Brankruptcy law vs. insolvency law

The most important of the enforcement options against a debtor provided by Turkish law is the so-called "collective enforcement procedure" (iflas).
The corresponding rules can be found in the law on execution proceedings and the law on bankruptcy (İcra ve İflas Kanunu).
During the collective enforcement procedure, the debtor's entire seizable assets are liquidated on the basis of a court resolution issued by the chamber for commercial matters, in order to satisfy the creditors who are to be treated equally.

In Germany, the 'old' bankruptcy code was still in force until a few years ago.
It is referred to as 'old' because it came into force on 1 October 1879, and was only supplemented by new regulations on 01 Jan. 1999.

The 'old' law only provided for the possibility of bankruptcy for companies.
This means that a German GmbH or AG could 'file for bankruptcy'. The estate (bankruptcy estate), if any, was then distributed to the creditors. After that, the main aspects of the bankruptcy proceedings were completed. Private individuals (including former shareholders or directors of bankrupt companies) did not have an option of redeeming their debts in a regulated manner.
A person who had run into debt and was, for whatever reason, unable to fulfil his/her liabilities, did not have a legally regulated way out of this situation.
The same applied to former entrepreneurs, who were able to settle the company's liabilities by means of the bankruptcy proceedings whilst private guarantees (for instance if the entrepreneur had used his/her house or a life insurance policy as security for a company credit) continued to be valid even after conclusion of the bankruptcy process.

The new legislation has changed this.
The 'old' bankruptcy law was replaced by the 'new' insolvency law.
It allows the above mentioned individuals to conduct private insolvency proceedings in court. In this manner, private liabilities can be reduced in a manner regulated by the court, similar to the proceedings during a corporate bankruptcy.

At the end a 'prudent' debtor can even hope to discharge his/her remaining liabilities.The term used in this context is 'discharge of remaining debts'.

In Turkey, a similar legal instrument, i.e. regulations providing for a discharge of remaining debts for private individuals, does not exist.
Depending on the type of bankruptcy, the application for the opening of bankruptcy proceedings can be filed by acreditor or by the debtor with the chamber for commercial matters. Normally, these proceedings may only be applied to businesspersons or people who have similar status due to legal provisions (Art. 43 of the Turkish İcra ve İflas Kanunu). This means that the collective enforcement proceedings are different in essential issues to the overall execution against individuals under German law.

Types of bankruptcy

Three different types of bankruptcy exist.

• Ordinary bankruptcy:The classical method is the so-called "ordinary bankruptcy". Here, the creditor of a claim files a bankruptcy application with the competent execution office, which initially merely results in the forwarding of a payment order. The debtor can file an objection against this claim, which preliminarily suspends execution. The creditor then has the opportunity of applying to the chamber for commercial matters for the debtor's bankruptcy within a period of one year, if applicable in connection with a law suit aiming at the annulment of the debtor's objection.

• Bill of exchange bankruptcy: This type of bankruptcy is a special process for creditors holding bills of exchange or cheques as well as holders of order instruments, and has shorter deadlines in comparison to ordinary bankruptcy proceedings.

• Direct bankruptcy: In direct bankruptcy proceedings, the creditor as well as the debtor can directly file a law suit for bankruptcy, without having to previously apply for apayment order. If the debtor refuses payment or suspends payments already made, or if a compromise settlement as defined in Art. 301 ZVG fails, or if the debtor, in spite of a payment order issued on the basis of a legally binding judgment, does not effect such payment, the creditor can file a law suit with the chamber for commercial matters. The debtor may in some cases even be obligated to file for bankruptcy, as he may otherwise face criminal law consequences due to fraudulent bankruptcy.

Proceedings

Once bankruptcy proceedings have been opened, the debtor's entire seizable assets are allocated to the bankruptcy estate.
The debtor loses his/her power of disposalfor these assets.

The creditors are informed of the opening of bankruptcy proceedings and are requested to register their claims within one month. During a creditors' meeting called through this notification, the future bankruptcy administration is elected. Pursuant to Art. 223 of the İcra ve İflas Kanunu, it must consist of three individuals and acts as the legal representative of the bankruptcy estate. First of all, the bankruptcy claims are determined and, if acknowledged, are listed in accordance with their rank (a total of four). Exploitation is effected either by public auction or, should this not be possible, by direct sale. The generated proceeds are used to satisfy the creditors on the basis of the rank list. The proceedings are concluded by the bankruptcy court upon application by the bankruptcy administration after the course of the proceedings has been finally reviewed.

Recapitalisation

Even after the opening of the bankruptcy proceedings, the creditors, the bankruptcy office or the bankruptcy administration still have the opportunity of applying to the bankruptcy court and presenting a recapitalisation plan.
Should this application be approved, the bankruptcy proceedings will be temporarily suspended and a compulsory administratorwill be appointed.
The bankruptcy proceedings will only be continued if recapitalisation fails.

Compromise settlement

As bankruptcy proceedings always lead to a certain loss of reputation for the bankruptcy debtor, and as it is very rare that all creditors can be paid, the creditors as well as the debtor have the option of applying in good time for a compromise settlement with the competent chamber for commercial matters.
A compromise settlement can even be applied for after the conclusion of the bankruptcy proceedings.
However, should bankruptcy have been caused intentionally by the debtor, or should he/she have failed to disclose all necessary documents, he/she will not have this option. The aim of the compromise settlement is the debtor's recapitalisation. Therefore, the court grants a temporary suspension which will be announced nationwide. A settlement commissioner is appointed to manage the proceedings, who assesses the bankruptcy debtor's existing assets, compiles as list with the help of the bankruptcy debtor, and calls a creditors' meeting. If two thirds of the creditors and of the filed claims give their approval, a compromise settlement is concluded which must be approved by the court. Should the court have objections against this compromise settlement, or should such settlement not be able to be concluded, bankruptcy proceedings will be opened. The same applies should a creditor appeal the suspension. Since July 2003, debtors have had the option of arranging in a compromise settlement to give up their power of disposal with regard to their assets or parts of their assets for the benefit of the creditors.