WHAT IS CONCORDATUM? 29 January 2025
What is Concordatum?
Concordat is a legal mechanism designed to facilitate the restructuring of debts through an agreement between debtors and their creditors when debtors encounter financial difficulties. This mechanism not only prevents the debtor from being declared bankrupt but also ensures a certain degree of protection for both the debtor and the creditors. Concordat is available not only to debtors who are subject to bankruptcy but also to any debtor who fails to pay their debts on time or faces the risk of insolvency. Such debtors may apply to the competent court for a declaration of concordat.
The Objectives of Concordat
The primary objective of concordat is to maintain the debtor's business operations while safeguarding the creditors' interests to a certain extent. The key goals of concordat include:
- Protection of the Debtor: The debtor is shielded from individual enforcement actions initiated by creditors, gaining a period of respite to improve their financial condition.
- Protection of Creditors’ Interests: Creditors are provided with a structured and effective mechanism for debt collection, mitigating the losses they would incur in the event of the debtor's bankruptcy.
- Preservation of Economic Balance: Concordat supports the continuation of commercial enterprises and individual debtors' activities, thereby contributing to market stability and economic equilibrium.
The Legal Basis of Concordat
In Turkish law, concordat is comprehensively regulated under Articles 285 to 309 of the Execution and Bankruptcy Law Numbered 2004 (‘‘EBL’’). Significant amendments to these provisions were introduced in 2018, which were published in the Official Gazette on December 19, 2018, and subsequently entered into force. However, the previous provisions continue to apply to concordat requests that were initiated before the enactment of these amendments.
The regulations governing concordat include the following key elements:
- Temporary Respite: Upon submission of a concordat request accompanied by the documents specified under Article 286 of the EBL, the court grants a temporary respite, during which legal proceedings against the debtor are suspended.
- Definitive Respite: If the court finds the proposed concordat project viable, it issues a definitive respite decision. During this phase, the debtor’s activities continue under the supervision of a concordat commissioner appointed by the court.
- Concordat Project: The debtor is required to prepare and present a concordat project, which outlines the method and schedule for debt repayments, for the creditors' approval.
- Court Approval: The court’s approval is a mandatory condition for the acceptance and implementation of the concordat project.
Conclusion
Concordat functions as a vital rescue mechanism for debtors experiencing financial distress, offering a structured framework that balances the rights of creditors and debtors. The effective application of concordat is essential for ensuring the continuity of commercial activities and preserving financial stability within the economy.
