Debtors have the right to dispose of their property in any way they wish before their property is seized or a bankruptcy order is issued against them. For this reason, it is very common for debtors who are about to be bankrupt or whose assets are likely to be seized soon to make some questionable disposals in order to evade their creditors.
At this point, the Enforcement and Bankruptcy Law provides for the possibility of cancellation of suspicious dispositions made for the purpose of evading creditors through a lawsuit for annulment of disposition. The regulation on this issue is established in Article 277-284 of the EBL. If the lawsuit for annulment is accepted, the claimant creditor shall be entitled to obtain his/her right to the property that is the subject of this lawsuit through compulsory execution.
In annulment actions, some special litigation conditions have been accepted by case law. These conditions are “existence of a real receivable”, “finalization of the enforcement proceedings” and “receivable arising before the disposition subject to annulment”.
CONDITIONS FOR ANNULMENT OF DISPOSITION CASES:
* There must be a real debt relationship between the creditor and the debtor.
* There must be a final or temporary insolvency certificate about the debtor. However, the certificate of insolvency can be presented at any stage of the case.
* There must be an enforcement proceeding initiated against the debtor and it must be finalized.
* The disposition to be annulled must be a disposition subject to annulment pursuant to the EBL.
* The disposition to be annulled must have been made before the emergence of the debt that is the subject of enforcement proceedings.
IS OBTAINING A CERTIFICATE OF INSOLVENCY A CONDITION FOR A LAWSUIT FOR ANNULMENT OF DISPOSALS?
Article 277 of the EBL regulates that a creditor who has a final or provisional certificate of insolvency may file an action for annulment of disposition. According to Article 143/1 of the EBL, a certificate of insolvency is “a document issued by the enforcement officer to the creditor (and a copy to the debtor) who has not fully paid the receivable at the end of the foreclosure of the seized goods, indicating the unpaid amount of the receivable subject to the proceedings”. Although the existence of a definitive or provisional certificate of insolvency is a prerequisite for the annulment action, it is not obligatory to obtain it before the lawsuit is filed. It can be obtained after the filing of the lawsuit, and it is sufficient to obtain and submit it at the appeal stage and even at the decision correction stage after the reversal. The important point here is that the debtor must be incapable of paying the debt at the time the lawsuit is filed. In addition, insolvency is deemed to have occurred even if the certificate of insolvency has not been obtained, if the debtor is missing and his address cannot be determined, and if it is determined that the debtor does not have any seizable property at the determined and known addresses.
PRESCRIPTION PERIOD IN ANNULMENT OF DISPOSITION CASE
The lawsuit for the annulment of the disposition must be filed within five years from the date of the disposition (Art. 284 of the EBL). The 5-year period starts from the date of the to be annulled disposition.
PARTIES IN ANNULMENT OF DISPOSITION CASE
The lawsuit may be filed by a creditor holding an insolvency certificate. These persons are the claimants in annulment of disposal cases.
The debtor and the third party are the defendants. The 3rd party is the person in whose favor the disposition subject to annulment is made. In other words, it refers to the other party of the transaction made by the debtor for the purpose of evading property from the creditor.
WHICH DISPOSALS ARE SUBJECT TO ANNULMENT?
The Enforcement and Bankruptcy Law regulates the debtor’s dispositions subject to annulment under three groups. The annulable dispositions listed in the EBL are not limited.
For a disposition to be subject to annulment, the disposition must have been made after the claimant creditor’s claim arose.
In bankruptcy situations, the disposition must have been made after the date of birth of the oldest of the receivables admitted to the bankruptcy estate in order for the disposition to be subject to annulment.
1) GRATUITOUS DISPOSITIONS (EBL ART.278)
a-Donations and gratuitous dispositions: Except for customary gifts, all donations and gratuitous dispositions made by the debtor (or the bankrupt) during the period of 2 years measured backwards from the date of seizure or insolvency due to lack of property to seize..
b-Dispositions deemed as donation:
– Dispositions between close relatives.
– Dispositions where the debtor accepts a very low price in return.
– Contracts where the debtor establishes a lifetime income or beneficial right for himself/herself or for the benefit of a third party and contracts of care until death.
2) DISPOSALS MADE WHILE IN A STATE OF INSOLVENCY (DEBT-LADEN) (ART. 279 OF THE CODE)
The disposals listed in Article 279 of the EBL made by the debtor within one year prior to the seizure or insolvency due to lack of assets or the opening of bankruptcy:
– Pledges made by the debtor for an existing debt, except where the debtor has previously undertaken to provide security.
– Payments made by means other than money or usual means of payment.
– Payments made for debt that is not due.
– Annotations given to the title deed to strengthen personal rights.
3) FRAUDULENT DISPOSITIONS (ANNULMENT DUE TO INTENT TO HARM) (ELB ART. 280)
These disposals are all transactions made by a debtor whose assets are insufficient for his debts, with the intention of harming his creditors. The debtor must have been subject to foreclosure or bankruptcy proceedings within five years from the date of the transaction.
In cases where the financial situation of the debtor and the intention to harm the debtor is known by the other party to the transaction or there are clear indications that require it to be known, it may be canceled.
It shall be presumed that the debtor’s husband or wife, descendants or lineal descendants, blood relatives up to the third degree and relatives by blood or marriage up to the third degree, adoptive parents or foster parents are aware of the debtor’s financial situation and that the debtor has entered into a transaction with the intention of evading property. However, these persons may prove that they did not know the debtor’s financial situation and the intention to harm creditors.
A special provision has been made for debtors who are merchants. The debtor merchant may have transferred or sold a significant part of its commercial enterprise, all or a significant part of its commercial goods in its workplace. In this case, it is presumed that the debtor/trader acted with the intent to harm his creditors. However, this presumption may be rebutted.
THE CONSEQUENCES OF ANNULMENT OF DISPOSITION CASES
When the annulment of disposition case is accepted, that is, when the court deems the transaction made by the debtor for the purpose of evading property invalid, the property that is the subject of the lawsuit does not become the property of the debtor again.
However, as a result of this annulment decision, the creditor who files and wins the lawsuit can act as if that property is still the property of the debtor, that is, he can seize that property and demand its sale.
On the other hand, the value of the property seized and sold in favor of the claimant creditor is first allocated to the payment of the claimant’s receivables. If there is any money left over, this money is returned to the 3rd person defendant.
The third party defendant who loses the annulment case may claim back from the debtor the thing or the price he/she gave to the debtor in return for the annulled disposition he/she made with the debtor.
Upon the decision to accept the annulment case in bankruptcy, the property subject to the lawsuit shall be included in the bankruptcy estate as if it belonged to the bankrupt and sold by the bankruptcy office. The sale price shall be allocated to the payment of all bankruptcy receivables.