1 A foreign creditor seeking enforcement in Turkey
A foreign creditor has the right to start a lawsuit or an enforcement action 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 paying the relevant court expenses and potential damages the debtor may suffer if the creditor fails in proving its case. The court usually fixes such security amount 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 needed to provide security when starting 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 signed 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 signed by the debtor to secure the debt, the creditor has two choices:
- the creditor may directly start a lawsuit and after getting a binding court decision start "binding" enforcement proceedings against the debtor; or
- the creditor may immediately start "ordinary" enforcement proceedings against the debtor. If there is any objection from the debtor, the creditor must start 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 finds the objection unjustified, the court may order the debtor to pay the creditor an extra 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 start "special" enforcement proceedings against the debtor. If there is an objection from the debtor to the enforcement proceedings, the creditor or sometimes the debtor must start 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
To start a lawsuit the creditor needs 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 starting enforcement proceedings, 0.5% of the disputed amount must be paid to the enforcement office. The creditor must pay the above court fee (5.4%) if the debtor objects during the enforcement proceedings and the creditor starts a lawsuit for the cancellation of the objection. In such a case, the amount which has already been paid to the enforcement office (0.5%) will be deducted from the first payment made to the court (1.35%). These court charges are recoverable from the debtor if the creditor gets a favourable binding court decision.
5 Consider the timing
If the debtor does not object, the enforcement proceedings will usually finish more quickly than a lawsuit. If a lawsuit is started for the cancellation of an objection to enforcement proceedings or if a lawsuit is started against the debtor directly without starting any enforcement proceedings, court proceedings could take between 18 and 30 months. However, if the debtor continues to be uncooperative, sometimes it could be 3 to 4 years.
6 If the preferred approach of the creditor is to start enforcement proceedings, then decide 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 start "Enforcement by Foreclosure of Collateral" proceedings. If the debt is not secured, then the creditor may start enforcement by "Ordinary Attachment" proceedings or "Ordinary Bankruptcy" proceedings. If the debt arises out of a negotiable instrument then consider starting "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 are usually the preferred choice of creditors enforcing in Turkey. The precondition 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 do not satisfy the claim of the creditor, only then can the creditor start other proceedings against the debtor.
8 Decide whether the debtor has enough valuable assets to attach before starting 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. To attach any assets in Turkey enforcement proceedings must be started before the competent enforcement office. After completion 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 public and not private sales. However, if the enforcement proceedings are started further to a binding court decision, then the attachment proceeding will be performed directly without waiting for completion 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 started against a debtor, the debtor may seek protection through (i) Reorganisation, (ii) Postponement of Bankruptcy or (iii) Restructuring of Capital Stock Companies by 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) above.
10 Getting a preliminary injunction decision from a Turkish court against the debtor
Under Turkish law it is possible to get a preliminary injunction decision before or during an enforcement proceeding or a lawsuit on the assets of the debtor to earn rights against such assets for amounts owed that are not secured by a security. Getting 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 will presumably need the applicant to provide security to the court of between 15% and 100% of the disputed amount. In case of a preliminary injunction granted before starting enforcement proceedings/lawsuit against the debtor, the creditor must start such proceedings within 10 days beginning from the grant of the preliminary injunction. Otherwise, the preliminary injunction decision becomes invalid.
11 Recognition and enforcement of foreign court judgments and foreign arbitral awards in Turkey
Under 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 recognised 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.