What is Composition? Is it a Way of Salvation for Debtors?
Composition is a legal process in which debtors on the verge of bankruptcy restructure their debts through an agreement with their creditors, thus protecting the rights of both the debtor and the creditors. In this article, we will discuss what composition is, how it works, and the advantages it provides for debtors.
Definition of Composition
Legal Definition:
Composition is an agreement made by the debtor with his creditors in order for the debtor to improve his financial situation. It is regulated according to the Turkish Code of Obligations and the Execution and Bankruptcy Code.
Types of Composition:
Financial Composition: It is made for the purpose of restructuring debts.
Optional Composition: The debtor applies voluntarily.
Compulsory Composition: It is made mandatory by a court decision before the bankruptcy process begins.
Composition Application Process
Application Stage:
If the debtor believes that he/she is in danger of bankruptcy, he/she can apply to the court and request a composition. During the application, the debtor must state all his/her debts and creditors.
Example: When a commercial company is on the verge of bankruptcy due to its increasing debts, it applies to the court for composition.
Court Review:
The court may examine the debtor’s financial situation and accept or reject the composition request. If the request is accepted, enforcement proceedings are suspended for a certain period of time.
Example: The court evaluates the financial data of the applicant debtor and decides to start the composition process.
Function of the Composition Process
Preparation of Financial Statements:
The debtor must prepare tables that include his/her financial situation and debts. These tables form the basis for creditors to restructure their debts.
Example: The debtor creates income-expense tables and an asset inventory based on the information requested by the creditors.
Agreement with Creditors:
The debtor comes together with creditors and creates a plan on how to pay their debts. This plan is submitted for court approval.
Example: As a result of the meetings with their creditors, the debtor creates a plan to pay their debts within three years.
Advantages of Composition
Restructuring of Debts:
With Composition, the debtor can restructure their debts to pay them within a certain period of time. Thus, the risk of bankruptcy is reduced.
Example: A construction company restructures its debts by reaching an agreement with its creditors during the Composition process and can continue its activities.
Suspension of Enforcement Proceedings:
During the Composition process, enforcement proceedings are stopped by a court decision. This gives the debtor a breathing space.
Example: When the debtor is subject to enforcement proceedings, court approval ensures that these proceedings are stopped.
Protection of Creditors’ Rights:
During the Composition process, creditors do not lose their rights. Their rights are protected with the agreements made.
Example: The creditor collects its receivables according to the payment plan determined by the composition agreement made with the debtor.
Disadvantages of Composition
Extension of Composition Process:
The composition process may take time and the debtor may encounter financial difficulties during this process.
Example: The debtor may not be able to continue its activities due to the extension of the agreement process with creditors.
Court Decisions:
Since the composition process is under court supervision, court decisions may affect the process.
Example: The court may not accept the plan made by the debtor and in this case the process may be restarted.
Is It a Way of Salvation for Debtors?
Although composition is considered a way of salvation for debtors, the process is complex and requires attention. It is important for debtors to carry out this process with professional help in order to improve their financial situation and make a healthy agreement with their creditors. If you are also considering the composition process, it would be beneficial to get legal support from a lawyer. Remember, every situation is special and requires a professional approach.
