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Debt recovery procedures in Turkey can be quite complex and take much longer on average than in most EU countries. The complexities arise from the lack of transparency and visibility within the internal market as well as from the complex nature of legal debt recovery proceedings and the costs associated with such legal actions.
Due to the closed nature of the market, it is extremely difficult to obtain financial information from debtor companies. This uncertainty, coupled with the complexity of legal proceedings and the associated costs, presents a significant problem for most companies and foreign nationals, as most creditors wish to obtain financial information about the debtor before initiating complex legal proceedings. . and pay the corresponding legal fees.
If, for example, the debtor company is declared insolvent after enforcement proceedings have been filed, there will be very little chance of recovering the debt and any legal fees paid for such a claim will also be forfeited (since it will not be possible to recover them from the debtor). There are of course alternative methods, such as debtor market and financial due diligence and out-of-court settlements, which creditors can opt for, before proceeding with a request for enforcement.
II. COLLECTION PROCEDURES
Debt collection requests 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 enforcement office issues a payment order to the debtor once the claim has been formed. If the complaint is not based on a legal notice [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 deposit within 7 days from the date of receipt of the payment order. If there is no objection to the claim or the payment of the debt, the claim is considered certified (finalized) and the enforcement procedure continues with seizure of the debtor’s goods and properties for collection. .
In case of opposition to the debt (total or partial opposition), the complaining party (creditor) can request a legal procedure (a request) from the enforcement court to lift this objection, which can turn into a full commercial dispute in cases where the debt is unclear and/or based on contractual default.
If the debtor raises such objections to the filing of execution and if later these objections prove to be unfounded, then the debtor is penalized in favor of the creditor by increasing the amount of the debt from 20%. Either after the lifting of the opposition or after the certification of the debt, the procedure ends with the legal sale of the goods and assets of the debtor for the effective collection in favor of the creditor.
It should be noted that this enforcement procedure concerns a request for direct enforcement, foreign judgments or arbitral awards can also be enforced in Turkey after a procedure called recognition. In such a procedure, the creditor with a finalized judgment or an arbitral award asks the Turkish courts for the recognition of this decision and the Turkish court decides on this recognition (without examining the merits but with only procedural control) and the foreign decision becomes nationalized. Then, this judgment of recognition is executed as indicated above as a judgment of the local court.
III. SECURITY DEPOSITS FOR FOREIGN CREDITORS AND OTHER FEES
In many cases where the creditors are foreign companies or nationals, the enforcement office requires a security deposit of between 25% and 100% of the total claim to be paid by the creditor in order to proceed with the application for enforcement. . This security deposit is required only from foreign and non-resident parties (whether a foreign person or a company) who deposit for any litigation or application for execution and for seizure (privilege ) on the assets of the debtor is sought in the preliminary stages of an execution. This security deposit requirement is based on Article 48 of Turkey’s Private International and Procedural Law (Law No. 5718).
The amount of the security deposit varies according to the enforcement office, the amount and the nature of the debt subject to enforcement. For lower amounts, enforcement offices tend to require a full security deposit (100% of the amount claimed) to be deposited before proceeding with the enforcement application (even in cases where a court order is presented as basis of the execution request). However, these bonds are only requested as guarantees and are returned to the applicant once the enforcement procedure has been finalized.
However, there are ways around this security deposit requirement. Paragraph 2 of article 48 of the law provides that “the court exempts the plaintiff, the intervener or the plaintiff from providing security, on a reciprocal basis“, where the basis of reciprocity means any international agreement signed by and between Turkey and other countries where it is stipulated that such security deposits will not be requested for countries party to these agreements.
As stated above, debt collection procedures in Turkey can be very complex, even more so for foreign creditors. In order to ensure a speedy recovery procedure and to avoid paying unnecessary legal fees, we strongly recommend that foreign creditors seek legal assistance from experienced legal professionals in the field. For more information and assistance on this subject, do not hesitate to contact us here.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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