Composition with Creditors and Bankruptcy

What we do in this area

In this area the firm handles, for the debtor company, preparing the konkordato application, managing relations with the commissioner and the court during the moratorium and carrying the project to the confirmation stage; for the creditor, registering a claim against a debtor in konkordato or bankruptcy, voting at the creditors' meeting, objecting to the ranking schedule and, where necessary, petitioning for bankruptcy.

This page is a sub-topic of the enforcement and bankruptcy law tree. The restructuring side of a company's credit relationships is explained on the banking and finance law page.

Konkordato: application and moratorium

Composition with creditors (konkordato) is the debtor's agreement with creditors on a plan involving an extension of time or a reduction, and the confirmation of that agreement by the court (Article 285 et seq. of the Enforcement and Bankruptcy Code, İİK). The application is made to the commercial court of first instance for the place where the debtor's centre of business is located and is supported by the documents listed in İİK Article 286: the preliminary konkordato project, documents showing the state of the assets, a list of creditors, a comparison table showing the outcome the offer would give creditors compared with bankruptcy and, where required, a reasonable assurance report.

During the moratorium, as a rule, no new proceedings may be brought against the debtor, pending proceedings stop and provisional attachment orders are not executed; for secured claims, proceedings by way of realisation of the pledge may be brought but sale is generally prohibited, subject to judicial permission in the exceptional cases in Article 295/2, including assets not needed for business use under the project, assets expected to lose value or assets costly to preserve (İİK Arts. 294–295). The debtor carries on business under the commissioner's supervision; transactions such as creating a pledge, standing surety and transferring immovable property require the court's permission (İİK Art. 297). If the financial position recovers, the moratorium is lifted (İİK Art. 291). If during the definitive moratorium it becomes clear that the konkordato cannot succeed, the moratorium is lifted and, if the debtor is a person subject to bankruptcy, the court declares bankruptcy of its own motion (İİK Art. 292).

Acceptance requires one of two alternative majorities: a majority exceeding half of the registered creditors and half of the claims, or a quarter of the creditors and two thirds of the claims (İİK Art. 302). The court gives its confirmation decision after checking that the payment offered is proportionate to the debtor's resources and gives creditors a more favourable outcome than bankruptcy (İİK Art. 305). The institution of postponement of bankruptcy was abolished in 2018.

Bankruptcy: routes and consequences

Bankruptcy applies to merchants, persons held liable as merchants and other persons made subject to bankruptcy by general or special laws (İİK Art. 43). The creditor may take the route of bankruptcy through proceedings by having a bankruptcy payment order sent to the debtor; if the debtor does not pay or objects within seven days, the creditor brings a bankruptcy action before the commercial court of first instance within one year of service of the payment order (İİK Art. 155 and 156). Where the debtor absconds, carries out fraudulent transactions to remove assets or suspends payments, bankruptcy may be requested directly without proceedings (İİK Art. 177). In capital companies, where the company is over-indebted (borca batıklık), the management body is obliged to notify the court (Article 376 of the Turkish Commercial Code, TTK, No. 6102, and İİK Art. 179).

With the bankruptcy decision, all of the debtor's attachable assets form the bankruptcy estate (iflas masası) and the bankrupt's power of disposal over these assets ends (İİK Art. 184 and 191). Creditors now pursue their rights by registering with the estate; a one-month period from the date of publication is laid down for registration (İİK Art. 219). Late claims may still be registered until the bankruptcy closes, subject to Article 236 and the consequences for earlier distributions and costs. The bankruptcy administration examines the claims and draws up a ranking schedule (sıra cetveli); an action against the schedule is subject to a fifteen-day period from publication (İİK Art. 235). Claims are paid in the order set out in İİK Article 206; employee and maintenance claims come first.

Points for the creditor to watch

During the konkordato process the creditor notifies the claim to the commissioner, votes at the creditors' meeting and may object to the project at the confirmation hearing. A confirmed konkordato is binding, including on creditors who did not accept the project, for all claims that arose before the konkordato application or during the moratorium without the commissioner's permission (İİK Art. 308/c); staying outside the process therefore means being bound by the claim in its reduced form. Claims secured by pledge to the extent covered by the collateral, first-rank privileged claims under Article 206 and public claims within Law No. 6183 are excluded from the binding effect specified in Article 308/c.

How we work

On the debtor company's side the file begins with reading the financial statements and the payment schedule together; coordination with the company's accountant is needed. On the creditor's side the first task is to calculate the registration and objection periods from the dates of publication and service. Although the firm is in Konak, İzmir, files are also followed in other judicial districts.

The page where we explain the process in detail: Our working process.