Under Turkish law, commercial contracts are mainly regulated by the Turkish Code of Obligations ("TCO"), and the Turkish Commercial Code ("TCC"). The current TCO and the TCC do not include any mandatory restriction as to the payment term where such term is negotiated by the parties. Accordingly the payment term of the relevant agreement may be freely determined by the parties to the relevant agreement upon mutual agreement.
However, the new Turkish Commercial Code ("New TCC") which will enter into force as of July 1st, 2012 introduces a new mandatory provision imposing certain restrictions on payments terms aimed at preventing large enterprises taking advantage of their stronger bargaining position to impose late payment terms on suppliers.
Provisions applicable as of July 1st, 2012
Maximum payment term imposed by the New TCC: Under Article 1530(5) of the New TCC, the maximum payment term in a contract is 60 days starting from the due receipt of the invoice or goods/services or the end of the inspection term, as applicable. The parties can extend such maximum term with mutual agreement, provided that such extension does not cause a gross burden on the other party. However, the maximum term cannot be extended in any circumstances if any of the following apply: (1) the recipient of the payment is a small or mid-size enterprise (SME); or (2) the payment obligor is a large scale enterprise; or (3) the recipient is an agricultural or livestock producer.
Consequences of breach: If there is a breach of Article 1530(5), the following consequences apply:
- The payment term will be deemed as 30 days starting from the receipt by the purchaser of the invoice/payment request, and the purchaser will be deemed in default as of the end of such 30 day period1.
- Default interest will begin to accrue automatically at the end of the 30 days with no requirement for further notice.
- Paragraph 6 of Article 1530 further states that contractual provisions indicating that the purchaser shall not be obliged to make a default interest payment to the supplier shall be null and void.
- If the agreed default interest rate is grossly unfair, the applicable default interest to be paid by the purchaser shall be the statutory commercial interest rate determined by the Turkish Central Bank + 8%.
- The remaining contract terms will not be affected by the said breach and shall continue to be in force and such breach will not give rise to a statutory entitlement for termination of the contract.
Position of contracts entered into prior to New TCC: As mentioned, Article 1530 of the New TCC will enter into force as of July 1st, 2012. If a contract is executed prior to July 1st 2012 and includes a payment term which is in breach of Article 1530, such payment term will not be enforceable post-July 1st 2012 and will be subject to the sanctions mentioned right above regardless of the time of execution of such contract.
Issues to bear in mind
Large scale enterprises will need to review their payment terms with suppliers in light of the New TCC, particularly in relation to payment terms in supply contracts agreed with SME suppliers.
Under Article 1530(5) of the New TCC, the payment term may not exceed 60 days from the date of receipt of the invoice or the goods/services or inspection term (as applicable) if:
- the Purchaser is considered a large scale enterprise; or
- the Supplier is an SME.
If large scale enterprises operating in Turkey do not review their payment terms in light of the New TCC they risk having their payment terms unenforceable and becoming subject to a mandatory 30 day payment term and the other consequences described in Article 1530(5) after 1st July 2012.
1 Article 1530 enumerates a few other starting dates for the 30 day period which are applicable if the date of receipt of invoice or payment request cannot be determined or there is an inspection period as per law or contract.
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.