Bankruptcy is the legal status of merchants or companies that cannot pay their debts to creditors. In Turkey, the bankruptcy process is regulated by the relevant provisions of the Turkish Commercial Code. The main purpose of bankruptcy is to protect the interests of creditors and to provide a legal basis for debtors to resolve their financial difficulties.
- Insolvency Proceedings:
- Ordinary proceedings through bankruptcy,
- Bankruptcy for bills of exchange,
- Direct bankruptcy
Ordinary Bankruptcy:
The creditor who wants to pursue his debtor through bankruptcy applies to the bankruptcy proceeding specific to bills of exchange if his receivable is linked to a bill of exchange, and to the ordinary bankruptcy proceeding if not. The creditor starts the bankruptcy proceedings with a bankruptcy request at the enforcement office. The creditor who initiates bankruptcy proceedings must file a bankruptcy case against the debtor within one year at the commercial court in the place where the debtor’s business center is located. Upon the creditor’s filing of a bankruptcy case, the commercial court shall decide whether bankruptcy protection measures are necessary to protect the interests of the creditors. A bankruptcy payment order is sent to the debtor. If the debtor pays the debt within seven days, the proceedings are terminated; if not, the creditor files a bankruptcy case before the commercial court and requests the debtor to be declared bankrupt. If the debtor objects within seven days following the notification of the payment order, the proceedings will be terminated. In this case, the creditor must request the removal of the objection together with the decision on the debtor’s bankruptcy at the commercial court. The commercial court shall first examine the request for lifting the objection, and if it deems the objection inappropriate, it shall issue a “deposit decision” together with the lifting of the objection. If the payment order is not objected to, the creditor, in the bankruptcy case to be filed by the debtor, requests only a bankruptcy decision, stating that the debtor has not objected to the payment order and has not paid its debt. In this case, the commercial court is obliged to decide on the procedural aspects of the proceeding and the lawsuit request, without being concerned with the existence of the receivable.
In the case of an objection to the payment order, the court orders the debtor to fulfill the debt with interest and execution costs within seven days or to deposit that amount of money into the court’s cashier. The deposit order gives the debtor a last opportunity to avoid bankruptcy by paying the debt. If the debt is not deposited within seven days, bankruptcy is decided. If the debtor does not deposit the debt upon the deposit order, the commercial court decides on bankruptcy. The court shall immediately notify the bankruptcy office within its jurisdiction of the bankruptcy decision. The bankruptcy office shall also announce the decision without delay and notify the necessary places. After the lawsuit is filed, the creditor may withdraw the lawsuit until the bankruptcy decision is rendered, but after the bankruptcy decision is rendered, the creditor may not withdraw the lawsuit. An appeal may be filed against the decisions of the commercial court regarding the rejection of the bankruptcy case or the bankruptcy of the debtor within ten days from the date of notification of the decision. However, the fact that the decision has been appealed shall not prevent it from taking effect. The bankruptcy administration shall immediately announce the decision and notify the necessary places. The necessary procedures for the establishment of the bankruptcy estate shall be carried out, the bankruptcy administration shall be elected and shall start to work. However, the second meeting of creditors and the sale of the assets of the table cannot be held until the bankruptcy decision is finalized.
Bankruptcy for Bills of Exchange:
In order to apply for this bankruptcy procedure, the receivable must be linked to a bill of exchange. If the receivable attached to the bill of exchange is secured by a pledge, the creditor may first apply for bankruptcy proceedings without first pursuing the foreclosure of the pledge. Bankruptcy proceedings in this case are like ordinary bankruptcy proceedings. The creditor may initiate the proceeding by applying to the enforcement office. If the bailiff determines that the bill is a bill of exchange and is due, he sends a payment order to the debtor. The deadline for objection and complaint in this proceeding is 5 days. The debtor must state all available reasons in his/her objection within this period. The authority that will examine and decide on the complaint is the commercial court, which will also hear the bankruptcy case. Therefore, the creditor should also request the rejection of the debtor’s complaint in the bankruptcy case.
As in the ordinary bankruptcy proceedings, the opening and examination of the bankruptcy case will depend on whether the debtor has objected to the payment order and filed a complaint. If the debtor has not filed an objection or complaint against the payment order within the prescribed period, the proceedings against the debtor shall be finalized. The debtor no longer has the right to file an objection or complaint.
If the debtor has filed an objection and complaint to the payment order within the time limit, the creditor must jointly request the commercial court to remove the objection and complaint of the debtor and to decide on the bankruptcy of the debtor. In this case, the bankruptcy case shall be examined and decided in accordance with the provisions of ordinary bankruptcy.
Direct Bankruptcy:
At the Request of the Creditor;
In cases where it is estimated that the creditor debtor will not pay its debt or where the creditor’s bankruptcy proceedings against the debtor, the execution office’s sending a payment order to the debtor, and waiting for the periods in the payment order will jeopardize the creditor’s receivables, the creditor may request the debtor’s bankruptcy by filing a bankruptcy case directly with the commercial court.
Direct bankruptcy cases listed in the Execution and Bankruptcy Law:
- If the debtor’s domicile is not known,
- If the debtor flees to escape from his commitments,
- If the debtor has engaged in or attempted to engage in fraudulent transactions that violate the rights of its creditors,
- If the debtor hides his/her goods during the proceedings by way of attachment,
- If the debtor has suspended payments,
- If the debtor’s proposed concordat is not approved,
- If the receivable based on the judgment has not been paid even though it has been requested by an execution order.
In the presence of one of these reasons, the creditor may request the bankruptcy of the debtor by applying to the commercial court in the place where the debtor’s center of operations is located.
Here, since there have been no previous proceedings against the debtor, the debtor must be given the opportunity to defend himself. For this reason, the law stipulates that the debtor shall be summoned to the court to make a statement. If the debtor does not appear at the hearing, a decision is rendered in his/her absence. In the direct bankruptcy case filed by the creditor, the creditor must prove the existence of the receivable and the reason for bankruptcy. If the commercial court is convinced of the existence of the receivable and the reason for bankruptcy as a result of its examination, it shall first issue a deposit order as in the ordinary bankruptcy proceedings. If it is seen that the deposit order is not fulfilled within the time limit, the debtor will be declared bankrupt.
By application of the debtor;
The debtor, who is unable to pay its debts, requests bankruptcy from the competent commercial court. The commercial court cannot examine the debtor’s inability to pay its debts on its own, nor can it ask the debtor to prove it. The court is obliged to decide on the bankruptcy of the debtor according to the debtor’s declaration.
- Consequences of the Bankruptcy Decision:
Consequences on the Debtor’s Property:
With the opening of bankruptcy, a table will be automatically formed for all the attachable goods, receivables and rights of the debtor, wherever they are located; this is called the “bankruptcy table”. Upon the opening of bankruptcy, the debtor may no longer dispose of the assets included in the table; the administration of the table passes to the bankruptcy organs.
The goods and rights that must be included in this table are determined. Necessary precautions are taken to prevent the theft or loss of these goods and rights. Then, the liquidation method of the bankruptcy will be determined according to the value of the goods entered in the ledger.
Since bankruptcy is a collective enforcement proceeding and creditors will be treated equally in bankruptcy liquidation, there is no need for individual enforcement proceedings. All creditors will register their receivables in the bankruptcy estate and will be satisfied with the money obtained as a result of the liquidation. Therefore, the proceedings started against the bankrupt after the opening of the bankruptcy will cease upon the opening of the bankruptcy and the proceedings will be dismissed upon the finalization of the bankruptcy decision. Furthermore, no new proceedings may be initiated against the bankrupt during the liquidation process.
Consequences of Bankruptcy for Creditors:
With the opening of bankruptcy, the debts of the bankrupt that are not due will automatically become due and payable. Bankruptcy has no effect on the receivables of the bankrupt from third parties. Only these receivables will be paid by the bankruptcy estate instead of the bankrupt when due. Interest ceases with the opening of bankruptcy. The creditor shall charge his/her receivables to the table together with the interest accrued until the date of the opening of the bankruptcy; he/she cannot demand interest for the period after the bankruptcy. The debts for which the bankrupt is a surety shall be recorded as a debt to the table even if they are not due. The surety creditor shall be paid from the table like other creditors. The table replaces the surety creditor in proportion to the amount of money paid; it succeeds to his rights.
The creditors present at the first meeting of creditors shall elect a bankruptcy administration consisting of one or more real persons and assign them with the administration and liquidation of the estate. The bankruptcy administration is an organ of the bankruptcy estate.
The duty of the bankruptcy administration is to manage and liquidate the bankruptcy estate under the supervision of the bankruptcy office. The administration acts until the bankruptcy is closed. It continues to preserve the assets of the table, which were recorded and taken under custody during the formation of the table, and determines the liabilities of the table. After that, the bankruptcy administration calls for the second meeting of creditors and distributes the money obtained to the creditors. If there are no assets left in the estate, it shall apply to the commercial court for a decision to close the bankruptcy.
In the ranking list, the amount and order of each receivable and claim accepted by the bankruptcy administration shall be shown. Those concerned who do not find the list correct may file a complaint or objection. If it is claimed that the rules of bankruptcy law that must be followed while preparing the order list have been violated or that the transaction is not in accordance with the facts, then a complaint must be filed with the Execution Examining Authority. If no complaint or objection is filed against the order list within seven days, or if the complaint or objections are rejected, the order list becomes final. After the bankruptcy administration finishes the examination of the receivables, it submits the ranking list to the bankruptcy office and invites the creditors to the second meeting of creditors by announcing it. Creditors whose claims have been partially or fully accepted shall be invited to the meeting. Those whose claims have been completely rejected may not attend the meeting. After the assets and liabilities of the bankruptcy estate are determined, the bankruptcy administration starts the process of converting the assets of the estate into money. Normally, sales are made by auction. However, in the second meeting of creditors, it may be decided to sell some goods by negotiation. After the sales phase is over and the price of the goods sold is collected, the money collected at the table is distributed to the creditors. If some creditors do not receive their receivables in full as a result of the distribution, a certificate of insolvency is issued to them for the unpaid portion. With the final distribution of the money in the table and the distribution of the insolvency certificates, the liquidation procedures are completed. The bankruptcy administration applies to the commercial court, which has decided on bankruptcy, and requests a decision to close the bankruptcy. If the commercial court determines that the bankruptcy liquidation has been completed in accordance with the provisions of the law, it shall decide to close the bankruptcy. This decision shall be announced, and the duty of the bankruptcy administration shall be terminated.