1. Legal Framework of the Turkish Concordat System
1.1. Purpose and Nature
The concordat aims to restructure a debtor’s debts under the supervision of the court, allowing partial repayment while preserving business continuity. It operates as a collective enforcement mechanism, replacing individual execution proceedings with a structured, court-supervised repayment plan.
The system protects both the debtor and creditors by ensuring equality among creditors (alacaklılar arasında eşitlik ilkesi) while allowing creditors to vote on whether to approve the proposed restructuring plan.
1.2. Key Stages of the Concordat Procedure
The procedure generally follows four stages:
- Application and Temporary Term (Geçici Mühlet)
Upon filing, the court may grant a temporary moratorium protecting the debtor from enforcement actions. - Definitive Term (Kesin Mühlet)
If the initial findings indicate potential success, the court grants a definitive term (typically one year, extendable to 18 months) and appoints a concordat commissioner (konkordato komiseri). - Creditors’ Meeting and Voting
Creditors are invited to declare and verify their claims. The commissioner prepares the list of creditors and organizes voting on the proposed plan. - Court Approval (Tasdik Kararı)
If sufficient majority and legal conditions are met, the court ratifies the concordat, which then becomes binding on all creditors.
Foreign creditors, therefore, must act strategically to ensure that their claims are duly registered, classified correctly, and represented in the voting process to protect their interests.
2. Recognition and Participation of Foreign Creditors
2.1. Legal Standing of Foreign Creditors
Under Turkish law, foreign creditors are treated on an equal footing with domestic creditors, provided that their claims are legitimate and enforceable within the jurisdiction of Turkish courts. There is no nationality-based restriction on creditor rights in concordat proceedings.
The principle of reciprocity under Turkish private international law (Law No. 5718, MÖHUK) does not limit foreign creditors’ participation. Thus, even if the foreign creditor’s country does not provide similar rights to Turkish creditors, they are still entitled to participate in Turkish proceedings.
2.2. Registration of Foreign Claims
To exercise voting rights, a foreign creditor must file its claim during the declaration period announced by the concordat commissioner. Supporting documents, such as contracts, invoices, and account statements, must be:
- Translated into Turkish by a sworn translator,
- Notarized, and
- Apostilled or legalized via Turkish consulate if issued abroad.
Failure to comply with these procedural steps may lead to the exclusion of the claim from the creditors’ list, resulting in the loss of voting rights.
2.3. Challenges in Practice
Foreign creditors often face difficulties regarding:
- Recognition of foreign currency claims;
- Determination of applicable law governing the claim;
- Assessment of security rights (e.g., foreign pledges, mortgages);
- Exchange rate adjustments during claim verification.
These issues can directly influence the classification and voting rights of the foreign creditor.
3. Classification of Claims in Concordat Proceedings
3.1. Statutory Basis
Claim classification in Turkish concordat law is guided primarily by Article 301 of the Enforcement and Bankruptcy Law and Article 206 (ranking of claims in bankruptcy), applied by analogy. The classification determines both voting rights and payment priority.
3.2. Main Categories of Claims
- Secured Claims (Rehinli Alacaklar)
Creditors holding valid security rights (pledges, mortgages) over debtor assets have privileged status. They are not bound by the concordat plan for the portion of their claims covered by the collateral. - Unsecured Ordinary Claims (Adi Alacaklar)
These are subject to the concordat and vote collectively on the plan. Most foreign commercial claims fall into this category. - Public Claims (Kamu Alacakları)
Taxes and social security debts are generally excluded from the concordat unless specific legislation allows restructuring. - Subordinated or Conditional Claims (Şarta Bağlı Alacaklar)
Claims dependent on contingencies (e.g., guarantees, pending arbitration) may be conditionally included.
3.3. The Role of Claim Classification in Voting
Only ordinary unsecured creditors have unrestricted voting rights. Secured creditors may vote only for the unsecured portion of their claim (if the collateral is insufficient). Thus, the accurate classification of a foreign creditor’s claim directly affects its voting power and the likelihood of recovering debts.
4. Voting Rights of Foreign Creditors
4.1. Legal Requirements for Voting
According to Article 302 of the Enforcement and Bankruptcy Law, a concordat is approved if:
- Half of the creditors representing at least two-thirds of the total debt vote in favor, or
- One-fourth of the creditors representing three-fourths of the debt approve.
Foreign creditors’ votes are counted within these ratios once their claims are verified and admitted to the creditors’ list.
4.2. Voting Procedure
The concordat commissioner organizes the creditors’ meeting, notifying all verified creditors—including foreign ones—through official publication and, where possible, direct notice via the address provided in the claim form or through international service channels (per Hague Service Convention).
Foreign creditors may:
- Attend in person or by authorized representative (power of attorney required), or
- Submit their votes in writing, provided authenticity and timing requirements are satisfied.
4.3. Limitations and Exclusions
Foreign creditors may be excluded from voting if:
- Their claim is disputed and not provisionally recognized;
- Documents are insufficiently translated or legalized;
- Their security fully covers the claim (thus, they bear no unsecured risk).
5. Treatment of Foreign Currency and Exchange Rate Claims
5.1. Legal Treatment under Turkish Law
Foreign currency claims must be converted into Turkish Lira for voting and classification purposes, generally at the Central Bank exchange rate on the date of concordat filing. This conversion ensures uniformity in determining the total debt amount and voting weight.
5.2. Risk of Exchange Rate Fluctuations
Foreign creditors bear the risk of currency fluctuations during the procedure. If the concordat is later annulled, the recalculation may benefit or harm foreign creditors depending on exchange trends. Some practitioners suggest contractual clauses for currency adjustment mechanisms or hedging instruments to mitigate this risk.
6. Secured Foreign Creditors and Partial Voting
6.1. Pledge and Mortgage Rights
Where a foreign creditor holds a foreign-law governed security over an asset located abroad, Turkish law generally does not recognize enforcement priority over domestic assets unless formally registered in Turkey. Thus, the secured portion may be disregarded in local proceedings.
However, if the security is validly registered in Turkey (e.g., a Turkish mortgage, pledge of movable assets, or share pledge), the creditor’s claim is partly secured and partly unsecured. Only the unsecured part confers voting rights.
6.2. Comparative Considerations
This approach aligns with international restructuring practices. In the EU Insolvency Regulation and UNCITRAL Model Law, secured creditors often have voting restrictions to prevent disproportionate influence in collective restructuring processes.
7. Subordinated, Conditional, and Disputed Claims
7.1. Conditional and Disputed Claims
If a foreign creditor’s claim is subject to pending arbitration or foreign court litigation, it may be conditionally admitted to the creditors’ list. The commissioner may assign provisional voting rights or suspend voting pending the outcome of the dispute.
7.2. Subordinated Loans and Related-Party Claims
Claims by affiliated foreign companies, shareholders, or directors are usually subordinated under the principle of good faith and equity. These claims either lose voting rights or are assigned reduced influence to prevent manipulation of the creditor majority.
8. Recognition of Foreign Judgments and Arbitral Awards
8.1. Enforcement Prerequisite
A foreign judgment or arbitral award establishing a creditor’s claim must be recognized or enforced in Turkey under MÖHUK Articles 50-60 before being accepted as a valid claim in a concordat. Without such recognition, the commissioner may consider the claim unproven.
8.2. Practical Consequences
Foreign creditors holding unenforced judgments may lose both ranking and voting rights, even if the debtor previously accepted the debt abroad. Therefore, foreign creditors are advised to initiate recognition proceedings (tenfiz davası) promptly after filing their claim.
9. Public Policy and Anti-Discrimination Principles
9.1. Equality of Creditors
Turkish concordat law emphasizes the principle of equality (eşit işlem ilkesi) among creditors of the same class. Any discrimination based on nationality or residence would contravene both Article 10 of the Turkish Constitution and Article 301 of the Enforcement and Bankruptcy Law.
9.2. Public Policy (Kamu Düzeni)
Foreign creditors’ rights may be limited only where the enforcement of foreign judgments or contracts would violate Turkish public policy, such as transactions involving illegal interest or sanctions-restricted entities. Outside such exceptional cases, Turkish courts ensure equal procedural treatment.
10. Court Approval and Binding Effect on Foreign Creditors
Once the concordat plan is approved and ratified by the court, it becomes binding on all creditors, including those who:
- Did not participate in voting;
- Voted against the plan; or
- Failed to register their claim in time.
For foreign creditors, this means that even in absence of participation, their Turkish-law governed claims are restructured according to the approved plan. Enforcement abroad, however, may require separate recognition under private international law rules of the creditor’s jurisdiction.
11. Comparative Insights: EU and Cross-Border Practice
In international practice, systems such as the EU Directive (2019/1023) on preventive restructuring frameworks and the UNCITRAL Model Law on Cross-Border Insolvency emphasize:
- Early creditor participation;
- Non-discriminatory treatment of foreign creditors; and
- Recognition of restructuring proceedings across borders.
Although Turkey has not adopted the Model Law, its concordat system is functionally convergent, ensuring procedural fairness and transparency for foreign participants.
12. Strategic Considerations for Foreign Creditors
Foreign creditors should adopt proactive strategies to safeguard their interests:
- Timely Filing: File the claim promptly with all supporting documents, translations, and legalizations.
- Local Representation: Appoint a Turkish attorney familiar with insolvency practice to monitor commissioner communications.
- Currency Management: Consider contractual clauses addressing currency conversion and exchange rate risks.
- Evidence Preparation: Initiate recognition proceedings for any foreign judgment or arbitral award.
- Participation in Voting: Attend or delegate representation to influence plan approval.
- Post-Approval Monitoring: Track debtor performance and seek annulment if the debtor defaults under the plan.
13. Case Law and Judicial Approach
While Turkish case law on foreign creditors in concordat is limited, courts have consistently upheld the principle of equal treatment and strict procedural compliance. In various Court of Cassation (Yargıtay) decisions, the judiciary emphasized:
- Claims not duly substantiated or translated cannot confer voting rights;
- Security rights must be registered in Turkey to be recognized;
- Foreign exchange rate conversions should follow official Central Bank rates;
- Concordat approval is binding irrespective of creditor nationality.
These principles reflect a coherent and predictable framework compatible with international standards.
14. Practical Example: A Cross-Border Supplier Case
Imagine a Swiss supplier holding a USD 1 million unsecured claim against a Turkish importer under a sale contract. The debtor files for concordat in Istanbul Commercial Court. The Swiss creditor must:
- Submit the claim in Turkish with apostilled and translated documentation;
- Register the claim within the commissioner’s deadline;
- Convert the USD amount to TL at the official rate;
- Attend the creditors’ meeting to vote.
If the plan offers a 60% payment over three years, and the majority thresholds are met, the Swiss creditor is bound by the plan—even if it voted against it. The remaining 40% becomes legally extinguished upon performance.
15. Future Outlook and Reform Proposals
As Turkey’s cross-border commercial transactions increase, certain reforms could enhance foreign creditors’ participation:
- Digital submission portals for international creditors;
- Standardized translation and apostille guidelines;
- Recognition of electronic voting mechanisms;
- Closer alignment with UNCITRAL principles to facilitate recognition abroad.
Such developments would strengthen Turkey’s position as a reliable jurisdiction for restructuring and insolvency processes.
Conclusion
Foreign creditors play a vital role in modern Turkish concordat proceedings. Turkish law ensures their procedural equality, transparent classification, and fair voting rights. However, effective participation depends on meticulous procedural compliance—timely claim registration, document legalization, and proper representation.
For practitioners and international investors, understanding these mechanisms is essential to protect cross-border credit interests in Turkey’s restructuring environment. The Turkish concordat, while domestic in form, increasingly functions as a transnational insolvency tool, balancing national sovereignty with global creditor protection.
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