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Debt Collection Series-2: How Can a Foreign Company/Individual Collect Its Due Receivables in Turkey?

Debt Collection Series-2: How Can a Foreign Company/Individual Collect Its Due Receivables in Turkey?

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International trade has grown exponentially, and international trade undoubtedly means international debt collection. Especially, while the number of financially distressed companies is rapidly increasing due to the Covid-19 pandemic, international debt collection has become more important than ever. Debt collection proceedings are in general similar for both Turkish and foreign companies and individuals. Accordingly, this article highlights the significant points on how a foreign company or individual can collect its receivables in Turkey.

Under Turkish law, there are various forms of execution proceedings. In all methods, foreigners must pay a security deposit corresponding to 20% of the debt to initiate a legal action in Turkey. Nevertheless, if there is reciprocity between the nation of the debtor and Turkey, the creditor will not have to pay the deposit. The principle of reciprocity may be achieved through international conventions, laws, or actions, e.g. the Hague Convention dated 1961. It should be noted that further costs would accrue within the debt collection proceedings, please see our article titled “Cost of Debt Collection Proceedings in Turkey” for information on those costs.

The creditor must follow the method explained under “I.” if the receivable is secured with pledge. In other cases, the creditor can initiate the proceedings to enforcement with judgement based on a foreign court decision ratified in Turkey or a Turkish court decision, or if there is no court decision, directly apply to the enforcement offices to initiate debt collection proceedings.

I.                If the receivable is secured with pledge:

In cases where the receivable is secured with pledge, the creditor is obliged to foreclose the pledge via applying to enforcement offices before initiating a debt collection proceeding.

The foreclosure process depends on the nature of the pledged property.

  1. If the pledge is on a movable property, the foreclosure proceedings can be initiated before the enforcement office against the debtor. The debtor may object to the payment order within 7 [seven] days; otherwise, s/he will have to pay the debt within15 [fifteen] days. The procedures following the debtor’s objection will be the same as the enforcement with a judgement explained under “II.A.” or enforcement without judgement explained under “II.B.”, depending on the nature of the pledge. The only exception is when the debtor does not object to the debt but to the pledge, the creditor has the right to pursue the general enforcement proceeding that is the enforcement without
  2. If the pledge is on an immovable property, then the foreclosure proceedings may be initiated before the enforcement office against the debtor or the 3rd party owner of the The debtor may object to the payment order within 7 [seven] days; otherwise, s/he will have to pay the debt within 30 [thirty] days. The procedures following the debtor’s objection will be the same as the enforcement with a judgement explained under “II.A.” or enforcement without judgement explained under “II.B.” depending on the nature of the pledge.

Notwithstanding the primary character of the foreclosure of pledge, if the receivable has arisen from a bill of exchange such as cheque, the creditor may also initiate the debt collection proceeding peculiar to bill of exchanges [without first pursuing the foreclosure of pledge]. 

II.                If the receivable is not secured with pledge:

A.     Enforcement of a Court Decision / With a Judgement:

If the relevant decision has been rendered by a foreign court, then first it will have to be ratified in Turkish courts. Please see our article titled “Enforcement of a Foreign Court Judgment in Turkey” on the enforcement of a foreign court decision in Turkey.

To collect a debt by filing a lawsuit before Turkish courts, there are two essential conditions:

  • The place where the debtor carries out its transactions and activities must locate in Turkey if the debtor is a legal entity, or the place of performance should be in Turkey.
  • The parties must not have chosen a jurisdiction other than 

If these two conditions are fulfilled, a foreign company or individual can file a lawsuit to collect the debt on the competent court.

In case the court renders a favorable decision for the creditor, the creditor has the right to apply before enforcement offices to execute the court decision. It is noteworthy to mention that in principle, for the execution, there is no need to wait for the decision to become final so long as the decision is rendered by a Turkish court, while the decisions of foreign courts that are ratified by Turkish courts can be executed only after they become final, i.e. when the court decision becomes uncontestable before a higher court whether upon entry of the judgment or if the debtor does not appeal to a higher court within the given period for appeal, or where available legal remedies are completely exhausted through appeals.

The enforcement office issues a payment order against the debtor upon the creditor’s enforcement request. The debtor can object to the payment order before the enforcement office only by claiming that the debt is already paid, that the payment is postponed, or that the statute of limitation is expired. The debtor is not allowed to object to the debt for any other reason.

B.     Enforcement Without Judgement / Via Enforcement Offices:

In case there is no court decision according to which the debt has become definite, the creditor can directly apply to the enforcement office for initiation of debt collection proceedings. The debtor may object to the payment order within 7 [seven] days.

If the debtor objects to the payment order, the creditor should apply to the Enforcement Court for removal of the objection within 6 [six] months so long as the creditor has a document issued by the relevant authority and containing the acknowledgement of the debt and/or the debtor’s signature. In other cases, the creditor may file a cancellation of objection lawsuit before the relevant court within 1 [one] year.

If the court renders a favorable decision for the creditor, the creditor has the right to request a compensation for denial of the debt which corresponds up to 20% of the debt amount. On the other hand, if the court renders a favorable decision for the debtor and if the creditor initiated the lawsuit in bad faith, the debtor has the right to request a compensation which corresponds up to 20% of the claim.

If the debtor does not object to the payment order and does not pay the debt within 7 [seven] days or if the debt becomes

definite after the objection proceedings explained above, the creditor may request attachment of the debtor’s assets.

Following the attachment, these assets will be sold by the enforcement office so that the debt can be paid to the creditor with the sales revenue. 

It should be noted that there are specific rules applicable if the receivable is arisen from a bill of exchange, such as cheques, bond. For instance, the objection period decreases to 5 [five] days, and the grounds for objection may differ given the nature of the bill of exchange.

By M. Tarik Guleryuz, Partner, and Baris Ulker, Senior Associate, Guleryuz & Partners

Turkey Knowledge Partner

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