. Thus; in concordat; if the majority of the creditors and the court accept the payment proposal, the debtor who is in critical financial condition and is deprived of the ability to pay his outstanding debts can hold his assets and can be freed from his debts by continuing his business and paying all of his debts according to the conditions described in the payment proposal whether he is subject to the bankruptcy or not. Within this respect, concordat has not only a function as a debt settlement institution but also has a function of a rehabilitation institution which also enable the restructuring of the business.
The concordat can be done in official (judicial) form as regulated in EBL, but also can be done in a way of restructuring his debts by bringing the debtor and his creditors together. Such concordats, which are referred as special concordats, are considered as an agreement on the liquidation of debts according the provisions of the Turkish Code of Obligations in accordance with the principle of free discretion.
However, the official concordat has three forms which are; ordinary (before bankruptcy) concordat, concordat in bankruptcy (after bankruptcy) and concordat through abandonment of assets. Within this context; ordinary concordat refers to a concordat made before the bankruptcy and prevents the bankruptcy, the concordat in bankruptcy refers to a concordat made by the insolvent debtor by offering to pay his debts in order to be freed from heavy consequences of bankruptcy and the concordat through abandonment of assets refers to a concordat that allows the debtor to be freed from all of his debt and to escape from the heavy consequences of bankruptcy by transferring his assets to third parties.
As can be seen, the concordat is an alternative liquidation institution which is regulated in detail in our legal system and since the suspension of bankruptcy is forbidden in the scope of state of emergency, it is considered that it will become more widespread in the following days.
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