Composition with Creditors (Konkordato)

Scope

A composition with creditors may be requested by the debtor, and any creditor entitled to file a bankruptcy petition may also request, by a reasoned petition, that composition proceedings be opened against the debtor; the court with subject-matter jurisdiction is the commercial court of first instance (asliye ticaret mahkemesi) (Enforcement and Bankruptcy Law, İİK, Article 285). A preliminary composition plan and documents showing the debtor’s assets are attached to the request (Article 286). If the documents are complete, the court grants a provisional moratorium (Article 287); if success appears possible, a final moratorium is granted (Article 289). The plan must be accepted by the majority of creditors and claims required by law (Article 302) and must satisfy the conditions for confirmation (Article 305); a composition becomes binding upon confirmation (Article 308/c).

Practical Significance

During the moratorium, as a rule, no proceedings can be brought against the debtor, pending proceedings are suspended, and orders of precautionary attachment are not enforced (Article 294); there are separate rules for claims secured by a pledge (Article 295) and for certain privileged claims. As a rule, the debtor may continue its business under the supervision of the commissioner; however, the court may make certain transactions subject to the commissioner’s consent or decide that the commissioner will run the business. From the date of the moratorium decision, the debtor may not, without the court’s permission, create a pledge, stand surety or make gratuitous dispositions such as gifts; nor may it transfer its immovable property, its movables that are important for continuing the business’s activity, or the business’s permanent installations, or create limited real rights over them. Transactions contrary to this prohibition are void (Article 297). Because a confirmed composition is binding on claims other than those covered by the exceptions in the law, the stages of registering claims, objecting and voting are decisive for creditors. If the composition is not confirmed, the debtor is declared bankrupt ex officio, provided the conditions are met (Article 308).

Commonly Confused Concepts

While bankruptcy is directed at the liquidation of the debtor’s assets, an ordinary composition (adi konkordato) aims at paying the debts with extended maturities or reductions in accordance with the confirmed plan and, if possible, at continuing the business’s activity. In a composition by assignment of assets (malvarlığının terki suretiyle konkordato), by contrast, the power of disposal over the assets is left to the creditors and the assets are converted into cash by the composition liquidators (Article 309/a et seq.); a debtor already declared bankrupt may also request a composition (Article 309). Restructuring by agreement (Article 309/m et seq.) is a separate route for capital companies (sermaye şirketleri) and cooperatives, in which a plan negotiated in advance and accepted by the creditors is submitted to the court. The moratorium, as a rule, stops individual enforcement tools such as attachment and precautionary attachment.