Debt Collection In Turkey And Special Rules For Foreign Creditors

I. Introduction

Debt collection for foreign creditors in Turkey is carried out primarily through enforcement proceedings conducted under the Enforcement and Bankruptcy Law No. 2004. Enforcement proceedings begin with the creditor’s application to the relevant enforcement office and are subject to different procedures depending on whether the claim is based on a court judgment or on a document treated as equivalent to a judgment. For foreign creditors in Turkey, the process may involve additional steps and obligations under Act No. 5718 on Private International and Procedural Law, in particular a security deposit requirement and the enforcement of foreign court judgments.

Commencing enforcement is, of course, not in itself enough to recover a debt. The recoverability of the claim has to be assessed, and the steps needed to obtain payment once the proceedings become final must be carried through as well. That assessment of recoverability turns not only on commencing proceedings but on examining the debtor’s financial standing and assets in advance. Where the debtor lacks the means to pay, the court fees and costs, and the security required of a foreign creditor, may not in practice be recovered, so a preliminary review of the debtor’s position and of settlement options is necessary before filing.

Against this background, any strategy for debt collection for foreign creditors should assess the enforcement track according to the nature of the claim, the assessment of recoverability, the debtor’s options to object to the payment or enforcement order, mandatory mediation and the litigation stage in resolving an objection, collection through attachment and electronic sale, and, for foreign creditors, the security deposit and collection following enforcement of a foreign judgment should all be assessed together.

II. Debt Collection in Turkey: The Main Enforcement Tracks

Proceedings Without Judgment And Objection To The Payment Order

For debt collection for foreign creditors in Turkey where a claim is not based on a court judgment, the claim is generally pursued through enforcement without a judgment under the general attachment route. Here the enforcement office serves a payment order on the debtor, who may then object within seven days. A timely objection automatically stays the proceedings and prevents the creditor from requesting attachment.

To press on, the creditor must first remove that objection, either through removal of the objection before the enforcement court or an action for annulment of the objection before the general court. Claims based on negotiable instruments such as cheques, bills of exchange and promissory notes are, by contrast, pursued through the faster instrument-specific route, where the objection period is only five days and an objection does not, as a rule, automatically stay the proceedings.

Proceedings Based On A Judgment And The Enforcement Order

Where the claim is based on a court judgment or a document equivalent to a judgment, including an enforced foreign judgment, enforcement instead proceeds on that basis. The enforcement office serves an enforcement order granting the debtor seven days. Unlike proceedings without judgment, an objection to the debt does not, as a rule, stay the proceedings; the debtor may seek a stay of enforcement only on the limited grounds set out in the law, for example by proving through an official or acknowledged document that the debt has been discharged, postponed or time-barred.

Because the debtor’s objection is limited and does not automatically stay enforcement, the denial-of-debt compensation that applies in proceedings without judgment does not arise here. A creditor holding a final judgment or an equivalent document therefore enjoys a more predictable and faster process.

III. Removing The Objection, Mandatory Mediation And Denial-Of-Debt Compensation

Annulment, Removal Of The Objection And Mandatory Mediation

As noted above, because a timely objection in proceedings without judgment stays the proceedings, the creditor must choose one of two routes provided by law in order to continue enforcement and collection. The first is removal of the objection, which may be sought from the enforcement court only where the creditor relies on one of the documents listed in the law, such as a debt acknowledgment bearing an admitted signature. The second is an action for annulment of the objection, brought before the general court within one year of the objection. Removal of the objection is a narrow and relatively fast route specific to enforcement law, whereas annulment requires full litigation on the merits.

Another point to note regarding annulment actions is that, for commercial monetary claims, the annulment action is subject to mandatory mediation as a procedural precondition. Under Article 5/A of the Turkish Commercial Code, commercial actions for a sum of money — together with annulment, negative-declaratory and recovery actions — cannot be filed without first applying to a mediator, and an action filed without satisfying this precondition is dismissed on procedural grounds. Removal of the objection before the enforcement court, by contrast, is not a lawsuit and so is not subject to the same requirement.

Denial-Of-Debt And Bad-Faith Compensation

If the creditor succeeds in the annulment action and has expressly requested it in the statement of claim, the debtor is ordered to pay denial-of-debt compensation of at least twenty per cent of the claim, provided the objection was unjustified. Conversely, if the action is dismissed and the creditor is found to have pursued enforcement in bad faith, it is the creditor who may be ordered to pay the debtor bad-faith compensation of at least twenty per cent.

Similarly, in the instrument-specific route, where the objection has stayed the proceedings on an interim basis and is ultimately found unjustified, the debtor may be ordered to pay compensation of not less than twenty per cent of the claim together with a penalty of ten per cent.

IV. Attachment, Electronic Sale And Collection

Attachment And Valuation

Once the proceedings become final, the creditor may request attachment of the debtor’s assets. Attachment may cover the debtor’s bank accounts, movables and immovables and rights and receivables held against third parties, and electronic attachment in particular gives rapid access to bank accounts.

Before any sale, the value of the attached property is determined by expert valuation and announced on the electronic sale portal, and interested parties may challenge that valuation before the enforcement court within seven days. Because the valuation sets the figure used at auction, it is one of the stages that most directly affects the collection outcome.

Electronic Sale And Distribution Of Proceeds

At the sale stage, under the regime introduced by Law No. 7343, the sale of attached property is conducted essentially electronically, by open auction. The physical auction that applied previously has largely ended, and sales are now carried out through the electronic sale portal within the National Judiciary Informatics System. At the first auction the threshold is fifty per cent of the appraised value, and, if that auction is unsuccessful, forty per cent at the second.

Once the sale proceeds have been collected, where there is more than one creditor they are distributed according to the statutory order of priority, with secured and privileged claims ranking ahead. In multiple proceedings against the same debtor, the dates of attachment and the nature of the claims therefore become the main factors determining the amount actually recovered.

V. Debt Collection For Foreign Creditors: Special Rules In Turkey

Security Deposit And Reciprocity

In debt collection for foreign creditors in Turkey, the most important difference to bear in mind is the security deposit, because foreign natural and legal persons who bring an action or commence enforcement proceedings in Turkey are, as a rule, required to provide security. This obligation is set out in Article 48 of the Act on Private International and Procedural Law. The amount is determined by the court according to the amount and nature of the claim. The security is, however, a guarantee rather than a final payment, and is refunded at the end of the proceedings.

The exception to this security rule is reciprocity. Accordingly, where a bilateral agreement on security exists between Turkey and the State of which the creditor or claimant is a national, that foreign national is exempt from the obligation to provide security in order to bring an action or commence enforcement proceedings. Whether the exemption applies must be assessed case by case, by identifying the provisions of the relevant bilateral agreement in light of the creditor’s nationality.

Collection Following Enforcement Of A Foreign Judgment

Holding a foreign court judgment or arbitral award in respect of the claim does not, on its own, mean that enforcement can begin directly in Turkey. For a claim based on a foreign court judgment or arbitral award to be collected through enforcement, the decision must first be enforced (tenfiz). For an enforcement action to be brought, the foreign court judgment or arbitral award must have become final in the State where it was rendered.

An enforcement decision is subject to conditions such as the matter not falling within the exclusive jurisdiction of the Turkish courts, the decision not being manifestly contrary to public order, and the defendant’s right of defence not having been violated. The enforcement examination does not extend to the merits; review is confined to the procedural conditions listed. Once the enforcement decision is granted, the foreign decision becomes enforceable like a Turkish court judgment, and collection then proceeds through the judgment-based route described above.

VI. Conclusion

Taking these stages together, debt collection for foreign creditors in Turkey is a multi-stage process that begins, according to the nature of the claim, with the judgment-based or non-judgment route, may continue through mediation and litigation where the debtor objects, and ultimately concludes through attachment and electronic sale. Its duration and cost vary considerably depending on whether the claim rests on a document, whether the debtor objects, and the state of the debtor’s assets.

For foreign creditors, debt collection in Turkey also involves the security deposit and the enforcement of foreign judgments as additional stages; even so, the possibility of exemption from security and of judgment-based enforcement once a foreign decision has been enforced shows that these processes can be overcome. Debt collection for foreign creditors should therefore be approached as an integrated process — one requiring the debtor’s financial position, the documents underlying the claim and the applicable enforcement route to be assessed together before proceedings are commenced.

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.