Composition with Creditors (Konkordato): Conditions, Moratoria and Court Approval

An application is made to the commercial court under m.285. The required documents follow m.286 and include a preliminary project, up-to-date financial records, a creditor list, a comparison of expected recoveries and the prescribed reasonable-assurance audit report. Accounting records and statutory exemptions depend on the applicant; the requirement is not simply the last two years' statements.

If the court finds that the documents listed in İİK m.286 are complete, it immediately issues a provisional moratorium decision and appoints a commissioner (one or three) to perform the statutory duties.

The provisional moratorium lasts three months and may be extended by up to two under the statutory conditions. A feasible composition may receive a one-year definitive moratorium, extendable by up to six months in specially difficult circumstances. Enforcement is generally stayed, but exceptions include privileged claims under m.294 and secured proceedings under m.295. Separate restrictions govern preservation and sale of collateral.

During the definitive moratorium, the commissioner convenes the creditors' meeting and submits the project for approval. The composition is deemed accepted if approved by a majority exceeding half of the registered creditors and half of the claims, or by a majority exceeding one-quarter of the registered creditors and two-thirds of the claims (İİK m.302).

Not every claim is bound in the same way. İİK m.308/c excepts first-rank privileged claims under m.206, secured claims to the extent covered by collateral, and public claims under Law No. 6183. Debts incurred during the moratorium with the commissioner's permission also have a separate status. Voting majorities are calculated over affected claims subject to the participation rules in m.302.

A composition accepted by creditors produces legal effect only upon confirmation by the commercial court (İİK m.305). The confirmation binds all creditors subject to the composition; the reductions and term extensions in the project apply by force of law.

Appeal and cassation against the confirmation decision are available (İİK m.308/a). A creditor against whom the composition is not performed may obtain partial setting aside as to himself (İİK m.308/e); each creditor may seek complete setting aside of a composition tainted by bad faith (İİK m.308/f).

In enforcement and bankruptcy proceedings, the choice of enforcement track must be determined by the basis of the claim and the available documents. Although ordinary enforcement, commercial-paper enforcement, judgment-based enforcement, preliminary attachment, composition with creditors and bankruptcy may pursue the same outcome, they differ in time limits, available objections and costs.

Dates of service, objection or payment deadlines, attachment requests, sale-request periods and complaint deadlines are the most critical stages of the file. For this reason the dates of service of the payment order, enforcement order, attachment record, valuation report and sale notice should be tracked in a separate schedule.

For the creditor, interest calculation, the clarity of the enforcement request and the inquiry into the debtor's assets are decisive; for the debtor, grounds of objection, claims of exempt assets and the possibility of a negative declaratory action must be assessed from the outset. Otherwise, a procedural oversight may eclipse a meritorious position.