May Provisional Attachment Proceedings be Carried Out Against the Companies That Demanded Concordat?

With the Law numbered 7101 on Making Amendments to the Enforcement and Bankruptcy Code and Certain Laws, as published in the Official Gazette on 15 March 2018, concordat has become an institution resorted to widely by the debtors that experience bottleneck in economic aspects; and it is prescribed for the concordat applicant debtor, that all measures necessary for the protection of the debtor’s assets and liabilities as they stand shall be taken. In our newsletter, we will scrutinize the scope of these measures and whether or not it is legally possible to carry out provisional attachment proceedings against the companies that demanded concordat.

What is the scope of the injunction issued about a concordat demandant?

The following provision is contained in the article 287 of the Enforcement and Bankruptcy Code: “Upon the concordat demand, when the court finds that the documents referred to in the article 286 are available completely and without any deficiencies, the court shall immediately order a temporary period in favor of the demandant and take all measures the court deems necessary for the preservation of the demandant’s assets, including the cases referred to in the second paragraph of the article 297”. Pursuant to this provision, the concordat demandant debtor is taken under protection by the court in the widest sense.

The measures referred to in the above provision shall apply during the temporary period to be granted to the debtor by the court; and such temporary period may last for 3 months as from the concordat demand, for maximum 5 months along with the maximum additional period of 2 months that may be granted at the end of this three months’ period. For the temporary period, the court assigns an administrator for the concordat demandant debtor and all the assets and liabilities of the debtor are controlled by the administrator.

To look into the practice for the scope of the measures ordered by the court; it is observed that very comprehensive injunctions are issued, which injunctions order that, within the concordat temporary period, no enforcement proceedings shall be carried out against the debtor, including the enforcement proceedings to be carried out for public receivables, and the conduct of all enforcement proceedings against the debtor, including the conservation proceedings, shall be prevented, regardless of the reason they are based on, and the enforcement proceedings which were previously initiated against the debtor shall be suspended, however, enforcement proceedings through the foreclosure of the pledged properties may be initiated against the debtor for the receivables secured by pledge, and such initiated enforcement proceedings may be resumed, and measures of conservation shall not be taken due to these proceedings, and the pledged property shall not be sold and the enforcement of injunctive relief and provisional attachment decisions shall be prevented. We should state that enforcement proceedings may be initiated for privileged receivables, even though it is ordered that no enforcement proceedings shall be initiated against the debtor (These are the receivables determined pursuant to the provision contained in the article 206 of the Enforcement and Bankruptcy Code).

As can be observed, with the declaration of concordat, almost an immunity is declared against the creditors in favor of the concordat demandant debtor. However, in spite of the fact that no enforcement proceedings shall be carried out against the debtor, it is possible to file an application against the debtor for provisional attachment and it is possible to obtain a provisional attachment decision against the debtor. This is because; provisional attachment is an institution which is regulated by the Code in order to prevent the debtor from hiding his assets to the detriment of the creditor and from causing a loss against the creditor. Therefore, considering the matters of whether or not the receivable is secured by pledge and whether or not the debt has become due, the Commercial Court, reviewing the application for provisional attachment decision, may render a provisional attachment decision on the basis of the contents in the file, without serving a notification or a notice on the debtor party.

Nonetheless, the court which reviews the application for provisional attachment does not have the responsibility and duty to investigate whether or not the debtor has declared concordat. As a result of that, it is possible to file an application for provisional attachment and to obtain a provisional attachment order, even though an injunction is issued for the prevention of initiation of enforcement proceedings against the concordat demandant debtor.

So, is it possible to enforce such provisional attachment decision?

It is necessary to follow a two phased process in order for a provisional attachment decision to be enforced and completed lawfully. Of these phases, the first one is that the relevant application should be filed with the bailiff’s office at the location of the court within 10 days as from the date of the provisional attachment decision and that it should thus be requested that the decision be enforced. The second phase is that enforcement proceedings should be initiated or a lawsuit should be filed for the relevant receivable within 7 days, after the provisional attachment decision is enforced. In case this two phased process is not fulfilled duly and properly, the provisional attachment decision obtained shall become null and void. In such case, it will not be possible to enforce the decision within the scope of the injunction issued, since it is necessary to file the relevant application with the bailiff’s office within 10 days for the enforcement of the decision, even if it is possible to obtain such provisional attachment decision against the concordat demandant debtor.

Even if, in practice, it is possible to file the relevant application with the bailiff’s office for the enforcement of the provisional attachment decision and to carry out the attachment proceedings; the debtor may, by indicating the injunction as the ground, object to the attachment proceedings and ensure the revocation of the attachments recorded.

In conclusion, as we have explained above, a very comprehensive injunction is issued for the concordat demandant debtor, to be applicable within the maximum 5 months’ temporary period that will be granted by the court. It is possible to file an application for provisional attachment decision and thus, the court may order attachment of the debtor company’s movable and immovable properties as well as its rights and receivables held by third parties. However; since such injunction is issued to prevent enforcement of provisional attachment decisions about the concordat demandant debtor, it is not possible to enforce the provisional attachment decision obtained. In such event, it will be a correct approach if the creditor participates in the concordat case as the intervening party, pursues the process related to the concordat case and acts depending on the result of the concordat case.