In a concordat process, timing is the most critical factor in determining whether the plan will be accepted by the court and whether the company will be able to survive. It is not when a company has spent its last penny and reached the point of closing its doors; "when financial indicators began to raise red flags but production and sales capacity remained intact" At that critical juncture, it should opt for a composition with creditors.
The clearest technical and operational indicators that a company’s owner or board of directors should initiate a composition with creditors process are as follows:
1. Structural Cash Flow Crises (When the Wheels Stop Turning)
This is the most common and most significant sign. The company’s sales may be strong, its factory may be operating, or its warehouses may be full; however, the balance between collection terms and payment terms has completely broken down.
- If the company is no longer able to pay its due daily operating expenses (supplier payments, employee salaries, Social Security and tax installments) using its available cash and collections,
- If you find yourself constantly caught in the cycle of “paying off debt with more debt” (taking out a new, high-interest loan to pay off an old one), that’s a sign that alarm bells are ringing.
2. Blockage of Banking and Credit Channels
Financial institutions (banks) are the first to detect risks in the market. When banks notice a deterioration in a company’s financial structure, the following signs begin to appear:
- Freezing existing credit limits or definitively rejecting new credit applications.
- Banks requesting the early repayment (closing) of existing loans due to perceived risk.
- Interest rates on loans have reached unsustainable levels.
3. Operational and Legal Signals (Damage to Market Reputation)
This is the stage at which the cash crisis spreads beyond the company and affects the market and government agencies:
- Company checks began to be marked "insufficient funds."
- Suppliers of vital raw materials halting shipments or switching to "cash-on-delivery" only because they are not being paid.
- The actual commencement or imminent initiation of enforcement proceedings and attachment actions (particularly provisional attachments) of varying sizes against the company.
4. Deterioration of Balance Sheet Ratios (Over-indebtedness)
This concerns the technical and legal aspects of the matter. When evaluated under Article 376 of the Turkish Commercial Code (TTK);
- If the company’s assets (all its assets) are no longer sufficient to cover its liabilities (all its debts) (Insolvency),
- If short-term liabilities (debts due within one year) exceed current assets (cash and cash equivalents), the company is legally required to consider the options of a composition agreement or bankruptcy.
The Golden Rule: Once enforcement proceedings start pouring in, bank accounts are frozen, and operations come to a halt, the chances of success for a composition petition filed at that point are very low. The right time is; "We're still producing and selling right now, but it's mathematically certain that we won't be able to service this debt burden over the next 3–4 months." That is what was said.