International Feature Authors Stephen Baister and Elif Altınsoy

Stephen Baister Chief Bankruptcy Registrar, High Court of Justice, London.ElifStephen Baister Chief Bankruptcy Registrar, High Court of Justice, London.

Elif Altınsoy Lawyer, Altınsoy Law Office (Hukuk Bürosu), Istanbul, Turkey.TheAltınsoy Lawyer, Altınsoy Law Office (Hukuk Bürosu), Istanbul, Turkey.
THE BANKRUPTCY LAW OF THE REPUBLİC OF

TURKEY
SOURCES
Mustafa Kemal Atatürk’s modern Turkish Republic’s looked to the West rather then the East when it wished to codify or reform its cumbersome laws accelerating a process that had been

underway for a century before the founding of the modern republic.

That process continues today: the Turkish Commercial Code (Türk Ticaret Kanunu) is being redrafted according to a Swiss model, and there is an increasing tendency in Turkey to adopt or adapt EC legislation where it is available, unsurprising in the light of the

country’s aspiration to EC membership.

Regulations (İcra ve İflâs Kanunu Yönetmeliği) 2005 and various other rules and regulations governing matters such as advertising, fees and expenses and so forth.

difference is that a debtor may apply for his own bankruptcy.

individual who holds himself out as being a trader or merchant is thus susceptible to bankruptcy, but generally the remedy is available against businesses rather than individuals. The key to establishing whether a debtor is a trader is generally whether the business is registered in the commercial register (ticaret sicili), although other persons and

entities (for example, ship owners) are deemed to carry on trade or are otherwise deemed susceptible to bankruptcy by specific provisions.

Turkish insolvency law has been amended to focus on the rescue and rehabilitation of insolvent debtors and offers a range of solutions to creditors although enforcement.

partners of a collective company or limited partnership and the directors of banks or otherfinancial institutions who have allowed business to be carried on in breach of legislation (s 17 Banking Law No 4389, 1999).

Commercial Court, 13 June 2008).

service if the debt is not disputed. A debtor wishing to dispute the demand must do so by notifying the icra dairesi of the dispute (ss 154, 155, 167, 171 and 172). However, that body has no role in determining the dispute. That is the job of the commercial court (ticaret mahkemesi) which is the court which generally exercises bankruptcy jurisdiction.

Apart from hearing the application for a bankruptcy order and dealing with any grounds of dispute (ss 154, 158, 173, 174 and 177), the commercial court also deals with applications made in the bankruptcy after the proceedings have been opened. Although creditors and others may apply to the court, it does not exercise any general control over the bankruptcy which remains largely in the hands of the creditors and the administrators they appoint.
The enforcement authority is subject to control by the enforcement

court (icra mahkemesi) (ss 4 & 16).

and to summon the first meeting of creditors which is chaired by the bankruptcy director (iflâs müdürlüğü) or one of his assistants. The bankruptcy authority is also responsible for initially securing the bankrupt’s assets and maintaining records relating to the conduct of the bankruptcy, in particular the register of creditors. It is responsible for convening meetings and also has a supervisory role in relation to the bankruptcy administrators. It is accountable to the state prosecutor (cumhuriyet savcısı) and the ministry of justice.

supervision of bankruptcy in Turkey.

creditors themselves (s 223). The administrators become the legal representatives of the bankrupt and the creditors (s 226) and have the power to do all that is necessary for the administration of the estate, including taking or continuing proceedings and entering into

contracts. They must act for the benefit of the creditors to whom they owe a duty of good faith. They are subject to supervision by the bankruptcy authority (s 223).
BANKRUPTCY PROCEEDINGS
Turkish bankruptcy proceedings are summary in the extreme. The reforms of 2003 and 2004 introduced tight time limits with a view to speeding up a process which had become regarded as too heavily weighted in favour of debtors. Those reforms were, however, complemented by others introducing new or improving on existing rescue proceedings. A trader may be subject to bankruptcy in respect of almost any kind of debt whether arising out of a money claim (s 20 Turkish Commercial Code) or default in relation to security (teminat) (s 42). However, a creditor may only bring bankruptcy proceedings in respect of a secured debt if he has failed to recover the amount due in proceedings to enforce the security (s 45).
The text books generally distinguish between (a) bankruptcy following service of a demand (takipli iflâs), sometimes called ordinary bankruptcy (adi iflâs), and (b) bankruptcy without demand (takipsiz iflâs), sometimes called direct bankruptcy (doğrudan doğruya iflâs).
Bankruptcy proceedings must generally be brought in the area of the debtor’s principal place of business (s 154). Proceedings may be brought by foreign creditors as well as Turkish creditors. Note, however, that a foreign creditor may be required to deposit security for costs as a condition of bringing proceedings. Any creditor must in any event pay a deposit of TL 4,000 on account of the costs of administering the bankruptcy in the event of an order being made.
ORDINARY BANKRUPTCY
The creditor begins this form of proceeding by requesting the enforcement authority to serve on the debtor a demand or order to pay (ödeme emri) the debt said to be due. The demand is supposed to be served within three days and the debtor has only seven days after

service in which to dispute the debt (ödeme emrine itiraz etmek) or pay (s 155). There is no prescribed method of raising the dispute: a letter accompanied by relevant documents may suffice.

a bench of three judges) on the basis of a decision which will generally have been reached before the hearing. If a dispute has been raised the court will hear it at the same time as the application (s 156 III) but the burden is on the creditor to satisfy the court that the dispute is not genuine. The creditor may withdraw its application at any time up to the making of an order but may also renew the application within a month of so doing (s 157).

. the debtor’s residence cannot be ascertained;

. the debtor has absconded to avoid its creditors;

. the debtor has engaged in or attempted to engage in fraudulent

-transactions which threaten the interests of creditors;

. the debtor has concealed assets to avoid execution;

. the debtor has suspended payments to creditors;

. the debtor has failed to satisfy a final judgment or order served on it by the enforcement office;

. a voluntary arrangement proposal has been rejected by the court

or a moratorium period is cancelled by the court;

. the debtor’s liabilities exceed its assets.
A debtor may apply for its own bankruptcy on the basis of inability to pay its debts as they fall due. When making the application for an order the debtor must submit a list of assets and liabilities together with the names and addresses of creditors. The court will decline to

make an order without this information.

Failure to do so is a criminal offence and may result in a prison sentence of between one month and two years.

. an inventory to be taken of the debtor’s assets;

. determination of the extent and value of the debtor’s assets;

. payment of money due to the debtor to be made to the commercial court or the bankruptcy authority;

. an inhibition to be placed on the land registries to prevent the transfer of property.
CONSEQUENCES OF BANKRUPTCY
If the court makes a bankruptcy order it notifies the office of the bankruptcy authority attached to the court which in turn notifies the relevant land registry, the commercial registry, the customs administration, the Turkish Banks Association, the Stock Exchange,

the Capital Markets Board, local chambers of industry and commerce and the post office ofthe making of the order. The order must also be advertised in one of the five national newspapers with the highest circulation figures and in the Commercial Registry Gazette.

in the administrators. Secured property also falls into the estate but subject to the rights of the secured creditor (s 185). After the making of an order only the administrators have the authority to dispose of assets in the estate (s 226). Any disposition of assets by the bankrupt after the opening of the bankruptcy proceedings is void (s 191). Creditors may no longer pursue the bankrupt, and any proceedings must be stayed or discontinued (s 193). No proceedings may be brought against the bankrupt. Interest on claims continues to run (s 196). However, interest will only be paid out of distributions when principal has been paid. The bankrupt is obliged to surrender its assets. Failure to do so may result in imprisonment for a period of one month to two years.

advertise the bankruptcy within 10 days of the opening of proceedings (s 219) in one of five newspapers with the greatest circulation, a local newspaper and the commercial register Gazette (s 166). Creditors then have 30 days in which to make their claims in the bankruptcy. A register of creditors must be kept by the bankruptcy administration.

number. In consultation with the insolvency authority the court then selects two from the first group and one from the second to make a total of three administrators. No professional qualification is prescribed, so the administrators may be creditors or agents nominated by them. However, as a general rule they are lawyers or accountants.

priority for the creditors who have lodged claims. Generally the assets are disposed of by public auction (açık artırma) but open market sale (pazarlık suretiyle satış) may also be permitted.

. Tax and social security contributions, wages and other sums due to employees for the period of one year before the opening of the bankruptcy;

. claims of wards and dependents of the bankrupt;

. other claims specifically provided for by legislation (including

medical claims and those of agents);

. all other claims.

251) enabling him to levy execution against any assets the debtor may acquire after the closing of the bankruptcy.

‘Normal’ gifts (such as wedding and birthday presents and the like) are expressly excluded from attack.

Commercial Code). The procedure is based on the US Chapter 11. The debtor presents a rehabilitation plan (literally ‘improvement plan’, iyileştirme projesi) to the court.

the court may make a bankruptcy order. (Judge Seyfettin Tan of the Istanbul High Commercial Court expressed the view that in reality the procedure was no better than the konkordato, indeed was often abused simply to dispose of assets to the detriment of creditors.)

This allows a company in financial difficulty to apply to the court for sanction of a scheme with the approval of half of its creditors in number and two thirds in value.

appears to be a form of execution it is in fact a summary procedure

for debt collection which is effective and efficient. A demand for payment is served on the debtor, and if it fails to object or dispute the debt the creditor may seek execution. It is akin to obtaining a default judgment.