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Changes to the Enforcement and Bankruptcy Law under the 5th Judicial Reform Package


The Law Amending the Enforcement and Bankruptcy Law and Certain Other Laws No. 7343 (“Amendment Law”), known as the 5th Judicial Reform Package, which entered into force upon publication in the Official Gazette (31675) dated November 30th, 2021, introduced several important changes to the Enforcement and Bankruptcy Law No. 2004 (“Law No. 2004”), as well as Turkish Civil Law No. 4721 and Child Protection Law No. 5395. Several new arrangements particularly stand out, such as i) shifting the auction process completely to an electronic portal in line with new possibilities offered by information technologies, ii) re-shaping the principles of valuation of registered movable and immovable properties in order to increase the efficiency of the enforcement system, iii) adopting new arrangements to ensure the sale of seized goods with the lowest cost and at the highest price, iv) granting debtors the authority to sell their seized property and sell it by their own means. Some of these amendments are detailed below.

Stay of Enforcement

Article 36 of the Law No. 2004, which stipulates the time to obtain a stay of enforcement decision when a judgement is appealed, provides that if the debtor (i) proves that the money or goods subject to the judgment is deposited to the official authority, (ii) shows a security or a valid bank guarantee amounting to the sum in question in the form acceptable by the enforcement court, or (iii) has enough seized properties covering this sum, the enforcement officer should grant an appropriate time to the debtor to obtain a stay of enforcement decision from the Regional Court of Appeal or the Court of Cassation.

With the amendment to the first paragraph of Article 36, the authority of Regional Courts of Appeal and the Court of Cassation to grant a stay decision is shifted to enforcement courts at the location of the enforcement office where the enforcement proceedings have been initiated. According to the said provision, the enforcement court should notify the court which rendered the judgment and the enforcement office of the stay decision, on condition that the relevant cost is paid by the parties. These amendments aim to ease the additional workload on the Regional Courts of Appeal and the Court of Cassation and save time and effort for debtors or their legal representatives by eliminating the intense follow up requirements and unfair consequences that were caused due to strict time constraints.

The additional sentence to the sixth paragraph of the article clears the hesitations in practice. Accordingly, the enforcement of court judgment will continue to be stayed until the expiry of the prescribed time for filing an appeal before the Court of Cassation where the Regional Court of Appeal’s rejection on merits is appealable.

Presumption of Ownership

According to Article 97/a of the Law No. 2004 concerning the presumption of ownership in actions for recovery of property, those who possess a movable property is de facto deemed the owner, and the debtor is assumed to possess the movable even if the movable is possessed jointly with a third party. The burden of proof is on those who claim otherwise.

With the purpose of resolving the problems in practice arising from joint possession and overcoming the unfair consequences for third parties, the amendment to Article 97 provides that the property will not be taken into custody if a third party accepts to be trustee. That said, if the enforcement court decides to continue the proceedings upon the objections of the creditor or debtor against the recovery claims, then the property can be taken into custody.

Prescribed Time for Sale Request

With the fully amended Article 106, in addition to the creditor, the debtor is also given the right to request the sale of seized properties. Furthermore, the different rules for movable and immovable properties have been unified, and the prescribed time to request sale is stipulated as one year for both.

According to the second paragraph of the article, the period to request sale will extend for a further year as of the end of the first year provided under paragraph one, if the seized property could not be sold by auction despite the timely request for sale. The valuation cost and other sale-related expenses must be deposited in advance with the sale request.

Tax Exemption for Payment in Instalments

With a new paragraph added to Article 111 titled as “Payment in Instalments”, the official minutes and papers to be issued by enforcement offices on the debtor’s undertaking to pay the debt in instalments or on an agreement between the creditor and debtor on an instalment structure, either before or after the seizure, will be exempt from stamp tax.

Authority to Debtor for Sale/Sale by Consent

The newly introduced Article 111/a enables the debtor to request to be authorized to sell the seized property within seven days as of the receipt of the valuation notice. The sale procedure will cease with this request and the enforcement officer will grant fifteen days to the debtor for sale. During this time, the prescribed term for sale request will not continue to run.

In this procedure, the sale price cannot be less than the total of i) all costs made during the enforcement proceedings and ii) either 90% of the appraised value or the total amount guaranteed with the good in question and the amount of privileged receivables, whichever is higher. If the sale is duly concluded within fifteen days and the sale price is deposited to the file, the enforcement officer will immediately transfer the file to enforcement court to decide on approval of the sale and finalize the transfer of ownership. The enforcement court will render a final decision within ten days at the latest on approval or rejection of the sale, without holding a hearing. If approved, the ownership will be transferred to the buyer, while the rejection will result in returning the sale price to the buyer.

Sale by Electronic Auction

The new Article 111/b stipulates the auction process to be conducted via an electronic portal integrated to the National Judiciary Informatics System (UYAP). By this way, the physical auction process, which has been in effect for the past ninety years, is abolished.

Accordingly, Articles 114 and 115 on pre-auction measures and the auction process are also amended for compatibility with the new electronic sale system. The new system envisages auction processes to be accessible from everywhere with an internet connection and aims to i) increase the number of bidders, ii) establish a system enabling the bids to be raised easily and transparently, and eventually iii) protect the interests of both creditors and debtors to the highest extent by setting a system where seized good is sold at its current fair market value.

Article 111/b also introduces some measures about the safety and protection of the electronic portal and the sale transactions and stipulates that Article 8/A of the Law on Regulation of Broadcasts via Internet and Combating Crimes Committed by Means of Such Publications No. 5651 dated 04.05.2007 will apply for websites that prevent a secured auction process. In addition to that, acts and actions endangering the operation or security of the electronic portal or preventing or complicating access to the portal are subject to sanctions under the Misdemeanours Act No. 5326.

Custody of Seized Movables

As there will be no physical auctions and sale places in scope of the new electronic system, the amended second paragraph of Article 88 provides that seized movables that are not taken into custody will directly be taken into custody or made ready for delivery to the buyer after the creditor’s request for sale; otherwise, the sale will not take place.

Results and Annulment of the Auction

Some changes and additions have been made to Article 134 of Law No. 2004 titled as “Results and annulment of the auction”.

In this regard, with the amendment to the first paragraph, in order to eliminate the problems in practice, custody and management of immovable properties until the auction is finalised is re-formed.

With the amendments to the second paragraph, those that are registered before the relevant official registries and those who enjoy restricted ownership rights are included among the individuals who can request annulment of auction.

New paragraphs three and four provide that the lawsuits to be initiated by other individuals than those listed above will be subject to an application fee to be calculated pro rata over the auction price, which will not be returned in case of dismissal. Moreover, plaintiffs must deposit a collateral amounting to 5% of the auction price as a security for potential damage of the parties concerned. These changes aim to prevent filing of annulment actions to preclude the finalization of auction by way of abuse of right in bad faith.

The new paragraph five introduced several changes to the trial procedure of actions for annulment of auction. First of all, rejection on procedural grounds can now be rendered without holding a hearing. The 10% penalty applicable in case of rejection, is changed to “up to 10% of the auction price” and thus, the court is granted discretion to determine the penalty amount. More importantly, the cases where a penalty will be applied are explicitly set out under the relevant provision.

List of Creditors – Payment in return of Collateral

Aiming to overcome the hesitations in practise, Article 142/a regulating the payment in return of collateral is amended, enabling the creditors who registered their receivables to the list of creditors to collect their receivables in exchange of a collateral to be deposited. Therefore, there will no longer be room for filing a complaint or objection to the list of creditors before an enforcement court for collection of receivables. It is also clarified that the bank letter of guarantees should be for indefinite term as well as being final.

Some further amendments under the Amendment Law concerns establishment of one or more enforcement head offices which will be dealing with the supervision, inspection and administrative works of enforcement offices, where deemed necessary by the Ministry of Justice based on the workload and the total number of enforcement offices in provinces; removal of the provisions on handing-over of children from the Law No. 2004, and accordingly, shifting the authority to execute court orders and injunctions concerning this issue to the judicial support and victim services directorates instead of enforcement offices.

 

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