Ercüment Erdem Att. Alper Uzun

Account Settlement in Execution Law

May 2013

Current account is regulated in Article No. 89 of the Turkish Commercial Code (“TCC”). According to that, it is an agreement that two persons may request the balance that drawed up at the end of a period, instead of paying the debts or requesting receivables separately.

Account settlement may be made when the current accounts of companies are being closed, checked-out or confirmed reciprocally. Companies ascertain the status of debt and credit between each other by account settlement. This settlement is usually fulfilled by issuing a confirmation letter between companies.

Issuing a confirmation letter causes some legal disputes in practice. The most important being whether a confirmation letter can be considered a valid acknowledgement of debt or not.

The Confirmation Letter

According to Article No. 94 of the TCC, a confirmation letter is issued for the purpose of closing and reciprocally confirming corporate current accounts, and also for settling or closing the commercial books.

As per Article No. 94/1 of TCC, “The remaining amount is determined at the end of every year and the party receiving the reconciliation statement is deemed to accept it if it does not submit a written and valid notice within one month of receipt of said statement.” According to this regulation, companies issue a confirmation letter and send it to the other company that is party to the current account agreement.

The company, which issues a confirmation letter, writes the debit and credit balance into the letter.

As it is frequently seen in practice, the company, which is a party of a current account agreement, initiates execution proceeding based on the confirmation letter, if it cannot gain their credits.

When the debtor objects to the execution proceeding, and the creditor company applies for removal of the objection to receive the credit quickly, the question of whether or not a confirmation letter is a document that falls within the meaning of Article No. 68 of the Enforcement and Bankruptcy Code (“EBC”) comes to the fore.

Confirmation Letters and Article No. 68 of the EBC

Removal of objection is a short, quick and cost effective procedure that allows a creditor to receive a claimed amount via an execution proceeding by applying to execution courts. Therefore, it is possible to apply for removal of objection if the creditor has a document that falls within the scope of documents mentioned in Articles 68 and 68/A of the EBC. At this point, the confirmation letter, which is submitted to the execution file by the creditor of the current account, must be evaluated to determine whether or not it is a document that falls within the scope of Article No. 68.

Article No.68/1 of the EBC reads as follows:

“The creditor, whose execution request has received an objection, may claim for removal of the objection within six months from receipt of the objection if its execution proceeding is based on a bond that includes debt acknowledgement and its signature is acknowledged or notarized, or a document or receipt, which is duly issued by a governmental or other competent authority.”

The creditor must have a document that meets the requirements mentioned in Article No. 68 of the EBC for the removal of the objection by the court of execution. The legal characterization, content and the signature in the document becomes very important.

Therefore, the signature at the confirmation letter must be evaluated. It is beyond dispute that to evaluate a document under the guise of Article No. 68, the document must be signed by the person or the authorized signatory of the debtor company in order be submitted as evidence against that debtor company.

Even though the confirmation letter is prepared by the account service of the company, this does not mean that this letter includes debt acknowledgement that meets the conditions of Article No.68.

As it is well known, for verification purposes, a list of signatures must be provided of all those persons with the authority to represent and bind a company. Court of Cassation demands that a confirmation letter must be signed by a duly authorized company representative and the courts must ascertain this issue during litigation:

“… It is understood that Rebii Bozdan, who signed the document entitled “Account Settlement” in the name of the company, is not an authorized representative of the company. It is not acceptable that the court made a decision without conducting proper research, rather than evaluating all the evidence and making an appropriate decision as a result.” (Decision of 19th Civil Chamber of Supreme Court dated 01.12.2005, numbered 2005/1967 E. 2005/11954 K.)

The Court of Cassation ruled that an authorized signatory of the company did not sign the letter of account settlement and made a reversal decision that it is an error of the court not to have examined this issue.

Conclusion

As a consequence, if an authorized representative does not sign a confirmation letter, it cannot be evaluated as an acknowledgement of debt, and it is not possible to gain approval when requesting the removal of an objection based upon said letter.