Av. Ali Yurtsever L.L.M
Debt collection procedures in Turkey can be quite complex and can take a lot longer on average than most EU countries. The complexities arise from the lack of transparency and visibility within the domestic market along with the complex nature of legal proceedings for debt collection and the associated costs for such legal action.
Due to the closed nature of the market, it is extremely difficult to obtain the financial information of debtor companies. This uncertainty, coupled with the complexity of the legal proceedings and the associated costs, presents a significant issue for most foreign companies and nationals, as most of the creditors would like to obtain some sort of financial information of the debtor before starting the complex legal procedures and paying the relevant legal fees.
If, for example, the debtor company is found to be insolvent after filing the execution proceedings, there would be very little chance of recovering the debt and any legal fees paid for such claim will also be lost (since it will not be possible to recover them from the debtor). There are, of course, alternative methods, such as preliminary market and financial checks regarding the debtor and amicable settlements, that the creditors can opt for, before proceeding with a execution claim filing.
II. DEBT COLLECTION PROCEDURES
Debt collection claims can be separated into two general categories, those that are based on an independent legal promissory note and those that are not. In both cases, the execution office submits an order of payment to the debtor once the claim is made. If the claim is not based on a legal note [such as a banking check, promissory note, an independent and assignable confirmed acceptance of debt by debtor etc.]
There could be an objection by the debtor against the filing within 7 days from the date of receipt of the order of payment. If there is no objection to the claim or payment of the debt, the claim is considered to be certified (finalized) and the execution procedure proceeds with attachment of assets and properties of the debtor for the purposes of collection.
In case of an objection to the debt (full or partial objection), the claiming party (creditor) may apply for a legal procedure (a motion) to the execution Court for removing such objection, which may turn into a full length commercial litigation in cases where the debt is not clear and/or based on contractual default.
If the debtor raises such objections to the execution filing and if later those objections are found to be groundless, then the debtor is penalized in creditor’s favor raising the debt amount starting by 20%. Either following such removal of objection or after the certification of debt, the procedure finalizes with the legal sale of assets and properties of debtor for the actual collection in favor of the creditor.
It should be noted that this execution procedure is for a direct execution claim, foreign judgments or arbitral awards may also be executed in Turkey after a procedure titled recognition. In such procedure, the creditor with a finalized judgment or arbitral award applies to the Turkish Courts for recognition of such decision and the Turkish Court resolves for such recognition (without reviewing merits but with only a procedural check) and the foreign decision becomes nationalized. Then this recognition judgment is executed as noted above like a local Court judgment.
III. SECURITY DEPOSITS FOR FOREIGN CREDITORS AND OTHER COSTS
In many cases where the creditors are foreign companies or nationals, execution office require a security deposit between 25% to 100% of the total claim to be paid by the creditor in order to proceed with the execution claim. This security deposit is only required from foreign and non-resident parties (either a foreign person or a company) filing for any litigation or execution claim and for attachment (lien) over the assets of the debtor is sought in the preliminary stages of an execution. This security deposit requirement is based on Article 48 of the Turkish Act on Private International and Procedural Law (Act No. 5718).
The amount of the security deposit varies depending on the execution office, the amount and the nature of the debt subject to execution. For smaller amounts, the execution offices tend to request a full security deposit (100% of the claimed amount) to be deposited before proceeding with the execution claim (even in cases where there is a court order submitted as the basis of the execution claim). However, these deposits are requested merely as guarantees and are refunded to the claimant once the execution proceedings are finalized.
However, there are ways to circumvent this security deposit requirement. Subparagraph 2 of Article 48 of the Law sets forth that “the court exempts the plaintiff, intervener, or applicant for execution from providing a security, on a reciprocity basis”, where reciprocity basis means any international agreements signed by and between Turkey and other countries where it is stated that such security deposit payments shall not be sought for countries party to those agreements.
As noted above, the procedures for debt collection proceedings in Turkey can be very complex, even more so for foreign creditors. In order to ensure a swift collection proceeding and to avoid paying any unnecessary legal fees, we highly recommend foreign creditors to seek legal assistance from legal professionals who are experienced in the field. For further information and assistance regarding the matter, please do not hesitate to contact us here.