Turkey: Non-Terminating Issues After Bankruptcy: Fraudulent And Reckless Bankruptcy

BANKRUPTCY CRIMES AND FRAUDULENT BANKRUPTCY CRIME IN ECONOMIC CRISIS PERIOD

Current economic condition of the countries is one the most important element which leads the private law relations between the individuals. However, in specific periods that such conditions change, criminal law issues may also vary as well as private law relations. Especially, in the times of economic crisis and occurrence of similar fluctuations, the number of financial crimes and crimes against assets is increased; and also the increase of the number of complaints and criminal proceedings is remarkable. In this respect, in foregoing periods, many companies are declared bankruptcy, and as the number of companies declared bankruptcy increases, the number of investigations and prosecutions initiated due to fraudulent and negligent bankruptcy increases at the same rate.

Such crimes may arise from the efforts of the debtor companies to keep the capital in their hands, instead of distributing them to their creditors. The crimes may also be subject to investigations and prosecutions with the complaints made by the creditors who desire to receive its receivables as soon as possible regardless the elements of the crime occur. For such reasons, it is crucial to determine in which circumstances the fraudulent bankruptcy crime will occur. Under the article 161 of the Turkish Criminal Code, "Any person who conducts acts of deception in order to reduce his assets and makes a decision to become bankrupt before, or after, such deception shall be sentenced to a penalty of imprisonment for a term of three to eight years" For the existence of fraudulent bankruptcy, one of the following is required:

  • To cause of a reduction of the value, hiding or concealing of any asset which is kept as security by a creditor to guarantee his debt
  • Hiding or destruction of commercial books, records or documents in order to prevent the third parties to reveal the activities conducted by the creditor to hide the assets
  • Issuing of false documents which increase the debts; despite the fact that there is no relationship between the parties might be a source of such debt
  • The declaration of assets which are lower than actual ones by issuing false accounting records and balance sheets contrary to the numbers".

NEGLIGENT ACTS MAY ALSO CONSTITUES BANKRUPTCY CRIME

While conducting the above-mentioned acts knowingly and willingly falls within scope of the fraudulent bankruptcy, in the Article 162 of the Turkish Criminal Code named Negligent Bankruptcy; "going bankrupt as a result of his failure to show proper care and attention to be expected from a merchant" is also been designated as a separate crime. In order to be penalized such crime, bankrupt also must be decided. Therefore, in case of bankruptcy, not only fraudulent acts but also causing to bankruptcy due to failure to fulfill the obligations of showing proper attention and care constitute a separate crime. It is stipulated that those who violated the provisions sated in the foregoing article shall be sentenced to imprisonment for a period ranging between two months to one year.

IMPORTANCE OF THE PROCESS OF SUSPENSION OF BANKRUPTCY AND CONCORDAT

The legal institutions of suspension of bankruptcy and concordat that might be applied by those who are unable to pay their debts in order to get rid of bankruptcy are crucial in terms of above-mentioned crimes. As a result of the amendment with the Law regarding Amendments on Enforcement and Bankruptcy Law and Numerous Codes. numbered 7101, since the suspension of bankruptcy has been abolished, the concordat institution which initially had a limited implementation has been become widely used by the debtors. In the process of suspension of bankruptcy initiated before the foregoing amendment, as the articles regarding the suspension of bankrupt are still applicable, the acts in both foregoing process (the process of suspension of bankrupt and concordat) must be taken into consideration in any event.

In terms of fraudulent bankruptcy, the application for the suspension of bankruptcy and concordat might be rejected or the above-mentioned acts by not complying with the procedures ordered by the relevant regulation such as concealment of assets might be conducted in the accepted applications. In such cases, the creditors may be deemed as a victim of the fraudulent crime and the debtors may be subject to investigation and prosecution due to the acts which they actually did not commit.

For the avoidance of such risks, the process of the suspension of bankruptcy and concordat should be carried out carefully and properly and the acts which may give rise to occurrence of fraudulent bankruptcy crime should be detected initially. At this point, the parties and their representatives take an important role in order to minimize such risks.

CAN ANY PERSON CONDUCTS NON-MERCHANDISE TRANSACTIONS BE PERPETRATOR OF SUCH CRIMES?

Being penalized due to fraudulent and negligent bankruptcy crimes is merely possible, in case the bankruptcy is decided by the court. In principle, only merchants may go bankrupt. Merchants are divided into two categories as natural person and legal person merchants.

"Natural person merchant" is defined in the article 12 of the Turkish Commercial Code numbered 6102 as follows;

"any person who wholly or partially operates commercial undertakes on behalf of himself ".

In addition, in the relevant article, there are natural persons who are liable for as a merchant, even if they are not actually deemed as a merchant.

Additionally, the legal person merchants are regulated under Article 16 of the Turkish Commercial Code ("TCC"), and various companies that are commercially operated are considered as merchants. According to Article 195 of the TCC, it is also accepted that the dominant undertaking could be considered as a merchant.

Due to there is no criminal liability for legal persons, only competent bodies of such legal persons may be perpetrator of the foregoing crimes. On the other hand, the fact that natural persons who are not actually merchant but liable for as a merchant shall be perpetrator is a controversial issue in the doctrine. In terms of fraudulent bankruptcy, it is clear that this crime might only be committed by the merchants, since the attention and care obligations required for being a merchant are mentioned particularly in the relevant article.

SANCTIONS AND THE CHANCE OF EFFECTIVE REMORSE

As mentioned above, while three years to eight years' imprisonment is stipulated in terms of fraudulent bankruptcy crime; two months to one year imprisonment is stipulated in terms of negligent bankruptcy crime. Last but not least, both crimes are stated in the section of "offences against property" of the Turkish Criminal Code and accordingly the provisions of effective remorse stated in the article 168 of the Turkish Criminal Code shall applicable to such crimes.

In accordance with the article 168 of the Turkish Commercial Code;

  • In case the crimes have been committed and the offender, abettor or assistor shows remorse and compensates the victim for the loss suffered or gives back the assets prior to the commencement of an investigation, the penalty to be imposed shall be reduced by up to two thirds.
  • In case effective remorse is shown after commencement of the investigation, but prior to giving of the judgment, the penalty to be imposed shall be reduced by up to one half.

In case the asset is partially given back or compensation is partially paid, the implementation of the provision of effective remorse shall be subject to the victim's consent

October 2018

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