Composition and Debt Restructuring Processes – 2025

Composition and Debt Restructuring Processes – 2025. This comprehensive legal guide offers an in-depth analysis of the two main debt restructuring mechanisms under 2025 Turkish Law for corporate businesses facing financial distress: Concordat (Konkordato) and Financial Restructuring (FYY). The article analyzes the critical differences these two institutions present in terms of legal nature, scope of universal protection, tax advantages, and strategic management risks, providing a concrete roadmap for debtors to select the most suitable method for their commercial reputation and operational continuity goals. It particularly focuses on the financial feasibility requirement sought by the Supreme Court and the advantage of the stay of execution provided by Concordat against all creditors, aiming to provide the necessary legal and financial perspective for making the right strategic decision.

I. Introduction: Legal and Strategic Foundations of Debt Restructuring

A. Macroeconomic and Legal Basis for the Need for Debt Restructuring

The primary goal of commercial law is to ensure trust among market players and the continuity of commercial life. Debt restructuring mechanisms are critical tools that serve this purpose, centering the globally accepted principle of preserving business integrity (Going Concern). In Turkish Law, two main mechanisms stand out for commercial enterprises facing financial difficulties to maintain their economic value by avoiding liquidation: Concordat (Konkordato), regulated under the Enforcement and Bankruptcy Law (İİK) No. 2004, and Financial Restructuring (FYY), executed under the legislation of the Banking Regulation and Supervision Agency (BDDK). The current legal grounds of these two institutions require a detailed analysis for 2025 commercial strategies.

From the 2025 perspective, while there are no major structural changes in the İİK directly concerning corporate debtors, the technological and procedural adaptations in the law’s implementation processes are indirectly increasing pressure on corporate debtors. For instance, the provision of quick collection opportunities, especially for individual receivables, and the elimination of the physical correspondence process in execution proceedings in 2025, can accelerate creditors’ collection processes, leading to increased operational and financial pressure on corporate debtors. This situation further highlights the need for universal protection against the risk of sudden follow-up and execution that may be initiated by operational creditors.

B. Strategic Method Selection: Legal Nature and Scope Differences

The strategic choice of the debt restructuring path primarily depends on the nature of the legal framework. Financial Restructuring (FYY) is an out-of-court process, constituting a private law contract, and binds only the financial institutions that sign the framework agreement. This contractual structure offers a high degree of confidentiality and flexibility between the parties, but keeps its scope narrow. In contrast, Concordat is a process conducted under the supervision of the Commercial Court of First Instance, acting as a universal enforcement institution. Upon court ratification, Concordat becomes binding against all creditors, including those who did not consent to the project, with the exception of secured creditors, thus providing full legal protection (universal stay of execution).

Significant constraints also exist regarding scope. FYY is aimed at large-scale commercial enterprises, and the monetary threshold for large-scale application requires a minimum principal debt of 100 million TL. Furthermore, this mechanism applies only to commercial enterprises indebted to banks, financial leasing, factoring, and financing companies; debtors against whom a bankruptcy decision has been issued are excluded. In Concordat, there is no monetary threshold (limit); all merchants who are unable to pay their debts when due, or are in danger of being unable to do so, can apply.

These differences play a critical role in determining a business’s restructuring strategy. If a business’s financial debts are manageable, but it faces intense risk of seizure and follow-up from operational creditors (suppliers, other commercial partners), FYY, despite its commercial reputation protection and confidentiality advantages, will clearly be insufficient as it only binds financial institutions. This is because FYY does not prevent follow-up by third-party creditors. In this scenario, applying for Concordat, which provides universal protection and halts execution proceedings against all creditors, becomes a necessary strategic step to protect assets and operational continuity.

II. Financial Restructuring (FYY) Mechanism: Contractual Solution and Financial Incentives

A. Legal Structure of FYY and the Principle of Confidentiality

The Financial Restructuring (FYY) mechanism is a means of compromise structured as a private law contract under the regulatory framework of the Banking Regulation and Supervision Agency (BDDK). This mechanism is based on a Framework Agreement (ÇAn) signed between the parties and is binding only on the signatories. This agreement is effective only for the creditor institutions that signed the Financial Restructuring Framework Agreement.

One of the most distinct advantages of the FYY process is its confidentiality. Since the process is not publicly announced under court supervision, it is carried out confidentially, leading to less loss of commercial reputation for debtors. This makes it a significant preference for large businesses with sensitive commercial relationships, compared to the public announcement and open access to case files in the Concordat process.

B. Procedural Stages and Decision Mechanism

The FYY process is managed by the Creditor Institutions Consortium (AKK) and the Lead Bank. The aim of this structure is to establish a fast and effective decision-making mechanism with an out-of-court authority. Necessary quorum for decision-making is determined: the approval of a majority of at least two creditor institutions, representing two-thirds ($2/3$) of the receivables, is required.

Procedural speed is another fundamental point where FYY differs from Concordat. The relevant Framework Agreement must be signed within a maximum of 60 calendar days from the approval date of the BDDK. This strict timeline necessitates the process to proceed much faster and decisions to be implemented immediately compared to Concordat processes, which can last for months or even years.

C. FYY’s Stay of Execution and Scope Limitation

Under FYY, the debtor is protected by the contracting creditors. This protection mechanism is called the “status quo maintenance process.” When this process begins, the signatory creditor institutions cannot initiate new follow-up or continue existing follow-up. This protection acts as a contractual, narrowed version of the provisional stay in Concordat.

However, since the FYY Contract (FYYS) only binds the signatory creditor institutions, it has no binding effect or protective impact on third-party creditors. Follow-up by third parties (commercial creditors, suppliers, etc.) against the debtor is not prevented. This can pose a major threat to operational continuity; even if the debtor agrees with financial institutions, they may still face execution and seizure proceedings due to other commercial debts.

D. Cost Advantage: Tax Exemptions

The most significant advantage of FYY for corporate debtors, which Concordat does not offer, is comprehensive tax exemptions. FYY processes provide Stamp Tax, Banking and Insurance Transactions Tax (BSMV), and Resource Utilization Support Fund (KKDF) exemptions. Furthermore, VAT and Corporate Tax exemptions are applied when transferring real estate or participating interests. Exemption from execution fees is also stipulated, although this is open to discussion in practice. Additionally, incentive certificates, export commitments, and credit guarantee surety periods are automatically extended.

These comprehensive financial incentives make FYY clearly superior to Concordat in terms of cost optimization when restructuring financial debts. By providing these incentives, the State aims to prevent major financial difficulties from being carried into court processes, ease the financial system, and steer the debtor and creditors toward a confidential, out-of-court compromise. In Concordat, no tax exemptions are provided; the ordinary tax regime applies.

III. Concordat Mechanism: Universal Enforcement and Judicial Supervision

A. Concordat Application Requirements and Project Feasibility

Concordat is a legal institution that all merchants who are unable to pay their debts when due, or are in danger of being unable to do so, can apply for. The application authority is the Commercial Court of First Instance where the debtor’s commercial enterprise is located. The Concordat project is an agreement made between the debtor and creditors under the conditions specified in the law. This project is a legal proposal that enables the debtor to make payments to creditors within appropriate conditions.

Among the conditions necessary for the ratification of Concordat is the acceptance of the project by a qualified majority of creditors (based on the number of creditors and the amount of receivables). The 2025 legal approaches of the Supreme Court have clearly demonstrated that the Concordat project must not only be a legal requirement but also possess solid financial feasibility. In this context, the requirement that the proposed amount must be proportional to the debtor’s existing and future resources is sought. This criterion makes the quality of the reasonable assurance reports and financial modeling presented during the consultancy process vital. Furthermore, the Court may also request the debtor company official to be summoned and heard in court.

B. Legal Consequences of Provisional and Definitive Stay Orders (Universal Protection)

The provisional stay, which begins with the acceptance of the Concordat request by the Commercial Court of First Instance, ensures that the consequences of the definitive stay begin to apply, as stipulated by Article 288 of the İİK. The main purpose of this process is to protect the debtor’s assets and enable them to successfully complete the Concordat project without being under pressure.

1. Universal Effect on Creditors

The most important consequence of the definitive stay order is the universal stay of execution. With this decision, execution proceedings against all creditors cease, and new follow-up cannot be initiated. This stay of execution covers all types of receivables, including follow-up related to public receivables (tax debts). Execution proceedings that have already begun cease by law. Furthermore, even if precautionary injunction and provisional attachment orders have been issued, they are not enforced during the stay period.

As a natural consequence of this stay of execution, statutes of limitation and forfeiture periods that can be interrupted by execution proceedings do not run during the stay period. This completely removes the pressure on the debtor’s assets, allowing them to focus on restructuring efforts. Concordat provisions may also affect the debtor’s assets abroad; however, this requires the court decision to be recognized and enforced by the court in the country where the asset is located.

2. Restrictions on the Debtor and Supervision by the Commissioner

Although the Concordat process provides universal protection to the debtor, this protection severely restricts the debtor’s power of disposition and subjects them to a high level of supervision. From the moment the definitive stay is granted and the commissioner is appointed, the debtor must carry out all their activities under the supervision of the appointed commissioners. The debtor must comply with the commissioner’s warnings and obtain approval for necessary activities.

Pursuant to Article 297/1 of the İİK, the Court may entirely remove the debtor’s power of disposition, deciding that only the commissioner shall continue the operation of the enterprise. Without the court’s permission, the debtor cannot perform significant transactions such as establishing a pledge, acting as a guarantor, transferring or encumbering real estate and the continuous facilities of the enterprise, even partially. Otherwise, the transaction may be deemed invalid.

Violation of these restrictions has serious sanctions. If the debtor acts contrary to the rules requiring the court’s approval or the warning of the Concordat commissioner, the rejection of the Concordat request comes into question, and if the debtor is subject to bankruptcy, a decision for their bankruptcy may be issued. This high level of supervision and threat of sanction shows that the Concordat process does not provide absolute protection to the debtor, but rather aims to protect the debtor’s assets and secure creditor interests. The non-inclusion of the criterion of “an action that justifies suspicion of bad faith” from the old regulation indicates that the court’s focus has shifted from moral judgment to procedural compliance and the protection of the commercial enterprise’s interests.

IV. Effect of Concordat on Private Law Relations (Contract Law)

A. Protection of Contracts Important for Business Activity

Concordat creates special protections in contract law to ensure the sustainability of the debtor’s business activity. If the debtor applies for Concordat, provisions in contracts to which the debtor is a party and which are important for the continuation of the enterprise’s activity, relating to the termination of the contract or the acceleration of the debt solely due to the debtor’s application, are deemed invalid. Even if the contract does not contain an explicit provision, termination of the contract solely on the grounds of applying for Concordat is not possible. This provision aims to prevent the disruption of the debtor’s critical supply chain or operational agreements due to financial difficulty.

B. Power to Terminate Continuous Debt Relationships

One of the goals of Concordat is to rationalize the existing structure of the enterprise. Accordingly, the debtor is granted the power to terminate continuous debt relationships that prevent the achievement of the Concordat’s goal.

The procedure for this termination power relies on termination at any time, subject to the commissioner’s favorable opinion and the court’s approval. This possibility allows the debtor to clean up “legacy contracts” that are costly or burdensome for the enterprise, in order to implement the new and viable business plan.

Compensation must be paid to the counterparty (the creditor) due to the termination of the contract by this means. However, the compensation receivable to be paid to the counterparty is accepted as a receivable subject to Concordat when the Concordat is ratified. This ensures that the cost of termination is shared among all creditors, reducing the singular burden on the debtor. If a dispute arises between the parties regarding the amount of compensation, the receivable becomes a disputed receivable. The only exception to this termination power is Service Contracts, due to the principle of protecting employee rights; termination of service contracts in this manner is not possible.

V. Management Structures and Accountability of Actors in the Concordat Process

The successful management of the Concordat process depends on the effective cooperation of appointed experts and creditor representatives and their compliance with legal obligations.

A. Concordat Commissioner: Expertise, Appointment, and Responsibility

The Concordat commissioner forms the administrative and legal backbone of the process. Their fundamental duties include examining the debtor’s situation, determining receivables, organizing the creditors’ meeting, and submitting regular reports to the court. The commissioner also invites creditors to notify their receivables within 15 days via an announcement to be made through the Trade Registry Gazette and the Press Advertisement Institution. An announcement is also sent by post to creditors whose address is known. This announcement states that creditors who do not notify their receivables cannot participate in the negotiations of the Concordat project.

Commissioners are under high legal responsibility due to their duties. A regulation has been included stipulating that commissioners are considered civil servants (public officials) in the application of the Turkish Penal Code (TCK). It is accepted that lawsuits regarding the damages caused by commissioners should be heard in ordinary courts, and their liability is referred to in doctrine as personal liability.

As a guarantee of quality and professionalism in the operation of the Concordat institution, pursuant to Article 290/5 of the İİK, it is legally restricted that a person cannot serve as a provisional commissioner and commissioner in more than five files simultaneously. This restriction aims to ensure that the commissioner’s duty is performed with sufficient attention, time, and expertise.

B. Creditors’ Committee: Supervision and Principle of Impartiality

The creditors’ committee is an organ established in Concordat processes to protect the interests of creditors and secure the balance of creditor-debtor interests. This committee also demonstrates an attitude that observes public interest.

The main role of the committee is to supervise and oversee the activities of the Concordat commissioner. It can offer corrective suggestions and constructive criticisms to the commissioners for the healthy execution of the process. Committee has the authority to supervise the liquidators, especially in Concordat through the sale of assets. The committee must easily access all information and documents it needs and must have a comprehensive examination authority. The commissioner is obliged to regularly inform the committee members about the progress of the process and the debtor’s current financial situation.

One of the most important obligations of the creditors’ committee is the principle of impartiality. Committee members should not aim only to protect the interests of the creditor group they represent, but on the contrary, should defend the rights of all creditors equally and protect the interests of all components involved in the process. The committee is legally required to meet at least once a month, and members are obliged to keep secrets due to their official positions.

Committee members are held liable according to the provisions of tort for creditor damages that they caused by not performing their duties properly, or by not preventing damages when they had the authority to do so.

VI. Position of Secured Creditors and Pledge Law Practices

Although Concordat is subject to the universal enforcement institution, the guarantee of the right of pledge continues in Turkish law. The legal position of secured creditors is subject to different principles than unsecured creditors.

A. Position of Secured Receivables in the Concordat Project Decision

Receivables secured by a pledge are not included in the quorum calculation for voting on the Concordat project; that is, they do not have the right to vote. Although there is no obstacle to secured creditors attending the meeting, they must waive their right of pledge and register their receivables as unsecured receivables to be included in the voting.

This confirms that Concordat is essentially a debt relief project for unsecured receivables. The lack of voting rights for the secured creditor shows that the pledge law maintains its priority in proportion to the value of the asset, even within the Concordat mechanism. The unsecured part of the secured creditor’s receivable must be included in the quorum as an unsecured receivable.

B. Postponement of Preservation and Sale of Pledged Assets (İİK art. 307)

To prevent the urgent liquidation of pledged assets that are critical for the continuation of the debtor’s business activity, the Enforcement and Bankruptcy Law, Article 307, grants the possibility of postponing the preservation and sale of pledged assets.

Upon the debtor’s request, the sale of the pledged asset can be postponed for a period not exceeding one year from the date of the ratification decision, provided the following two basic conditions are met:

1. The receivable secured by the pledge must have arisen before the Concordat request.
2. The receivable secured by the pledge must not have any unpaid interest up to the date of the Concordat request.

This limited postponement period is a time of limited protection granted to increase the business’s chance of recovery. The provision supports the debtor while observing the balance of fairness by imposing a reasonable time restriction on the secured creditor’s right.

VII. Strategic Selection Guide and Conclusion

A. Comparative Analysis of Concordat and Financial Restructuring Mechanisms

The corporate debt restructuring strategy must carefully analyze the business’s creditor profile, the source of the financial difficulty, and the desired scope of legal protection. The table below summarizes the fundamental differences between the two main mechanisms under the 2025 legal environment:

Comparative Analysis of Main Restructuring Mechanisms (2025)

Legal Criterion	Financial Restructuring (FYY)	Concordat (İİK)
Legal Nature	Out-of-court, private law contract	Court-supervised, universal enforcement institution
Binding Effect	Binds only financial institutions that signed the framework agreement	Binding against all creditors upon court ratification
Scope	Only commercial enterprises indebted to financial institutions (min. 100 million TL threshold)	All merchants in or in danger of insolvency (no limit)
Stay of Execution	Contractual protection binding only signatories; third-party creditors can pursue follow-up	Execution proceedings cease for all creditors (including public receivables)
Tax Advantages	Comprehensive tax exemptions provided (BSMV, KKDF, VAT/CT exemption)	No tax exemptions provided
Confidentiality Status	Process is confidential, low loss of reputation	Process is announced, and case files are public
Duration (Average)	Fast, targeted to be signed within 60 days	Long, can take an average of 6-24 months

B. Key Conclusions and Recommendations Derived from 2025 Legal Practices

The detailed analysis conducted shows that the success of the debt restructuring process depends on the selection of the correct legal tool and meticulous management of the process.

1. Priority of Universal Protection: If the operational continuity of the business is under serious risk due to follow-up by third-party (non-financial) creditors, applying for Concordat is a necessary strategy, overlooking the cost advantages brought by Financial Restructuring. Concordat is the only mechanism that provides full and universal protection, including public receivables.
2. Emphasis on Financial Feasibility: The Supreme Court’s requirement that the proposed amount in Concordat projects must be proportional to the debtor’s resources shows that the process is no longer just a legal procedure but requires solid cost and revenue modeling, meaning a strong reasonable assurance report. Integrated work between legal teams, financial advisors, and independent audit teams is vital.
3. Governance and Compliance Risk: The restriction of the debtor’s power of disposition in Concordat and the risk of bankruptcy arising from non-compliance with the commissioner’s warning is the biggest risk factor for debtor management. Full compliance with the commissioner’s supervision throughout the process is a fundamental prerequisite for the restructuring to succeed.
4. Cost Impact and Consultancy Need: Debt restructuring processes involve complex legal, financial, and administrative procedures, requiring high consultancy costs. According to the 2025 minimum fee schedule of the Istanbul Bar Association, oral consultation fees in the office are set at 10,000 TL for the first hour, and written consultation fees are 20,000 TL. This proves the great importance of expert strategic consultancy taken at the beginning of the process in terms of cost/benefit balance.
5. Professional Commissioner Supervision: The restriction introduced by Article 290/5 of the İİK, limiting commissioners to serving in no more than five files simultaneously, is a constructive regulation aimed at ensuring that Concordat processes are executed by more expert hands and that the quality of supervision is increased. Debtors are advised to maximize cooperation in the process, considering the competence and workload of the appointed commissioner. Composition and Debt Restructuring Processes – 2025.

---

Our Latest Articles