This article explains what foreign suppliers and creditors should do when a Turkish counterparty files for konkordato, Türkiye's court-supervised restructuring.
For a foreign supplier, lender or service provider, the news that a Turkish customer has filed for konkordato usually arrives late, often through an unpaid invoice followed by a short message from the customer's management. By then, a court has typically granted a moratorium, enforcement against the customer has been frozen, and the clock on a short claim filing deadline may already be running. Konkordato is Türkiye's court-supervised restructuring procedure, broadly comparable to a scheme of arrangement or a pre-insolvency composition in other jurisdictions. It is widely used by Turkish companies under financial pressure. Foreign creditors are bound by it in the same way as local creditors, but they face additional practical hurdles: language, distance, unfamiliar deadlines, and protections in their contracts that may not work under Turkish law. This article explains how konkordato works and what a foreign creditor should do to protect its position.
1. How Konkordato Works
Konkordato is governed by Articles 285 et seq. of the Turkish Enforcement and Bankruptcy Law (EBL) and is conducted before the commercial court. It allows a debtor that cannot pay its debts as they fall due, or is at risk of being unable to do so, to agree on a payment plan with its creditors and continue trading. The main stages are:
- Application: the debtor files a preliminary restructuring plan, financial statements, a creditor list and, as a rule, an independent assurance report.
- Temporary moratorium: if the file is complete, the court grants a three-month temporary moratorium and appoints a temporary commissioner. It can be extended by up to two months.
- Definitive moratorium: if the restructuring appears viable, the court grants a one-year definitive moratorium, extendable by up to six months. The court may also set up a creditors' committee.
- Claims and creditors' meeting: the commissioner invites creditors by public announcement to file their claims, reviews them and holds a creditors' meeting to vote on the plan.
- Confirmation: if the plan is approved by the statutory majorities and the court is satisfied that the conditions are met, it confirms the konkordato, which then binds all creditors, including those who voted against.
From filing to confirmation, the process can therefore take well over a year, and in some cases close to two years.
2. The Moratorium: What Stops and What Does Not
- Enforcement: no enforcement proceedings can be started against the debtor, and pending proceedings are stayed. This includes proceedings based on cheques and promissory notes.
- Precautionary measures: precautionary attachments and injunctions cannot be implemented, even if already obtained.
- Interest: interest stops running on unsecured claims during the moratorium.
- Limitation: limitation and preclusive periods are suspended.
- Secured claims: enforcement may be initiated on secured claims, but the collateral cannot be sold during the moratorium.
- Lawsuits: as a rule, the moratorium does not prevent a creditor from suing to establish its claim, but any judgment cannot be enforced while the moratorium lasts.
Arbitration: where the supply contract contains an arbitration clause, arbitration can generally be used to establish a disputed claim, but any award will be subject to the same restrictions on enforcement in Türkiye during the moratorium and will be affected by a confirmed konkordato. A creditor holding an award should still file its claim in the konkordato within the deadline.
3. Your Contract: Why the Insolvency Termination Clause May Not Help
International supply and service contracts almost always allow the supplier to terminate if the customer becomes insolvent or enters a restructuring procedure. Under Article 296 EBL, filing for konkordato is not in itself a valid ground for termination, and contractual provisions to the contrary cannot be relied on against the debtor. A foreign supplier cannot therefore terminate simply because the customer has filed.
This does not leave the supplier without options:
- Withholding performance: under Article 98 of the Turkish Code of Obligations, where the other party has become unable to pay, a party may withhold its own performance until security is provided. A supplier may therefore require prepayment or security for further deliveries.
- New business after the moratorium: claims arising from transactions entered into during the moratorium with the commissioner's approval fall outside the konkordato and are in a stronger position. If you continue to supply, make sure new transactions are approved by the commissioner.
- Genuine breaches: termination for other breaches, such as non-payment of post-filing deliveries or failure to perform, remains available under general law.
Conversely, the debtor may, with the commissioner's opinion and the court's approval, terminate long-term contracts other than employment contracts. The counterparty's resulting damages claim is treated as an ordinary unsecured claim in the konkordato.
4. The Fifteen-Day Filing Deadline
Creditors must file their claims within fifteen days of the commissioner's public announcement (Article 299 EBL). The period runs from the date of the announcement, regardless of whether the creditor receives any individual notice. For a foreign creditor that learns of the konkordato late, this deadline can pass almost unnoticed.
A creditor that misses the deadline, and whose claim is not recorded in the debtor's balance sheet, is excluded from the negotiations and the vote. The claim is not extinguished, but the confirmed konkordato will still bind it, so the creditor loses its voice in shaping the outcome. Foreign creditors should therefore:
- monitor Turkish customers' financial position and arrange for public announcements to be tracked;
- prepare in advance a Turkish power of attorney, apostilled in their home jurisdiction, so that local counsel can act immediately; and
- keep invoices, delivery documents, contracts and correspondence organised and ready for translation.
The claim should be filed with its principal, interest and costs, the supporting documents and any security. Claims disputed by the debtor are taken into account in the vote at the court's discretion. After confirmation, a creditor whose claim is disputed must sue within one month of the announcement of the confirmation decision to preserve its share.
5. Foreign Currency Claims
Many claims held by foreign suppliers are denominated in euros or US dollars. In konkordato, foreign currency claims are converted into Turkish lira for voting and calculation purposes, and the plan may provide for payment in lira. Given exchange rate movements in Türkiye, the conversion date and the currency of payment under the plan can significantly affect what a foreign creditor actually recovers. These points should be reviewed carefully when the plan is negotiated and voted on.
6. Voting and Negotiation
The plan is approved if either of the following majorities is reached (Article 302 EBL):
- more than half of the registered creditors and more than half of the registered claims; or
- one quarter of the registered creditors holding two thirds of the registered claims.
First-ranking privileged claims and claims of the debtor's close relatives are excluded from the calculation, and secured claims count only for the portion not covered by the collateral. Because the majorities are calculated on registered claims, a creditor that does not attend effectively counts against the plan.
The vote is the creditor's main source of leverage. Large creditors can negotiate improved terms within the plan, but any secret advantage promised to one creditor outside the plan is void and can lead to termination of the konkordato.
7. Guarantees, Co-Debtors and the Retention of Title Trap
Guarantors and co-debtors: under Article 303 EBL, a creditor that votes against the plan or does not attend keeps its rights against guarantors and co-debtors. A creditor that votes in favour keeps those rights only if, at least ten days before the meeting, it notified the guarantors and co-debtors of the meeting and offered in writing to assign its claim to them against payment. Foreign creditors holding a parent company guarantee or a personal guarantee from the customer's shareholders should make this notification before voting in favour.
Bank guarantees and letters of credit: independent guarantees from third-party banks are generally unaffected by the moratorium. If the conditions of a bank guarantee or standby letter of credit are met, the beneficiary can call it. We discussed bank guarantees under Turkish law in this article.
Retention of title: this is where foreign suppliers are most often caught out. Under Article 764 of the Turkish Civil Code, a retention of title clause is effective only if it is registered in the special register kept by the notary public at the buyer's place of residence in Türkiye. A retention of title clause in a supplier's general terms, however carefully drafted under its home law, gives no protection against a Turkish buyer's other creditors unless it has been registered. Suppliers that rely on retention of title when selling to Turkish customers should make registration part of their standard process.
8. Confirmation, Challenge and Termination
Before confirming the konkordato, the court examines in particular whether the plan has been approved by the required majorities, whether creditors will receive more than they would in a bankruptcy liquidation, whether the offer is proportionate to the debtor's resources, and whether privileged claims and debts incurred during the moratorium with the commissioner's approval are secured (Article 305 EBL). Creditors may object at the confirmation hearing, and the decision can be appealed. The strongest objection is usually that creditors would recover more in a bankruptcy than under the plan.
A confirmed konkordato binds all creditors with claims arising before the moratorium, including those who voted against. Secured creditors are generally unaffected as regards the secured portion of their claims. If the debtor fails to comply with the confirmed plan, for example by missing instalments, a creditor may apply to terminate the konkordato as regards its own claim, recovering the right to claim the full amount. Where the konkordato was obtained by fraud, any creditor may seek its termination in full, which usually leads to bankruptcy.
9. Practical Checklist for Foreign Creditors
- Track the financial position of key Turkish customers and set up monitoring of konkordato announcements.
- Have an apostilled Turkish power of attorney ready so that local counsel can file within the fifteen-day window.
- File your claim in full, with supporting documents and security, and check how foreign currency amounts are treated.
- Before voting in favour, notify guarantors and co-debtors as required by Article 303.
- For continued supply, require prepayment or security and ensure new transactions are approved by the commissioner.
- Compare the plan with the likely bankruptcy outcome and object at confirmation if the plan is worse.
- For future sales to Türkiye, register retention of title with the Turkish notary and consider bank guarantees, standby letters of credit or credit insurance.
10. Conclusion
Konkordato is a powerful shield for Turkish debtors. For foreign creditors, the outcome depends on acting quickly and knowing where Turkish law differs from home. The key points can be summarised as follows:
- The moratorium stops enforcement, precautionary measures and interest on unsecured claims, and suspends limitation periods.
- Insolvency termination clauses cannot be relied on, but a supplier can withhold performance until security is provided.
- Claims must be filed within fifteen days of the public announcement; missing the deadline can cost the creditor its vote.
- Foreign currency claims are converted into Turkish lira for the process, which can affect recovery.
- Voting in favour without first notifying guarantors can cost the creditor its rights against them.
- Retention of title clauses do not protect a supplier against a Turkish buyer's creditors unless registered with a Turkish notary.
For advice on protecting claims against Turkish counterparties in konkordato, filing and voting, objections to confirmation, enforcement of guarantees and structuring secure sales to Türkiye, please contact us at info@guzeloglu.legal.