Bankruptcy Proceedings: Recent Developments
The effort and time spent on bankruptcy proceedings are greater than the effort and time spent on execution proceedings.
The basic source of the Turkish bankruptcy law is the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in the Official Gazette on June 19, 1932 and numbered 2128.
Under Turkish Law there are two different methods for collection of receivables: (i) execution proceedings; and (ii) bankruptcy proceedings. In practice, execution proceedings are more common for several reasons.
The effort and time spent on bankruptcy proceedings are greater than the effort and time spent on execution proceedings, but bankruptcy proceedings are more advantageous in some respects because in bankruptcy proceedings all debts of the debtor, including undue debts, become mature and all assets of the debtor are liquidated in order to satisfy creditors’ receivables.
Bankruptcy proceedings are initiated by the submission of a request to the relevant Execution Office. The second step is the issuance of an order of payment by the execution office stating that if the debtor fails to pay its debt, the creditor will apply to the Commercial Court, requesting that the debtor be declared bankrupt. In cases where the non-payment of the debt has occurred, the creditor will initiate a bankruptcy lawsuit before the competent commercial court in the jurisdiction where the debtor’s headquarters are located. In cases where the debtor has objected to the order of payment, then the court will first examine the claim of the creditor and decide whether to remove the objection. If the objection of the debtor is dismissed, the court will proceed with the examination of the bankruptcy lawsuit ex officio. During this lawsuit, the creditor must prove the existence of the debt.
Where the creditor chooses to initiate bankruptcy proceedings against a debtor, the debtor’s property (receivables, assets and rights) at the time the court renders the bankruptcy decision becomes a part of the debtor’s estate and as such can only be administrated by the debtor’s estates’ trustees. If the creditor proves the existence of the debt, the court will rule through a depository decision, requiring the debtor to deposit the debt (including all incurred interests and expenses) within seven (7) days and will notify the debtor that if the amount is not deposited, then it will declare the bankruptcy. If the debtor fails to deposit the designated amount, the court will decide to declare the bankruptcy of the debtor at the first hearing to be held upon the depository decision. Upon the court’s rendering its bankruptcy decision, the Bankruptcy Office will take the necessary action and will initiate the liquidation process.