Bankruptcy is a well-established recourse for addressing insolvency in Turkey, offering a structured approach to ensure the equitable satisfaction of creditors while protecting financially distressed debtors from potential exploitation.
In Turkey, the concept of bankruptcy applies to both personal and commercial debts, primarily targeting individuals and entities legally categorized as “merchants” or “tacir” under the Commercial Code. This includes any individual or legal entity engaged in commercial activities, even on a partial scale.
Bankruptcy proceedings in Turkey fall into two main categories: bankruptcy initiated with a proceeding (takipli iflas) and bankruptcy initiated directly without a proceeding (takipsiz iflas).
Creditors kickstart this process by submitting a bankruptcy request to the competent execution office corresponding to the debtor’s operational center, often its headquarters. Within three days of receiving the request, the execution office issues a payment order to the debtor.
Upon receiving the payment order, debtors have seven days to choose from three primary options:
a. Accept the claim and make the payment.
b. Lodge a complaint against the payment order before the execution courts, typically based on procedural irregularities, to halt the proceedings.
c. Object to the claim outlined in the payment order, with objections commonly contesting the validity or amount of the claim. A creditor may respond with a counter objection (itirazın kaldırılması) before the competent commercial court. The court’s acceptance of a counter objection confirms the validity of the claim and renders the order final and binding.
Creditors may resort to this route under specific circumstances, such as when the debtor’s residence or operational center is unknown, when fraudulent financial activities are detected, when the debtor has fled to evade bankruptcy proceedings, or when the debtor ceases all payments in Turkey.
Alternatively, debtors may request the court to declare their own bankruptcy if they meet certain criteria, including insolvency (an inability to meet obligations upon maturity), asset deficiency (total liabilities surpassing total asset value), or substantial encumbrance of assets where 50 percent or more are unable to cover outstanding debts.
In Turkey, upon securing a bankruptcy judgment through either method, an estate known as the “iflas masası” is established, comprising all attachable assets belonging to the debtor.
The assets within the bankruptcy estate are subsequently liquidated through methods agreed upon by the bankruptcy directorate, which may include public auctions or negotiated sales. The proceeds from this liquidation are then distributed to creditors in accordance with a predetermined order of priority.
In cases where liquidation proceeds fall short of clearing all debts, unpaid creditors, ranked by priority, retain the possibility of recovering their debts in the future should the bankrupt debtor acquire new assets. This structured process ensures that the insolvency resolution is conducted fairly and transparently, benefitting both creditors and debtors alike.
Azkan Group can support you in your Employer of Record (EOR) and payroll requests (also called Umbrella Company) in Turkey. We can manage your HR requests even if you don’t have a legal entity in Turkey.
