Turkey: Debt Enforcement Tips In Turkey

Last Updated: 23 July 2009
Article by Guner Law Office

1 A foreign creditor seeking enforcement in Turkey

A foreign creditor has the right to initiate a lawsuit or an enforcement proceeding against a debtor in Turkey even if there is no reciprocal agreement between Turkey and the creditor's own jurisdiction. However, in such a case the foreign creditor will have to provide "security" to the court to guarantee the payment of the relevant court expenses and potential damages the debtor may sustain if the creditor fails in proving its case. The amount of such security is usually determined by the court to be a certain percentage of the disputed amount. If a reciprocal agreement exists between Turkey and the foreign creditor's own jurisdiction, the foreign creditor may not be required to provide security when initiating a lawsuit or an enforcement proceeding against the debtor in Turkey.

2 Legal proceedings for a creditor that has neither security over assets of the debtor nor any negotiable instrument issued or endorsed by the debtor to secure the amount

If a creditor has neither security (e.g. mortgage, movable pledge, share pledge, bank account pledge) over assets of the debtor nor any negotiable instrument (e.g. cheque, promissory note, bill of exchange) issued or endorsed by the debtor to secure the debt, the creditor has two choices: (i) the creditor may directly initiate a lawsuit and after obtaining a binding court decision initiate "binding" enforcement proceedings against the debtor or (ii) the creditor may immediately initiate "ordinary" enforcement owed proceedings against the debtor. If there is any objection from the debtor, the creditor must initiate a lawsuit for cancellation of such objection. The enforcement proceedings against the debtor will only continue after the debtor's objection has been cancelled by a binding court decision. If the court decides that the objection is unjustified, the court may order the debtor to pay the creditor an additional penalty of up to 40% of the disputed amount.

3 Legal proceedings for a creditor that has security over assets of the debtor or a negotiable instrument issued or endorsed by the debtor to secure the amount owed

If a creditor has security (e.g. mortgage, movable pledge, share pledge, bank account pledge) over assets of the debtor or a negotiable instrument (e.g. cheque, promissory note, bill of exchange) issued or endorsed by the debtor to secure the debt, the creditor may initiate "special" enforcement proceedings against the debtor. If there is an objection from the debtor to the enforcement proceedings, the creditor or in some cases the debtor must initiate a lawsuit for the continuance or, as the case may be, cancellation of the enforcement proceedings.

4 Court fees: 5.4% of the disputed amount for a lawsuit and 0.5% of the disputed amount for enforcement proceedings

In order to initiate a lawsuit the creditor is required to pay 5.4% of the disputed amount to the competent court of which one-quarter (1.35%) must be paid at the outset and the balance (4.05%) after the judgment becomes available. For initiating enforcement proceedings, 0.5% of the disputed amount must be paid to the enforcement office. If the debtor objects during the enforcement proceedings and the creditor initiates a lawsuit for the cancellation of the objection the above mentioned court fee (5.4%) must be paid by the creditor. In such a case, the amount which has already been paid to the enforcement office (0.5%) will be deducted from the initial payment made to the court (1.35%). These court charges are recoverable from the debtor if the creditor obtains a favourable binding court decision.

5 Consider the timing

If the debtor does not object, the enforcement proceedings will usually conclude more quickly than a lawsuit. If a lawsuit is initiated for the cancellation of an objection to enforcement proceedings or if a lawsuit is initiated against the debtor directly without initiating any enforcement proceedings, court proceedings could take between 18 and 30 months but if the debtor continues to be uncooperative, in some cases 3 to 4 years.

6 If the preferred approach of the creditor is to initiate enforcement proceedings, then determine which type of enforcement proceedings.

If the debt is secured by security (e.g. mortgage, moveable pledge, share pledge, bank account pledge) the creditor will need to initiate "Enforcement by Foreclosure of Collateral" proceedings. If the debt is not secured, then enforcement by way of "Ordinary Attachment" proceedings or "Ordinary Bankruptcy" proceedings may be initiated by the creditor. If the debt arises out of a negotiable instrument then consider initiating "Special Proceedings for Negotiable Instruments".

7 The favourite enforcement proceedings for secured creditors

Due to its ease and haste compared to the other enforcement proceedings in Turkey the "Enforcement by Foreclosure of Collateral" proceedings is usually the preferred choice of creditors enforcing in Turkey. The prerequisite for such proceedings is that the creditor has been granted security to secure the sum outstanding. The disadvantage of this enforcement proceeding is that if it is available to a creditor, the creditor may not resort to other enforcement or court proceedings before it enforces its security. If the sale proceeds of the security does not satisfy the claim of the creditor, only then can the creditor initiate other proceedings against the debtor.

8 Determine whether the debtor has sufficiently valuable assets to attach before initiating attachment proceedings

A creditor should always be mindful of the nature of the assets of the debtor, the whereabouts of such assets and whether such assets are already the subject of other court proceedings, attachments or encumbrances.

In order to attach any assets in Turkey enforcement proceedings must be initiated before the competent enforcement office. After finalisation of such enforcement proceedings the assets of the debtor may only be attached through the enforcement office. Foreclosure of such assets may only be made by the enforcement office by way of public and not private sales. However, if the enforcement proceedings are initiated further to a binding court decision, then the attachment proceeding will be implemented directly without waiting for finalisation of enforcement proceedings before the enforcement office.

9 Be wary of the debtor applying for protection in bankruptcy proceedings

Under certain circumstances, if bankruptcy proceedings are initiated against a debtor, the debtor may seek protection through (i) Reorganisation, (ii) Postponement of Bankruptcy or (iii) Restructuring of Capital Stock Companies by Way of Conciliation. The debtor may apply for protection from a court to prevent any enforcement proceedings and lawsuits being filed against the debtor by seeking protection from creditors through any of (i), (ii) or (iii) mentioned above.

10 Obtaining a preliminary injunction decision from a Turkish court against the debtor

Under Turkish law it is possible to obtain a preliminary injunction decision before or during an enforcement proceeding or a lawsuit in relation to the assets of the debtor to obtain rights against such assets for amounts owed that are not secured by way of a security. Obtaining a preliminary injunction from the court will depend on the nature of the debt and the evidence provided by the applicant to persuade the court that in the circumstances injunctive relief is appropriate.

For example, if the applicant holds a negotiable instrument (e.g. cheque, promissory note, bill of exchange) issued or endorsed by the debtor, a Turkish court is likely to require the applicant to provide security to the court of between 15% and 100% of the disputed amount. If the preliminary injunction has been granted before initiating an enforcement proceeding or a lawsuit against the debtor, the creditor is obliged to initiate either enforcement proceedings or a lawsuit against the debtor no later than 10 days after the preliminary injunction has been granted. Otherwise, the preliminary injunction decision becomes invalid.

11 Recognition and enforcement of foreign court judgments and foreign arbitral awards in Turkey

Pursuant to Turkish International Private Law, a foreign court judgment must fulfil the following conditions to be enforced in Turkey: (i) reciprocity, (ii) the judgment must have become final and binding, (iii) the dispute must not fall within the exclusive jurisdiction of Turkish courts, (vi) compliance with Turkish public policy rules and (v) the judgment debtor's rights must have been respected during the trial.

Turkey has signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NY Convention). Therefore, arbitral awards obtained from a contracting state of the NY Convention, will be recognized and enforced in Turkey under the NY Convention.

The bankruptcy of a Turkish individual or corporation, however, falls within the exclusive jurisdiction of the Turkish courts. Therefore, the bankruptcy of a Turkish individual or corporation may not be the subject of either a foreign court decision or an arbitral award.

Guner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy and TMT practices in Turkey. Guner Law Office is headed by Ece Guner and works with international law firm Denton Wilde Sapte.

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.

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