- within Antitrust/Competition Law, Technology, Litigation and Mediation & Arbitration topic(s)
- with readers working within the Aerospace & Defence industries
In many jurisdictions around the world and in the Republic of Türkiye, stakeholders in the country's economy, particularly credit market participants, are heavily influenced by the insolvency and corporate reorganisation regime in force. This framework plays a pivotal role in facilitating the funding of business ventures and in determining a country's success as a free-market capitalist economy. However, legislating in this area is no easy task, given the inherent difficulty of keeping the scale balanced between effectiveness and fairness. From bankruptcy (iflas) to konkordato, these core principles are tested from the perspectives of both creditors and debtors. It must also be recognised that placing too much weight on one side of the scale risks tipping it over entirely. This article argues that the Draft Enforcement Law1 tips the scale too far in its pursuit of greater effectiveness in konkordato procedures, specifically through its provision on the effect of konkordato on letters of guarantee. This approach unduly favours guarantor banks whilst disadvantaging creditors of the debtor, despite banks being best positioned to absorb such risks. This represents an overreach of the legislator and is unlikely to achieve the intended effectiveness for successful corporate rescue.
Article 388 of the Draft Enforcement Law is as follows:
"Consequences of the definite term with respect to contracts
ARTICLE 388- (1) (...)
(4) Filing for konkordato shall not constitute just cause for the conversion into cash of the letter of guarantee issued in favour of the debtor. Provided, however, that such letters of guarantee may be compensated by a decision of the bankruptcy court upon the request of the addressee or the applicant[2] and after obtaining the opinion of the commissar. This provision shall also apply to surety bonds issued within the scope of surety insurance."
As demonstrated above, this provision effectively operates as a stay on the independent guarantee relationship between the addressee and the guarantor, which is not directly tied to the debtor to whom the konkordato term has been granted. However, prior to the Ministry of Justice's opening of the Draft Enforcement Law for public consultation, legal scholars argued that the applicant/debtor's konkordato proceedings, whether filing, obtaining a term, or securing approval, should not affect the addressee's claim against the bank/guarantor. The letter of guarantee creates an independent guarantee relationship between the bank and the addressee, under which the bank is independently liable as primary debtor.3 The applicant (i.e. the debtor to whom the konkordato term has been granted) cannot intervene by injunction in this independent guarantee relationship to which it is not a party. Accordingly, the applicant should not be able to prevent payment under the letter of guarantee merely because it has been granted a konkordato term.4 However, despite these doctrinal views, the legislator has adopted the following contrary position in the Draft Enforcement Law's explanatory memorandum:
"This paragraph has been added to the article to eliminate uncertainties that have arisen in practice regarding whether claims for compensation under letters of guarantee can be stayed by way of injunction during konkordato proceedings. (...)"
This article rejects this justification. The mere existence of conflicting court decisions5 on injunctions preventing the enforcement of letters of guarantee against banks does not, in itself, justify interference of law with third-party contracts without any additional substantive grounds. The doctrinal views mentioned above have merit and align with some recent court decisions. Istanbul Regional Court of Justice, 17th Civil Chamber, has held that such interference would not be legitimate on the following grounds:
"Interference by way of injunction with the contractual relationship established between the guarantor bank and the addressee, arising from the applicant's filing for konkordato, would be inconceivable. Such interference would violate both the principle of freedom of contract and the right to property."6
The court further reasoned that, whilst enforcement of the letter of guarantee might appear to reduce the konkordato debtor's assets, in reality the debtor's obligation to addressee from the underlying main contractual relationship would have been discharged by the payment of the letter of guarantee amount. After the guarantor bank pays such amount, it would become a creditor of the konkordato debtor for the amount paid, meaning (according to the court) that there would be no change in the debtor's overall assets and liabilities. Although the debtor's net position will likely change due to additional costs such as higher interest rates under the bank's arrangement, it would be neither efficient nor fair to penalise an addressee who prudently secured its claim with a letter of guarantee before the debtor/applicant filed for konkordato. Such interference with independent guarantee relationships to which the konkordato debtor is not a direct party cannot be simply justified on the grounds of protecting the debtor's estate or ensuring equality amongst creditors. The konkordato regime itself does not mandate perfect equity among creditors, Articles 294/1 and 295 of the current Enforcement and Bankruptcy Law distinguish between preferred, secured, and unsecured creditors.7
Moreover, interference with the independent guarantee relationships to which the konkordato debtor is not a direct party also lacks efficiency. In seeking to rescue the insolvent debtor through konkordato proceedings, the provision disregards the risk of insolvency contagion to the debtor's suppliers. Whilst konkordato may restore a company to solvency, suppliers that typically rely on letters of guarantee may find their position in jeopardy. In addition, suspension of the entire letter of guarantee mechanism during widespread financial hardship would increase the risk of transmitting the konkordato debtor's financial distress to its suppliers. Additionally, the stay on letters of guarantee during konkordato would diminish market confidence in such instruments, eliminating the possibility for financially troubled businesses to continue trading by offering adequate security to its creditors during periods of financial difficulty. Finally, transferring risk from regulated institutions such as banks, which can monitor the debtor's financial condition and available assets eligible for security, to the debtor's suppliers who may lack such monitoring capacity is a significant indicator that the Draft Enforcement Law provisions unduly protects banks at the expense of vulnerable non-bank creditors. Moreover, by exposing other business to financial peril despite the overall objective of konkordato being to facilitate corporate rescue, this provision undermines the effectiveness of the entire mechanism.
In conclusion, the Draft Enforcement Law's attempt to eliminate inconsistencies arising from divergent judicial practices in konkordato procedures through its provision on letters of guarantee represents a significant step backwards in the draft legislation. Despite doctrinal views and certain court decisions to the contrary, the legislator's choice to interfere with contracts to which the konkordato debtor is not a direct party violates the principles of freedom of contract and property rights. Furthermore, this provision undermines the benefits of konkordato mechanism by increasing insolvency contagion risk for suppliers, eroding market confidence in letter guarantees, and transferring risk from regulated institutions to suppliers lacking similar monitoring capacity. This regulation constitutes excessive corporate rescue intervention and is unlikely to achieve the intended efficiency outcomes as the debtor's liabilities remain essentially the same as before such intervention.
BIBLIOGRAPHY
Erdönmez G, 'Konkordato Mühleti Verilmesinin Alacaklılara Etkisi' in Muhammet Özekes (ed), Medenî Usûl ve İcra İflâs Hukukunun Güncel Sorunları II (On İki Levha Yayıncılık 2020)
Istanbul Regional Court of Justice, 17th Civil Chamber, 13.06.2019, 1672/1058
Istanbul Regional Court of Justice, 17th Civil Chamber, 09.07.2020, 1324/1522
Reisoğlu S, Banka Teminat Mektupları ve Kontrgarantiler (Ankara 2003)
Şahin ÇS, Amerikan Hukuku ile Karşılaştırmalı Olarak Konkordato Mühletinin Alacaklılar Yönünden Sonuçları (On İki Levha Yayıncılık 2020)
Draft Enforcement Law (Cebri İcra Kanunu Taslağı) https://mgm.adalet.gov.tr/Home/SayfaDetay/cebr-icra-kanunu-taslagi24072025041230 accessed 27 November 2025
Footnotes
1. https://mgm.adalet.gov.tr/Home/SayfaDetay/cebr-icra-kanunu-taslagi24072025041230
2. Please note that there is a terminological difference between Turkish and English regarding letters of guarantee. In Turkish, the party who requests the letter of guarantee (the debtor in the underlying relationship) is referred to as the "beneficiary" (lehdar), whilst in English this party is called the "applicant" or "client". Conversely, the party in whose favour the guarantee is issued is called the "addressee" (muhatap) in Turkish, but the "beneficiary" in English.
3. Çağatay Serdar Şahin, Amerikan Hukuku ile Karşılaştırmalı Olarak Konkordato Mühletinin Alacaklılar Yönünden Sonuçları (On İki Levha Yayıncılık 2020) 336
Seza Reisoğlu, Banka Teminat Mektupları ve Kontrgarantiler (Ankara 2003) 221, cited in Güray Erdönmez, 'Konkordato Mühleti Verilmesinin Alacaklılara Etkisi', in Medenî Usûl ve İcra İflâs Hukukunun Güncel Sorunları II (2020) 30
4. Güray Erdönmez, 'Konkordato Mühleti Verilmesinin Alacaklılara Etkisi'nin? Muhammet Özekes (ed), Medenî Usûl ve İcra İflâs Hukukunun Güncel Sorunları II (On İki Levha Yayıncılık 2020) 30
5. İstanbul BAM 17HD, 13.06.2019, 1672/1058, İstanbul BAM 17HD, 09.07.2020, 1324/1522
6. İstanbul BAM 17HD, 09.07.2020, 1324/1522
7. Erdönmez (n 5) 31-32
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
