Qualifications and Duties of Concordat Commissioner

30.11.2024 Alper Uzun

Introduction

Execution and Bankruptcy Law No. 2004 ("EBL"), which came into force upon its publication in the Official Gazette dated June 19, 1932, has undergone numerous amendments. Among these, one of the most significant is undoubtedly Law No. 7101, titled "Law on Amendments to the Enforcement and Bankruptcy Law and Certain Other Laws" ("Law No. 7101"), which came into force following its publication in the Official Gazette on March 15, 2018.

The "postponement of bankruptcy" mechanism, preferred by corporations and cooperatives seeking to restructure their debts, was introduced to the EBL through amendments made in 2003. It allowed corporations and cooperatives with liabilities exceeding their assets to request a postponement of bankruptcy from the competent commercial court of first instance based on their trade registry by submitting a project demonstrating the potential improvement of their financial situation rather than being declared bankrupt. However, specific challenges arose, such as debtors resorting to this mechanism to temporarily escape creditor pressure, relocating their headquarters before filing, or employing other methods contrary to good faith. The lengthy judicial process and the lack of sufficient involvement of creditors also caught the legislator's attention. Consequently, despite its frequent use, this method, which needed more oversight, was abolished by Law No. 7101.

In its place, the concordat, which had been neglected mainly due to the postponement of the bankruptcy mechanism, was reintroduced and restructured by the same law as a legal tool for those seeking to restructure their debts. With the increase in concordat applications and the emergence of various issues in practice, additional measures and regulations were necessary, and therefore, amendments were made to EBL with Law No. 7155 came into force on December 19, 2018, and again with Law No. 7327 came into force on June 19, 2021.

Through these amendments, the application process for concordat, the judicial proceedings, and creditors' rights were reexamined in the EBL to align with modern commercial and legal conditions. In this context, the role of the concordat commissioner has been comprehensively regulated in terms of qualifications, duties, and responsibilities.

Proper understanding and effective implementation of the regulations concerning the qualifications and duties of the concordat commissioner are vital for the appropriate functioning of the concordat institution. The concordat commissioner plays a pivotal role in the success of the concordat process. The concordat commissioner undertakes critical responsibilities, including taking measures to protect the debtor's assets throughout the process, informing the court about the progress of the process, guiding the court on decisions regarding the extension or termination of the concordat period, and providing opinions to the court when necessary.

Qualifications and Duties of Concordat Commissioner

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Qualifications of the Concordat Commissioner

The concordat commissioner is a public official responsible for carrying out the duties prescribed by law in the concordat process^[1]. The qualifications of the concordat commissioner are outlined in Article 4 of the "Regulation on Concordat Commissioners and Creditors' Committees" ("Regulation"), which came into force upon its publication in the Official Gazette on January 30, 2019. This Regulation replaced the repealed 2018 Regulation on the Qualifications of Concordat commissioners and the Mandatory Establishment of Creditors' Committees. The new Regulation expanded the scope of requirements for qualifications and assignments, including provisions for concordat commissioner training. The qualifications stipulated by the Regulation are as follows:

“Being a Turkish citizen,
Having total legal capacity,
Holding a bachelor's degree from a faculty providing at least four years of education or an equivalent institution recognized by the Higher Education Council and possessing at least five years of professional experience^[2] ,
Not having declared bankruptcy,
Not having been dismissed from a concordat commissioner role in the past three years due to a lack of due diligence,
Not having been removed from public service or disbarred from a profession due to disciplinary action, nor prohibited from professional practice,
Not being barred from public service,
Having no legal impediments in their current profession to serving as a concordat commissioner under relevant legislation,
Not having been convicted of any offenses listed in the Regulation,
Not being affiliated or connected with any terrorist organizations,
Having completed the mandatory concordat commissioner training, subject to the provision in Article 13 of the Regulation.”

Article 5 of the Regulation governs the assignment of concordat commissioners. Concordat commissioners are selected from the regional committee list maintained under the jurisdiction of the relevant regional court of appeal. When three concordat commissioners are appointed, one must be an independent auditor operating in the court’s province, and another is preferably a legal professional. Scholars have noted that the third concordat commissioner should ideally possess expertise and experience in the debtor’s sector to ensure informed decisions on transactions and align with the commercial necessities of the relevant industry^[3] . This alignment allows for profitable transactions during the temporary period, thereby advancing the concordat institution's goal of improving the debtor’s financial situation.

Article 13 of the Regulation addresses concordat commissioner training. This mandatory foundational training covers topics such as the general principles of enforcement and bankruptcy law, concordat regulations, concordat commissioner qualifications, duties, powers, and liabilities (both legal and criminal), the concordat project, creditors' committees and their duties, business management, financial report analysis, crisis management in enterprises, report writing techniques, and other necessary subjects. The training is provided by authorized institutions and conducted by individuals holding academic titles such as professor, associate professor, or doctor. Attendance is mandatory, and concordat commissioners must complete renewal training every three years.

Individuals who complete concordat commissioner training and meet the required qualifications may apply for registration on the Regional Committee lists. Once registered, concordat commissioners are obligated to accept assignments given to them. Additionally, the new Regulation includes a provision stipulating that a concordat commissioner cannot handle more than five cases simultaneously.

Duties of the Concordat Commissioner During the Provisional Period

Although the Swiss Federal Act on Debt Collection and Bankruptcy (the “Swiss DCBA”), which serves as a source for Turkish law, allows for exceptional cases where a concordat commissioner may not be appointed during the provisional period, Turkish law mandates the appointment of a concordat commissioner during this phase (Article 287 of the EBL). This requirement is critical because the debtor’s authority to dispose of assets is not restricted during the provisional period, and appointing a concordat commissioner protects creditors’ interests. Moreover, since transactions performed with the concordat commissioner’s approval are not subject to the concordat, the appointment of a concordat commissioner enables the debtor to maintain operational flexibility in commercial transactions during this time. The court may appoint a single concordat commissioner or, if deemed necessary, three concordat commissioners, provided the debtor’s financial situation can accommodate the costs of multiple appointments.

There is no legal recourse (appeal) against the decision to appoint a provisional concordat commissioner in Turkish law. This diverges from the Swiss DCBA, which permits appeals against such decisions. To mitigate potential issues arising from the lack of legal recourse, legal scholars argue that concordat commissioners should be removable by the court upon the request of the debtor or creditors^[4] . Since the decision to appoint a concordat commissioner constitutes a non-contentious judicial matter, the commercial court of first instance has the authority to revoke its decision.

The primary duties of the provisional concordat commissioner include examining whether the preliminary project is reasonable and feasible and supervising the debtor’s transactions to prevent any diminution of the debtor’s assets. Depending on the nature of the case, the court may assign additional specific duties to the concordat commissioner. Furthermore, the concordat commissioner is required to report developments during the provisional period to the court. If it becomes evident during the provisional period that the preliminary project is unlikely to succeed, the concordat commissioner should not wait until the end of the period to inform the court^[5] .

Concordat Commissioner’s Duties During the Definitive Period

As noted above, appointing a provisional concordat commissioner is mandatory. Before the hearing where the court decides whether to grant a definitive period, the provisional concordat commissioner must submit a written report and may be required to attend the hearing to provide oral statements.

If the court concludes that the concordat will likely succeed, it grants a one-year definitive period. Unless circumstances necessitate a new appointment, the court typically allows the provisional concordat commissioner(s) to continue their duties, assigning the case file to them. While forming the creditors’ committee, the court also considers the concordat commissioner’s recommendations. The creditors’ committee convenes at least once a month and makes decisions by a majority vote of those present. The concordat commissioner attends these meetings and records the decisions in the minutes.

The decision to appoint a concordat commissioner during the definitive period is also not subject to appeal. However, complaints regarding the concordat commissioner’s actions may be submitted. Additionally, the concordat commissioner’s actions during this period are subject to the supervision of the creditors’ committee. If no creditors’ committee is formed—a possibility since it is not a mandatory body—the court must still consider creditors’ complaints about the concordat commissioner’s actions to uphold the right to be heard.

The concordat commissioner’s primary duties during the definitive period include overseeing the debtor’s activities (EBL Art. 290/2(b)), publishing notices to invite creditors to submit claims (EBL Art. 299), reviewing submitted claims and preparing a report (EBL Art. 290/2(a)), preparing interim reports to inform the court (EBL Art. 290/2(d)), convening creditors to discuss the project (EBL Art. 301), chairing the creditors’ committee, and presenting reports to it (EBL Art. 302/1). Additionally, the concordat commissioner is responsible for maintaining an inventory of the debtor’s assets and determining their value, which helps assess whether the concordat proposal aligns with the proportional value of the debtor’s assets. Claims that cannot be fully satisfied by secured creditors are included calculating total claims and creditors for voting purposes.

In complex situations, the definitive period may be extended to six months upon the concordat commissioner’s reasoned request. The concordat commissioner’s opinion is also considered if the debtor seeks an extension.

The debtor may continue their operations under the concordat commissioner’s supervision during the definitive period. The court may also decide, either at the outset or during the definitive period, that specific actions require the concordat commissioner’s prior approval or that the concordat commissioner should manage the debtor’s business directly.

Having a concordat commissioner with expertise in the debtor’s field of activity helps strike a balance between protecting the debtor’s assets and allowing operational freedom. Such expertise enables the concordat commissioner to accurately determine which actions fall within the ordinary course of business and which are extraordinary, requiring approval to avoid harming creditors’ interests.

The court and the debtor also have significant roles in this process. The debtor is obligated to provide the concordat commissioner with all information necessary for them to fulfill their supervisory duties. The concordat commissioner can guide the debtor and issue binding instructions when needed. To protect third parties’ legal security, it is beneficial for the court to detail at the outset which transactions require the concordat commissioner’s approval.

Identifying which debtor transactions are subject to concordat commissioner approval allows the debtor sufficient freedom to carry out routine operations. This operational flexibility is essential for maintaining uninterrupted business activity and facilitating the swift actions required in commercial life, thereby enhancing the concordat’s function of rehabilitating the debtor’s assets.

If deemed necessary for asset preservation, the concordat commissioner may recommend additional measures, such as freezing the debtor’s accounts or restricting disposal rights.

If the debtor acts contrary to the concordat commissioner’s binding instructions, the concordat commissioner may request the court to revoke the concordat period. The debtor retains the right to contest such a request through complaints.

The Duties of the Concordat Commissioner During the Approval Phase

Under Article 302(8) of EBL, the concordat commissioner must submit all documents related to the concordat, along with a reasoned report on whether the concordat project has been accepted and whether its approval is appropriate, to the court no later than seven days after the expiry of the adhesion period for creditors. Legal scholars argue that the deadline for submitting the report to the court is mandatory and that failure by the commissioner to apply within this period will result in the rejection of the approval request without examination^[6] . Should the commissioner fail to prepare and present their report within the concordat period, they may be held liable under general principles for damages incurred by the debtor^[7] .

Once the court receives the commissioner’s reasoned report and the file, proceedings will commence to decide on the concordat. The court must deliver its decision promptly and in any event, within the definitive period, after hearing the commissioner.

In the approval application, the concordat commissioner must prepare a report summarizing the concordat process and any changes in the debtor's assets from the beginning. In this report, the commissioner examines whether the conditions for approval under Article 305 of the EBC are satisfied.

Conclusion

With the amendments introduced in 2018, the concordat institution, which allows capital companies and cooperatives to restructure their debts, has assigned significant duties and responsibilities to commissioners. Consequently, concordat commissioners' qualifications, duties, and responsibilities are comprehensively regulated in the EBL and its associated Regulations.

The concordat commissioner serves as a bridge between the debtor, creditors, and the court, overseeing and providing information at every stage of the process. During both the temporary and definitive periods, the debtor acts under the commissioner’s supervision. The commissioner’s adequate supervision of the debtor's activities is particularly vital for safeguarding the interests of both the debtor and the creditors, ensuring that all transactions and payments are monitored.

References

Altay, Sümer; Eskiocak, Ali:7101 Sayılı Kanun’la Yapılan Düzenlemelerin Işığında Konkordato ve Yeniden Yapılanma Hukuku, 4th Edition, İstanbul 2018, p.142.
Article 4/1/c of the Regulation on the Qualifications of the Concordat Trustee and Compulsory Formation of the Board of Creditors: “Graduating from a university that provides at least four-year bachelor degree program, or domestic or overseas educational institutions that are accepted to be equivalent to these by the Council of Higher Education, and having at least five years of professional experience.”
Pekcanıtez, Hakan; Erdönmez, Güray: 7101 sayılı Kanun Çerçevesinde Konkordato, İstanbul 2018, p. 37.
Pekcanıtez; Erdönmez, p.39.
Pekcanıtez; Erdönmez, s.40.
Pekcanıtez; Erdönmez, p. 119.
Altay;Eskiocak, p. 143.

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