Debt Recovery in Turkey
This article is an overview of Debt Recovery Procedure in Turkey
The first question that comes into mind when talking about a very comprehensive issue such as debt recovery in Turkey is, "How adequate and efficient are the Turkish legal and judicial systems when it comes to protecting the rights and debt originating from commercial activities or investments carried out in Turkey?"
The fact that the economic indicators in Turkey are positive despite the global financial crisis, beginning in the US in 2008 before spreading to Europe, has caused foreign investors and business men to focus on and give preference to Turkey when looking for a country in which to make investments and undertake commercial activities.
Turkey has used its EU membership process to improve the democratization process, while successfully saving itself from the financial bottleneck. In this regard, fundamental amendments have been made to the Turkish judicial system since 2003. In fact, the Turkish laws were not so "alien" to those of European countries before these amendments, because the laws of the European countries have been taken as resources while preparing the initial laws of the new Republic of Turkey, just after the collapse of the Ottoman Empire. For instance, the first penal code of the young Republic of Turkey was prepared by taking the Penal Code of Italy as the basis. Again, the Turkish Commercial Code was adapted from Germany’s while the Turkish Obligations Code and the Turkish Civil Code were adapted from the Switzerland’s.
In recent years, particularly during the ruling period of the governing Adalet ve Kalkinma Partisi (Justice and Development Party) (Ak Parti), several fundamental changes have been made to the basic laws within the scope of a "Judicial Reform". Although it will take time to adapt to the amendments to the laws and associated practices, the main purpose is to enhance and speed up the judicial system.
The main purposes of the judicial reform are to ensure the independence of the judiciary, to support its objectivity, to increase its efficiency, to increase its functionality, to ensure trust in judiciary, to facilitate access to the judicial system and to provide new facilities to prevent disputes.
With the changes made on significant laws such as the Enforcement and Bankruptcy Code, Commercial Code, Obligations Code and Check Code it was conceived that such laws become compliant with the current global conditions and the requirements of the modern world. Although some changes are made to the laws from time to time, it should always be taken into consideration that there is a local and structured judiciary network and a legal system in Turkey.
In accordance with these changes to legislature, several important arrangements that will resolve the disputes through settlement, conciliation and arbitration in addition to courts have been made. This will reduce the burden on the judicial system and increase its efficiency and functionality. Reduction in the number of trials will make it possible to try the cases more easily, effectively and at lower expense.
In addition to the arbitration or settlement practices, there are many other legal procedures in the Turkish legal system that the creditors may refer to for debt collection. These procedures are as follows;
a) To bring a suit against the debtor,
b) To demand from the debtor the payment of debt by starting a Debt Execution Procedure without bringing a suit.
Debt Execution Procedures are more widely preferred than bringing a suit as they are more economical and timely. Debt Execution Procedures vary depending on the availability of the documents which the creditor possesses and which prove the presence of debt. As follows:
a) If the debt is based on a regular bond such as a current balance or invoice, then the Debt Execution Procedure is started and a payment order is sent to the debtor via the enforcement office. A debtor's objection such as a statement to the effect of "I have no debt against this person" is enough to stop the process. In such a case, the creditor should open a nullity suit at court for the annulment of the debtor's objection.
b) If the debt is based on a negotiable instrument, the Debt Execution Procedure is started against the debtor for the negotiable instrument and a payment order is sent to the debtor via the authorized enforcement office. In such a procedure, the debtor may only raise his/her objection based on one of the reasons defined in the respective law. Moreover, a debtor who raised an objection to the payment order should open a case at an enforcement court and prove his/her case. In addition, the debtor's objection may not stop the procedure until the sales stage.
Apart from the above legal procedures, it is also possible to demand the bankruptcy of a company provided that it is a debtor and that its passive assets are greater than its active assets. However, in such a case, the debtor company is entitled to apply to the court ruling the bankruptcy case and demand the postponement of bankruptcy. As the main policy of the State, in the recent years, is to ensure the existence and perpetuation of companies, many companies have applied for this right. If the debtor company submits a satisfactory recovery project to the court, executes settlement contracts with its creditors and starts to pay its debt, then the bankruptcy of the company is postponed up to five years in one year increments. Creditors are not entitled to open any case against the debtor, may not start a Debt Execution Procedure and may not confiscate and sell the assets of the debtor during the postponement period.
In short, the Turkish laws comprehensively protect the rights of the creditors and provide sufficient facilities for the collection of debt.
However, I particularly want to underline the importance of the existence of a contract, which has been mutually signed with the respective party and which details the commercial activity to be carried out in Turkey, whether or not you have to use those rights and powers entitled by the law. Although you are not obliged to sign a contract in order to carry out commercial transactions according to Turkish Law, such a contract will be the most effective and useful evidence you have in the case that you must use the law.
I also recommend that a negotiable instrument is obtained from the debtor, such as a promissory note or check, as a guarantee for your receivable, in addition to a written contract. As I mentioned above, recovery of debt based on a negotiable instrument is much quicker in Turkish Enforcement Law. The important thing at this point is that the negotiable instrument you hold carries the mandatory elements required by Turkish law. Such a negotiable instrument is also necessary and useful to apply to a court for a cautionary attachment, should debt recovery become an issue.
As long as you have a standard contract that details your rights and receivables and contains sanctions against possible violations and which has been securitized by means of negotiable instruments, you can carry out your commercial activities in Turkey with your mind at peace.
ABOUT THE AUTHOR: Atty.Deniz Sener
Admitted to Istanbul Bar (1992), Educated in: Ankara University Law School (LL.B.), Patent and Trademark representative (TPE, EPO) Founder of Deniz Law Office. Worked previously for: AKEV (1992-2001), President of International Union of Young Lawyers (UGAD). Speaks English and Turkish. Practices: Privatization, Commercial Law, Real Estate Law, Employment Law, Business Immigration Law, Banking and Insurance Law, Bankruptcy and Foreclosure Law, Corporate and Contract Law, Civil Law, Intellectual Property Rights Law. She is also one of the shareholders of Stefanel Fashion Turkey and Inter Partner Assistance Turkey.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.