In our legal system, in addition to the execution procedure, bankruptcy proceedings are also provided for creditors to collect their debts from debtors. In execution law, one or more creditors of the debtor attempt to collect their claims from the debtor's assets. However, in bankruptcy law, the principle of satisfying all creditors from the debtor's assets has been adopted. In other words, bankruptcy is a collective enforcement procedure through which all known creditors of a debtor (the bankrupt) are satisfied by converting all seizable assets of the bankrupt into cash through compulsory execution. This article will examine bankruptcy proceedings initiated in the enforcement office.
Bankruptcy proceedings, initiated through bankruptcy, are a method of application that covers only monetary or security claims. For claims based on subjects other than money or security, even if the debtor is subject to bankruptcy, the creditor cannot apply for bankruptcy. For a creditor to request bankruptcy for the debtor, it is sufficient that any monetary or security claim of the debtor remains unpaid, without the need for conditions such as the debtor being insolvent or having liabilities exceeding assets.
The persons subject to bankruptcy are regulated in Article 43 of the Enforcement and Bankruptcy Law:
Bankruptcy proceedings shall be initiated against individuals who are deemed to be merchants according to the provisions of the Commercial Code or subject to the provisions regarding merchants, as well as against real or legal persons who are reported to be subject to bankruptcy despite not being merchants according to special laws.
Who qualifies as a merchant, who is considered a merchant, and who is subject to the provisions regarding merchants are specified in Articles 12-17 of the Turkish Commercial Code. We will not delve into this matter in this article. Apart from these, the individuals specified by the legislator in Article 43, "persons who are subjects to bankruptcy despite not being merchants," are as follows:
- Former merchants who continue to be subject to bankruptcy within one year after the announcement of their cessation of business, in accordance with Article 44, paragraph 2 of the Enforcement and Bankruptcy Law.
- Partners of collective partnerships are subject to bankruptcy under Articles 238/2 and 240 of the Turkish Commercial Code (TCC) for company debts.
- By virtue of the referral in Article 317 of the TCC, limited liability partners can have bankruptcy proceedings initiated against them for company debts pursuant to Articles 238/2 and 240 of the TCC.
- Pursuant to Article 110 of Law No. 5411 on Banking, in case it is determined that the directors and auditors of a bank caused damage to the bank through unlawful decisions and transactions, their personal bankruptcies may be directly ordered by the court upon the decision of the Board of the Fund and upon the request of the Fund, limited to the damages they caused to the bank.
- In the event of the death of the individual subject to bankruptcy proceedings after bankruptcy proceedings have been initiated against them, if the estate has not yet been liquidated, has not been subject to official liquidation, or a family company has not been established among the heirs, and if bankruptcy proceedings have not been initiated against the debtor previously, the creditor may continue the bankruptcy proceedings initiated during the debtor's lifetime against the estate.
- Article 308 of the Enforcement and Bankruptcy Law regulates the situation where the composition is not approved. Accordingly, if the composition is not approved, the court decides to reject the composition request. If the debtor is among the individuals subject to bankruptcy and if one of the bankruptcy reasons is directly present, the court declares the debtor bankrupt ex officio.
Bankruptcy proceedings are divided into general bankruptcy proceedings and bankruptcy proceedings specific to bills of exchange. Pursuant to Article 43 of the Enforcement and Bankruptcy Law, a creditor who chooses one of these routes can switch to the other route once without paying a fee. Bankruptcy proceedings are initiated at the enforcement office where the merchant's business center is located.
General Bankruptcy Proceedings
General bankruptcy proceedings bear many similarities to general attachment proceedings. In fact, it is not necessary for the creditor to base their claim on any document to initiate general bankruptcy proceedings against the debtor. The rule of first applying to pledge and its exceptions apply here as well. Pursuant to Article 58 of the Enforcement and Bankruptcy Law, a request for proceedings is made due to the non-payment of a sum of money or security.
Upon the request for proceedings, the enforcement office will send a bankruptcy payment order to the debtor. In this payment order, the debtor is given a period of 7 days to object to the debt being paid or to declare that there is no such debt or that the debtor is not subject to bankruptcy and to propose a composition. If no objection is raised or the debt is not paid within this period, the creditor is warned that they can request a bankruptcy decision from the Commercial Court.
Bankruptcy Proceedings Specific to Bills of Exchange
Creditors whose claims are attached to a bill of exchange may request bankruptcy through the bill of exchange if the debtor is subject to bankruptcy. Additionally, the rule of first applying to pledge does not apply here; even if a claim based on a bill of exchange is secured by a pledge, it can still be subject to bankruptcy proceedings specific to bills of exchange. The procedural steps are as follows under the Enforcement and Bankruptcy Law:
Article 167: A creditor whose claim is based on a check, bill of exchange, or promissory note can initiate enforcement proceedings through attachment or bankruptcy proceedings against a debtor subject to bankruptcy, even if the claim is secured by a pledge.
The creditor is obliged to specify whether they request attachment or bankruptcy proceedings against the debtor in addition to the matters stipulated in Article 58 when submitting the enforcement request and must attach the original bill of exchange and a certified copy equal to the number of debtors to the enforcement request.
Upon the submission of the enforcement request, the enforcement office will send a payment order to the debtor. In this payment order, the debtor is given a period of 5 days to submit any objections and complaints regarding the bill of exchange and debt, along with their reasons, to the enforcement office, or to make payment for the debt. If no objection is raised or the debt is not paid within this period, the creditor is warned that they can request a bankruptcy decision from the Commercial Court.
BANKRUPTCY LAWSUIT
The demands of the enforcement creditor in the bankruptcy lawsuit to be filed after the enforcement proceedings vary depending on whether the enforcement debtor objects to the enforcement proceedings. If the debtor has objected to the bankruptcy payment order, in this case, the creditor must simultaneously present requests for "lifting the debtor's objection" and "declaring the debtor bankrupt" in court. Firstly, the Commercial Court conducts an examination to determine whether the claim/debt underlying the bankruptcy proceedings exists and, if so, its amount. If the debtor has not objected to the bankruptcy payment order, the creditor can apply to the commercial court within one year from the service of the payment order, stating that the debtor has not objected to the payment order, and request a declaration of bankruptcy.
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.