Ercüment Erdem Att. Alper Uzun

Important Amendments to the Execution and Bankruptcy Law, Concordat and Mandatory Mediation

December 2018

Introduction

Important regulations have been made by Law No. 7155 on “The Procedure for Initiating Proceedings based on Monetary Receivables Arising from Subscription Agreements” (“Law”), which entered into force through publication in the Official Gazette dated 19.12.2018, within the scope of the execution and bankruptcy law, concordat and mandatory mediation.

The Law essentially sets forth a special execution procedure for monetary receivables “arising from subscription agreements”, which constitute the major workload of execution offices. By the same law, certain amendments have been made to the provisions regarding the concordat provisions that entered into force in 2018 in relation to the problems that occurred during the 8 month-long practice period. Another regulation introduced through this Law is the mandatory application to a mediation process prior to initiating legal proceedings in commercial cases.

New System for Execution Proceedings regarding Monetary Receivables Arising from Subscription Agreements

The purpose of Law No. 7155 is to regulate procedures and principles regarding commencement  of execution proceedings without judgment through seizure regarding monetary receivables arising from the subscription agreements, and the services or goods reflected in the invoice that are provided to consumers for the execution of these agreements through the Central Pursuance System created within the National Judiciary Informatics System (NJIS), and the execution of the same until the seizure phase. Execution proceedings with respect to the receivables arising from subscription agreements create serious intensity at the execution offices. The intention of new system set forth in the law is to decrease the physical intensity at the execution offices.

The receivables, subject to the follow-up, shall be amongst the monetary receivables defined in the Law and pursued through an attorney. The Central Pursuance System will be created within the NJIS in order to provide the follow-up transactions, electronically. The creditor’s attorney fills out the execution request form provided at the Central Pursuance System to initiate the execution proceedings. For execution proceedings that are within the scope of this Law, a Central Pursuance System fee is charged; there is no fee for an execution application or a collection fee. Following the registration of the execution request in the system, a payment order is drawn up. The unit of the PPT that receives the payment order through the system serves the payment order on the debtor pursuant to the Notification Law provisions. If the Debtor is amongst the persons upon whom the notification is to be served, electronically, the provisions regarding the mandatory electronic notification are applied. The debtor may object to the payment order at any execution office within seven days following the service of the payment order. The execution office uploads the document regarding the objection within two days, at the latest, and sends the original to the execution office, which the creditor identified in its execution request. The objection may also be made through the Central Pursuance System by using a secure electronic signature. The objection is considered to have been served on the creditor’s attorney at the end of the fifth day following the registration of the objection in the system. Therefore, at this point, the files must be diligently followed by the creditor’s attorney. If the payment order is not objected to, or the payment is not made in time despite the cancellation of the objection, upon the request made by the creditor before the competent execution office, the execution shall proceed pursuant to the related provisions of Execution and Bankruptcy Law (“EBL”) numbered 2004.

If the execution proceedings continue, and if the bailiff determines that the receivable is within the scope of this Law, the payment order is served, the execution proceedings are not objected to, nor is the objection lifted, then the execution proceedings continue. Otherwise, the bailiff will reject the request by stating his reasons. The creditor or the debtor may object to the decision of the bailiff. 

If the seizure is not requested within two years following the service of the payment order, the execution proceeding is rendered null and void. If an action regarding the lifting of the objection is filed, the time elapsed between the date of filing a lawsuit and finalization of the decision is disregarded. With this Regulation, the period identified before as one year has increased to two years for execution proceedings under this Law.

The provisions of the Law regarding the execution proceedings of the monetary receivables arising from subscription contracts shall not be applied to the proceedings that are pending on the date of entry into force of the Law; these execution proceedings are conducted pursuant to the provisions that were in force on the date they were initiated.

Until the present date, five per one thousand of the receivables that are subject to an execution proceeding was charged as the filing fee for the cost of execution proceedings, without judgment. The Article added to the Law on Fees under Law No. 7155 stipulates that 2% of the receivables that are subject to the proceeding shall be charged in the execution requests within the context of Law No. 7155.  

The provisions of the Law that regulate the execution proceedings shall enter into force on 1 June 2019.

Amendments concerning the Concordat

The concept of concordat entered very quickly into our legal system eight months ago and had a wide area of application. There is no doubt that problems of application have emerged over the course of time. In relation to this, some amendments have been made to the provisions of the concordat through Law No. 7155.

Accordingly, the principles regarding the report that is to be prepared by the independent auditing companies, which must be submitted at the time of the application for concordat, are redetermined. The auditing companies that may prepare the reports are narrowed down, and it is stipulated that the independent auditing companies that are “authorized for auditing of the companies concerning the public interest” shall prepare the reports. As well, the nature of the reports are amended, and it is ordered that the auditing report of the offer in the preliminary project of the concordat, which gives reasonable assurance instead of the “financial analysis report,” shall be prepared. In addition, the standard of the audit is amended, and it is indicated that it shall be prepared within the scope of the audit made as per the Turkish Auditing Standards.  It states that the protection of the balance between a debtor’s and a creditor’s interest is intended through this regulation. 

Paragraph 2 of Article 286 is revoked, and some additions have been made to the Article. The addition of the provisions of Decree No. 660 to the Organization and Responsibilities of the Public Oversight, Accounting and Auditing Standards Authority, shall be applied regarding the rights and obligations of the auditing companies, the examination and audit of the report, and administrative and legal responsibilities that may arise from these reports and other issues.

Pursuant to Article 287 of the Execution and Bankruptcy Law, the chosen concordat commissar controls whether or not it is possible for the concordat to succeed. It is foreseen, through the amendment to the Article, that if three commissars are appointed, one of the commissars shall be elected from amongst “the independent auditors authorized by the Public Oversight, Accounting and Auditing Standards Authority” who are working in the city wherein the court is located.

By the amendment to Article 290, which determines the qualifications of the concordat commissar, it becomes mandatory to be educated, and registered in the commissar list constituted by the regional expertise boards, in order to be appointed as a commissar.

The state of “Understanding that the debtor acted in order to harm the creditors,” is regulated as a reason to reject the concordat request, and to commence bankruptcy proceedings through the amendment made to Article 292, which regulates the rejection of the concordat request and the opening of the bankruptcy.

These provisions entered into force on the date of the publication of the Law.

Mandatory Mediation in Commercial Disputes

Since the beginning of 2018, it has been predicted that mediation, which is mandatory for disputes arising from the labor law, would expand to include various other types of disputes. Provided that it is entered into force as of 1 January 2019, Article 5/A added to the Turkish Commercial Code (“TCC”) the mandatory application to mediation prior to filing a lawsuit, and is regulated as a pre-condition to filing a lawsuit in commercial cases as set forth in Article 4 of the TCC and other codes, where there is a claim for receivables and compensation, and the subject matter of the commercial dispute concerns payment of a certain amount of money. 

With the new Regulation, it is ordered that the mediator shall conclude the application in six weeks following the date of appointment, and this time may be extended in compulsory cases by the mediator by a further two weeks, at the most. Thus, a period of time that is longer than the mandatory mediation process as provided for under the labor law is allowed.

The provisions regarding mediation, as a pre-condition prior to filing law suit, shall not be applied to the cases that are pending before the courts of first instance, Court of Cassation, and the Supreme Court, as of the date of entry into force of these provisions.

Conclusion

“The Law on the Procedure to Initiate Proceedings based on Monetary Receivables Arising from Subscription Agreements” numbered 7155 entered into force through publication in the Official Gazette dated 19.12.2018, and not only brought with it a new execution system regarding the execution proceedings of credits that constitute a substantial workload, it also imposed the obligation to file an auditing report prepared by the restricted establishments, instead of a financial analysis report, which holds an important place in concordat practice and, as well, it made the application to mediation mandatory in commercial cases prior to initiating a lawsuit by regulating  it as condition prior to filing a lawsuit.