The Concordat Process in Light of the Current Directive of the European Union (2022/0408)[1]
The directive prepared by the European Union to make certain regulations regarding bankruptcy law and to standardize these regulations addresses the issue from four important perspectives. These are as follows;
- Area of Regulation
- Legal Basis and Applicability
- Evaluation and Effects for Employers
- Reflections of Composition and Bankruptcy on the Budget
- A Broad Examination of the Concept of Concordat
If we make a brief definition of concordat, we will learn why the EU Directive evaluates the issue in such a broad framework. Roughly, concordat is the ability of the debtor to postpone his/her debts according to the majority and form rules stipulated in the law. The debtor creates a concordat plan in order to operate the concordat process. The acceptance of this plan by the creditors and its approval by the competent court opens the way for the debt to be paid within the period and conditions agreed upon between the parties. There is no prerequisite such as being a merchant to apply for this path.
One of the most important reasons that causes the concordat situation is that market conditions do not continue to be stable.[2] In particular, in an inflationary economic environment, the increase in exchange rates above the expected level and the producer, who needs raw materials and supply chains from abroad for production, is forced to market the goods he/she purchases according to the exchange rate in local currency, which significantly reduces the profit rate, and therefore, the concordat situation, 'risk', may occur depending on the company volume and management. The high import volume of the market directly affects the supply chain in an environment that is commercial vulnerable to exchange rates and causes payments to be delayed. Therefore, concordat occurs due to more than one situation. For this reason, we can consider this situation as a socio-economic phenomenon rather than treating it as similar to bankruptcy. This is the basic situation that stands out in the EU Directive.
The purpose of concordat, unlike bankruptcy, is to ensure that the business survives in market conditions.[3] Such as paying creditors, ensuring the financing of the business, continuing the employment of employees and providing returns to shareholders. Compared to bankruptcy, it is generally accepted that it will be more beneficial for the indebted business to continue production rather than selling its production vehicles at second-hand/scrap prices, both in terms of the stability of the market environment and the payment of existing debts.
The statements in the first part of the EU Directive also support this situation. In this section titled 'Reasons for and objectives of the proposal', it is stated that due to the lack of compatible bankruptcy and composition policies (insolvency regimes) in the European market formed by the countries within the Union, the integration of the free capital economy among the member countries cannot be fully achieved. The International Monetary Fund has stated that the European Union must provide three important items for market integration: transparency, regulation and ensuring quality in commodities. The European Parliament and the European Central Bank consider a new composition arrangement to be made as a key factor in this context in order to ensure harmonization. In this way, the market will become predictable for investors, costs will decrease, investments will be included in the intra-union economic circulation, and more importantly, since a balanced environment is provided, risk taking will become more accessible for merchants and employment will be provided.
Another aim of the directive is to eliminate the differences between the relevant legal regulations of the member countries and to ensure consistency and uniformity in practice. By filling the legal gaps in other member states with the regulations made at the Union level, investors will be prevented from leaving the Union due to some procedural deficiencies such as lack of information or incorrect implementation. In this way, the main point that is aimed to be reached is to turn the Union economy into a single market with a complete unification. The purpose of the European Union Directive can be summarized in this way.
- Uniformization of Market Elements through Legal Regulations
If we examine it from a legal perspective, one of the important points where the directive differs from other EU regulations is that it does not renew an existing regulation but rather aims to eliminate an existing legal gap. The Union uses the relevant regulation almost as an instrument to ensure market harmonization. For this reason, it regulates the concordat from two perspectives: Pre-insolvency procedures and debt discharge procedures.
Both regulations are new to the Union and do not yet have any national framework. The aforementioned regulations aim to detect the process leading to bankruptcy for companies at the very beginning, provide loans accessible with special interest rates for this situation, and eliminate market congestion and stress through such covert restructuring processes. However, these aims do not aim to bring about a system in which companies on the verge of bankruptcy are rescued with tolerable interest rates in any way. On the contrary, it is to establish predictable market conditions, to provide opportunities for investors to act more boldly and to ensure that debtors pay off their debts in the shortest and safest way possible. Otherwise, it is not to eliminate the post-insolvency effects foreseen in the directive, but to increase the foresight to prevent their occurrence.
[1] For editing see. (EUR-Lex – 52022PC0702 – EN – EUR-Lex (europa.eu))
[2] Orhan Eroğlu, Uygulamada Konkordato,5.bsk., Seçkin Yayıncılık, 2023, Ankara 2023,syf.35-36
[3] Melissa B. Jacoby, Edward J. Janger ‘‘Ice Cube Bonds: Allocating the Price of Process in ChapterBankruptcy’’, The Yale Law Journal, Ocak 2014,s.893, Çevrimiçi (Yale Law Journal – Ice Cube Bonds: Allocating the Price of Process in Chapter 11 Bankruptcy), Access Date: 12.08.24
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