The Legislation in Turkey and Legal Framework

What is your jurisdiction's main insolvency or bankruptcy legislation?

Insolvency and restructuring procedures are primarily governed by the Enforcement and Bankruptcy Act 2004. Commercial Code 6102 includes provisions on capital losses and over-indebtedness of capital corporations, as well as the responsibility of their directors and officers. The effects of insolvency and restructuring proceedings on contracts are generally governed by the Code of Obligations 6098 and other special laws relating to the contract in question. The insolvency processes of banks, financial institutions and insurers are governed by the special provisions of their unique codes.

Regulatory climate

Is your jurisdiction friendlier to lenders or debtors on a global spectrum?

Enforcement and Bankruptcy Law gives immediate priority to avoiding prospective bankruptcy of a borrower. Nevertheless, this avoidance is conditional on maintaining the creditor's best interests. Therefore, if a debtor's liquidation is found to be more desirable due to a liquidation test, the statute does not prohibit bankruptcy.

Sector-specific regimes

Do any special laws apply to specific sectors (e.g., insurance, pension funds) for corporate insolvencies?

Special provisions for banks Under Article 14/3 of the Banks Law 4389, the management and supervision of banks that fail to fulfill their obligations when due shall be transferred to the Saving Deposits Insurance Fund (SDIF) and their permission to execute banking transactions shall be withdrawn. A special insolvency proceeding is applied to those banks that have withdrawn permission to execute banking transactions and transferred management and supervision to the SDIF. Only the SDIF may call for the dissolution of such banks.

Treasury control is especially important when it comes to dealing with insolvent insurers and pension funds. The Treasury and the departments concerned were active in carrying out the proceedings.

Special provisions for financial institutions The process of insolvency is subject to Capital Market Law 6362 for distressed financial institutions. The Council of the Capital Market plays an important role in each event.


Are any changes envisaged in the legal framework?

Law 7101 adopted and posted changes to the law on regulation and bankruptcy on 15 March 2018 in the Official Gazette. The most important changes are the reorganization of composition proceedings and the elimination of postponement proceedings of bankruptcy.

The amendments were based on the 2013 updates to the Swiss Debt Management Act.

The goal of the legislature was to implement a more efficient model of restructuring by controlling key concepts such as:

  • automatic stay
  • ipso facto clauses
  • creditors’ committees
  • creditor priority in financing a debtor in composition proceedings

More substantial changes to the enforcement and bankruptcy law are expected in the future to modernize debt enforcement procedures and reorganize the court and office structures.

Responsibility for the manager and parent company
Under what conditions can the insolvency of a corporation be held accountable to a director or parent company?

Generally speaking, in order for a director to be held liable, there must be damage that can be attributed to the relevant director's faulty acts and that director must be liable for any failure to comply with the articles of association or law if such failure is within his control. In this regard, managers cannot be held liable for losses suffered by the company, its shareholders or creditors if such damage is not caused by the relevant manager's defective act or if such damage is outside the control of the relevant manager.

What are the protections open to a responsible director or parent company?

According to Article 369 of the Commercial Code, managers should perform their duties with the due diligence required of a responsible business person. Therefore, managers must show that with due diligence and good faith they have exercised their duties. Nonetheless, the word ' prudent business person' is widely interpreted by the courts and it should be determined in each case whether there is any harm that can be traced to a flawed act by a particular director and whether the circumstances were beyond the control of that manager.

Due Diligence
What due diligence to limit liability should be performed?

To avoid personal liabilities of managers, managers should act diligently and with the utmost care while performing their duties of management.

Position of creditors and Forms of security

What are the main forms of protection over mobile and immovable property and how is legal impact given to them?
Protection over immovable property

In order to protect a loan, a mortgage levied on the immovable property is the most common method of ensuring an insurance. A mortgage helps the mortgagee to protect the foreclosure of the mortgaged property listed with the land registry if the loan is not paid when due.

According to Article 881 of Civil Code 4721, any debt that may be secured with a loan that is present or that has not yet arisen, but is likely to arise.

In Turkish liras, the amount of protection should be specified. Nevertheless, financial institutions undertaking business in both Turkey and abroad may also enforce a mortgage in terms of foreign currency in order to obtain loans issued in foreign currency or international limping standard.

Unless otherwise stipulated in the legislation (e.g. Articles 892 and 893 of the Civil Code), in the presence of a deed officer in order to impose a mortgage, a mortgage agreement should be executed by and between the mortgage holder and the mortgage holder. It is important to register this mortgage with the land registry.

Pledge protection over mobile property

As per Article 3 of the Movable Pledge in Commercial Transactions Code 6750, a pledge agreement can be executed by and between:

  • Turkish banks
  • financial leasing companies
  • factoring companies & Turkish public institutions authorised to lend or provide guarantees
  • merchants
  • craftspeople
  • farmers
  • producer organisations
  • self-employed individuals
  • legal entities acting as lenders

The pledge agreement must be executed either in writing (before the Pledged Movable Registry or by a notary approving the signatures of the parties) or in electronic form (signed with an electronically authenticated signature) and registered with the registry. Once the registration is complete, the mortgage right shall be deemed to have been created.


Under Article 950 of the Civil Code, a lien is a right that entitles the creditor to retain, as security for his receivables, the debtor's movables and valuable papers that are in his possession and that should be returned upon payment of the debt, and to convert the debt into cash by giving advance notice.

Retentionof Title

According to Article 764 of the Civil Code, a retention of title agreement and provision in a selling agreement can only be valid if the contract is concluded before the buyer's residence notary and registered with the appropriate mobile special registry.

Ranking of Creditors

How are complaints of lenders in insolvency proceedings ranked?

According to Article 206 of the Compliance and Bankruptcy Code, the classification of creditors ' claims is calculated. The law gives absolute priority to the claims of the right owner of a mortgage and promise. Public debts arising from property assets (e.g. customs duties, construction and land tax and inheritance and transfer tax) will be paid first.

As per Article 206, other claims following the foregoing claims are ranked as follows:

  • claims of employees, unpaid pension plan contributions and alimony receivables
  • guardian and ward claims
  • public debts and privileged claims accepted based on their own laws
  • all other claims (ordinary claims)

Can this score in any way be changed?

It is not possible to change the ranking set out in Article 206. Nevertheless, creditors may object to the bankruptcy administration's rankings (including the rankings of other creditors) before the tribunal.

Foreign creditors
When making charges, what is the position of foreign creditors?

There is no specific provision for international creditors ' claims to be reported. Foreign lenders can therefore file their claims in the same way as other creditors.

Unsecured creditors
Do unsecured creditors have any special recourse at their disposal?

For unsecured creditors, there is no special remedy available. With the bankruptcy assets, unsecured creditors must file their claims.

Debt Recovery

By what legal means can lenders (other than by insolvency proceedings) recover unpaid debts?

To recover unpaid debts, lenders generally apply to secure precautionary attachment to debtor assets and launch a debt action or litigation against debtors. But once the court makes a bankruptcy ruling, lenders can only file their claims with the bankruptcy estate. After the date of the bankruptcy settlement, lenders can not bring a separate debt enforcement action against a borrower.

Are trade credit coverage in your jurisdiction widely purchased?

In practice, the use of credit insurance is a growing trend and is also supported by the government. The demand for credit insurance from lenders is also growing as credit insurance products generate positive outcomes and provide creditors with practical solutions.

Liquidation Procedures

Eligibility What are the conditions for eligibility to begin liquidation procedures? Is it explicitly prohibited for any organizations to conduct such procedures?

According to the law, a decision on bankruptcy can only be made against merchants or persons subject to the provisions of the merchant. According to Article 18 of the Commercial Code, the following are subject to bankruptcy:

  • collective companies
  • commandite companies
  • joint stock companies
  • commandite companies with share capital
  • limited liability companies
  • cooperatives
  • foundations and associations operating a commercial enterprise in order to achieve their goal
  • institutions and corporations established by the state, a special provincial administration, municipality, village or other public legal entity, for the purpose of being managed or commercially operated in accordance with the private law provisions pursuant to their own laws of establishment.

What are the main procedures in your jurisdiction used to liquidate an insolvent corporation and what are the key features and conditions of each one? Are there any differences between voluntary liquidation and compulsory liquidation systemic and regulatory?

The main way to liquidate an insolvent corporation is through bankruptcy proceedings. There are the same consequences for both voluntary and mandatory liquidations. In a compositional system of asset allocation, a business may also be liquidated. In a compositional process of property allocation, a corporation may also be liquidated.

How are formally approved liquidation procedures?

The professional civil courts make bankruptcy rulings. The start of the liquidation with the date and hour is stipulated in the judgment. The decision will be notified to the bankruptcy office. The bankruptcy office immediately notifies land registry, trade registry, customs and postal offices, Turkey's Banks Association, regional chambers of commerce, business chambers, stock exchanges, the Capital Market Board and other appropriate authorities.

The bankruptcy office also publishes the decision in:

  • a national newspaper with circulation in excess of 60,000
  • a local newspaper at the debtor’s centre of main interest
  • a trade registry gazette
Collection Agency in Turkey

What are the effects on existing contracts of liquidation procedures?

As a general rule, one party's bankruptcy does not automatically cancel agreements. The law states that one party's bankruptcy shall terminate the following extraordinary agreements:

  • usufructuary lease agreements
  • attorney agreements
  • commission agreements
  • agency agreements
  • life annuity agreements
  • ordinary partnership agreements
  • current account agreements

In addition to termination, the beginning of bankruptcy liquidation may have important effects for other agreements, and this should be evaluated in terms of each agreement. For example, under the Code of Obligations, the other party must refrain from performing its obligations until its success is guaranteed in an arrangement burdening mutual debts if a party goes bankrupt. Therefore, the other party may terminate the agreement for such agreements if a bankruptcy administration does not provide security. Insolvency administrators are entitled to continue the arrangements in favor of bankruptcy assets in this way, but they are not obligated to do so.

What is the typical liquidation process completion timeframe?

The law on compliance and bankruptcy requires the completion of liquidation proceedings for a six-month period. However, the enforcement court may extend this. In practice, liquidation processes can be prolonged and annual liquidation periods are extended.

Role of Liquidator

How is the liquidator named and the scope of his or her powers and duties?

Liquidation is usually carried out if the liquidation costs are covered by the debtor's property. Ordinary liquidation is handled by the bankruptcy board, which consists of three individuals from the six candidates selected by each lender at the first meeting of creditors appointed by the compliance court. The bankruptcy administration's powers and duties are limited to those set out in the law on compliance and bankruptcy. In this respect, under the law on compliance and bankruptcy, the power and liability of the directors remain for unstated matters. Bankruptcy administration should be approved separately by lenders to negotiate rather than sell the property.

Court involvement

What is the extent to which the court is interested in liquidation proceedings?

The courts are interested in nominating the bankruptcy administrator, hearing concerns regarding bankruptcy administration operations, closing liquidation and hearing applications for bankruptcy decisions to be terminated.

Creditor involvement

What is the degree to which lenders are involved in liquidation processes and what steps are they not allowed to take in the course of the proceedings against the insolvent company?

Creditors are unable to initiate a new borrower case during the liquidation of bankruptcy. The secured creditors, however, that continue the pledged property's selling process.

According to the law, creditors have the right to: nominate the bankruptcy administration; authorize the bankruptcy administration to sell through negotiation; decide on the bankrupt's composition offer and suspend liquidation; decide on the continuation of litigation; object to the bankruptcy administration's rankings; and complain about the ban transactions.

As per the law, creditors are entitled to:

  • nominate the bankruptcy administration
  • authorise the bankruptcy administration to sell by way of negotiation
  • decide on the composition offer of the bankrupt and suspend the liquidation
  • decide on the continuation of litigations
  • object to the rankings determined by the bankruptcy administration
  • make complaints regarding the transactions of the bankruptcy administration

Creditors may also continue the litigation process that the bankruptcy administration does not pursue.

Turkish Debt Collection Laws
Turkish Debt Collection Laws
Director and shareholder involvement
What is the scope of the participation of directors and investors in liquidation procedures?

The debtor's directors and investors are obligated to present to the bankruptcy office the debtor's assets and comply with their demands. Directors and shareholders ' authority and responsibilities continue only for matters over which bankruptcy management has no authority or responsibility. Shareholders may also demand that the bankruptcy decision be rescinded after payment of debts.

Restructuring procedures and eligibility
What are the conditions for qualification to begin restructuring procedures? Is it explicitly prohibited for any organizations to conduct such procedures?

Any borrower may avoid his bankruptcy by initiating compositional proceedings that allow him to restructure, reschedule or reduce his debt by entering into a compositional agreement with his creditors.


What are available in your jurisdiction's primary formal restructuring procedures and what are the key features and requirements of each?

A debtor with actual or future inability to pay his debts due may initiate composition proceedings before specialized commercial courts by submitting to the court the following:

  • its financial statements
  • its profit and loss statements
  • a liquidation analysis
  • a provisional restructuring plan

Notwithstanding the debtor's petition, if the records attached to the application are correct, the court must grant a conditional three-month moratorium. The temporary moratorium may be extended for five months, followed by a formal moratorium of up to 24 months, subject to the possibility of effective reform or a composition agreement being reached. Both debt compliance proceedings were stopped during the mandatory and final moratorium. During the moratorium, no new compliance actions can be launched except for the protected debts and debts owed to employees.

The court-appointed composition administrator plays the main role in composition proceedings. Its main roles are to:

  • supervise the debtor and its activities
  • contribute to the conclusion of the restructuring plan
  • analyse the prospect of a successful composition and restructuring

The court can select an administrator's supervisory board of creditors. The borrower, as a debtor in possession, is entitled to conduct his operations and business with a limitation on transactions, such as property transfers, subject to pre-approval by the court during the composition process.

The borrower also has the right to include protected debts in the proceedings during the composition process. Negotiations with secured creditors should take place separately and the borrower must enter into individual agreements with secured creditors representing at least two-thirds of the total amount of secured debts for an effective debt restructuring.

How is the formal approval of turnaround plans?

The acceptance of a request for a composition by the Court shall be subject to the following conditions:

  • The proposal must be more favourable for creditors than the recovery to be reached in the bankruptcy liquidation.
  • The proposal amount must comply with the debtor’s resources.
  • The proposal must be accepted with an affirmative vote by a quorum of either:
  • half of the creditors representing half of the total debt; or
  • one-quarter of the creditors representing two-thirds of the total debt.  
  • Security for the claims of employees and the debts which arise during the moratorium must be provided.
  • The judicial costs of the proceeding and composition duty (1.138% of the total composition amount) must be paid in full by the debtor.

What are the consequences on existing contracts of restructuring procedures?

Ipso facto provisions will not extend in composition proceedings after a debtor's demand. In the framework of a restructuring plan, by obtaining court approval, the debtor may terminate the agreements that prevent the composition process from succeeding.

What is the standard timeline for restructuring procedures to be completed?

The provisional and final moratorium periods may be extended by up to 29 months after the start of the composition process. During the call era, the effects of a moratorium can continue.

Court involvement
What is the extent to which the court is interested in processes for restructuring?

The court mainly deals with the following during the composition proceedings:

  • the application
  • the appointment of an administrator and a creditors’ committee
  • the granting of provisional and definitive moratoriums
  • the approval of the transactions in relation to the debtor’s assets
  • the approval of the composition proposal.

Court of Justice of Istanbul
Creditor involvement
What is the extent of the participation of lenders in bankruptcy procedures and what actions are forbidden in the course of the proceedings from taking against the company?

Creditors are allowed to object within one week from its declaration to the request for composition of a debtor. The lenders play an important role in voting on it as a condition for acceptance of the composition plan. The creditors ' committee has the power to oversee the manager of the composition.

During moratorium periods, lenders can not seek debt compliance action against the borrower as the automatic stay remains in effect.

What are the conditions under which dissenting creditors can be overwhelmed?

The accepted court composition plan is valid and binding for all creditors subject to the agreement of composition, regardless of their positive or negative votes.

Director and shareholder involvement
What is the scope of the role of directors and investors in restructuring procedures?

Directors and shareholders retain their status during the composition process. The court takes preventive measures with respect to the debtor's property and the debtor can not:

  • put liens on its assets;
  • be a guarantor; or
  • transfer its business partially or fully without court approval.

Otherwise, the transactions will be null and void.

Informal work-outs

Which rules and procedures regulate the setting aside of transactions of an insolvent company? Who can challenge transactions that are eligible?

The voluntary disposal actions performed and the gifts given by the debtor during the two years prior to the beginning of the liquidation of the bankruptcy, except for the normal and natural gifts, are subject to set aside.

The following transactions made by the borrower during the year prior to the beginning of the liquidation of bankruptcy are subject to aside:

  • pledges imposed by the debtor for the purpose of securing an existing debt, except where the debtor has previously undertaken to give security
  • payments made through any means other than money or usual means of payment
  • payments made for an overdue debt
  • annotations given to the land registry for the purpose of strengthening personal rights

Any and all transactions carried out by a debtor whose property holding is insufficient to cover his own debts for the purpose of causing damage to his creditors may be cancelled in cases where the financial position of the debtor and the intention to cause damage are known or expected to be known to the other party to the transaction, provided that an action against the debtor is initiated

Transactions related to the above three categories may be challenged by:

  • the bankruptcy administration
  • creditors with insolvency certificates
  • creditors that undertake litigation under Article 245 of the Execution and Bankruptcy Law
Operating during insolvency Criteria

Under what circumstances can a business continue to be carried out during an insolvency proceeding?

A debtor may continue to conduct business during the restructuring process. Also, the beginning of liquidation does not prevent the business from continuing unless a different decision has been made.

Stakeholder and court involvement

To what degree are appropriate parties (e.g. lenders, administrators, shareholders) and the courts involved in any company carried out during an insolvency proceeding?

Directors can continue their duties during the restructuring process, subject to the supervision of the compostion administrator and the approval of the court for certain transactions involving the assets of the debtor. The bankruptcy administration or its appointed directors have the right to manage the business during the liquidation of the bankruptcy.

Can an insolvent company receive additional loans or take out additional secured loans during an insolvency proceeding?

Every debt accepted by the administrator during the moratorium can not be subject to compositional requirements during the restructuring process and must be guaranteed by the borrower as a condition for accepting its composition. Such debt would take precedence over all other lenders except the bankruptcy of the borrower. Therefore, absolute priority is given to the new funding received by the borrower during the moratorium periods. Nevertheless, bankrupt companies are unable to access credit or take out new secured loans during the liquidation of the bankruptcy.

How does the insolvency of a company impact workers and the legal obligations of the company against employees?

Decisions on bankruptcy do not cancel employment contracts immediately. Upon continuing the trade decision, the bankruptcy administration could decide to continue all or some of the existing employment contracts. Nonetheless, in the absence of such a decision and if the bankruptcy administration has not demonstrated protection, employees can terminate the employment contract unilaterally.

Best Collection Agency in Turkey
Best Collection Agency in Turkey

Cross-border insolvency

Under what circumstances will you recognize the validity of foreign insolvency proceedings by the courts in your jurisdiction?

Turkey does not have any special provisions to control and meet the needs resulting from the nature of cross-border insolvency proceedings. Rather, any question arising from each cross-border case is dealt with in accordance with concepts such as bankruptcy reciprocity and territoriality, and the execution or recognition of processes of foreign judgment as defined in International Private and Procedural Law 5718.

What is the extent of the jurisdiction of the courts to order the liquidation of foreign businesses in your jurisdiction?

In Turkey, only Turkish branches and foreign company affiliations are subject to bankruptcy.

How do you assess the core interests of your jurisdiction?

The key center of interest is determined by the debtor's position in the trade register. Any lender, however, may contest this assumption.

What is the court's general approach to cooperating with foreign courts in the management of cross-border insolvencies in your jurisdiction?

Although the European Convention on Certain External Aspects of Bankruptcy was signed in 1990, it has not gained enough attention and has not entered into force. With regard to insolvency proceedings, Turkey does not have any special provisions regulating cross-border cooperation with foreign courts. The general approach of the courts is to try the compliance and acknowledgment mechanism from international governments or courts.

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