Recent Amendments to Execution and Bankruptcy Law and Authorization of the Debtor for Sale by Consent

May 2022 Alper Uzun
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Introduction

With Law No. 7343 on the Amendment of the Execution and Bankruptcy Law and Certain Laws (“Law No. 7343”), which entered into force through its publication in the Official Gazette dated 30.11.2021 and numbered 31675 and which was publicly referred to as the “5th Judicial Package”, significant amendments were made to various laws, primarily Execution and Bankruptcy Law No. 2004 (“EBL”).

Although it is widely known that a new execution and bankruptcy law is being prepared, it has been observed that many amendments have been made in the existing law, especially regarding implementation and procedures, and that some habits will need to be changed.

The amendments aim to digitalize and accelerate the execution process and to simplify the functioning of the execution offices. In addition, the delivery of children in custody has become free of charge, and new regulations require that these procedures can be carried out only by experts. There has also been an important amendment regarding the requirement for authorization of a debtor for sale by consent of seized property. The Regulation on Authorization of the Debtor to Sell Pursuant to the Execution and Bankruptcy Law (“Regulation”), which entered into force through its publication in the Official Gazette dated 28.05.2022 and numbered 31849, regulates this process.

Notes with Regards to the Amendments

  • Law No. 7343 has introduced the following amendments:
  • In provinces where the workload or the number of execution offices is high, one or more execution office directorates may be established by the Ministry of Justice. The Presidency shall supervise and inspect the execution offices, take care of their administrative affairs and fulfill the duties assigned by the legislation.
  • “Stay of execution” applications to be made pursuant to Article 36 of the EBL, was the court that would conduct the appeal review. With the Amendment, the competent court is determined as the execution court where the execution proceeding has been initiated.
  • In the seizure of goods registered in any registry, the value of the goods will be determined not by the seizing officer, but by the experts registered in the list of the regional board of experts.
  • Goods that have been seized but not taken into custody shall be taken into custody (or made ready for delivery to the auction buyer) upon request for sale, otherwise the sale cannot be made.
  • In case of a claim of ownership, this property shall not be taken into custody if the third party accepts to be trustee. However, the property may be taken into custody if it is decided to continue the proceedings pursuant to the first paragraph of Article 97.
  • In terms of the periods for requesting the sale of the seized assets, same time periods have been determined for the movable and immovables. Accordingly, a creditor or debtor may request the sale of seized property within one year following the seizure. If the sale is requested within the one-year period and the sale cannot be realized at the auction, the period for requesting the sale of the seized property shall be extended for one more year. All expenses related to the sale request shall be paid in advance.
  • It has become possible to sell seized property by auction on the electronic sales portal integrated into the National Judiciary Informatics System. The bidding period in the auction is seven days.
  • The start date of the second auction shall not exceed one month from the end date of the first auction. Like the first auction, the second auction shall be started at 50% of the estimated value of the seized property.
  • Various amendments have been made regarding the process of termination of the auction and judicial procedure.
  • Payment in return for collateral has become possible and it has been determined that each creditor who receives the notification of the creditor list and who appears as a beneficiary in the creditor list can collect the amount of his share by submitting a bank’s final and indefinite letter of guarantee to the file.
  • Another important amendment is that a debtor may request authorization for the sale of seized property by consent.

Authorization of the Debtor for Sale by Consent

If seized property is sold at auction by the execution office, the auction starts at 50% of the estimated value of the property. This creates a risk for the debtor that the property will be sold for less than its real value. In addition, the auction and sale procedures carried out by the execution office create a large amount of expenses. These expenses are covered primarily from the amount obtained as a result of the sale. In addition, interest continues to accrue on the receivable and the expenses continue to increase. Therefore, the benefit to be obtained from the property to be seized and sold gradually decreases.

In particular, it is not always possible to find the real value of these goods, especially when the subject of the auction is a qualified, unique or collectible product. With this amendment, it is possible to prevent the creditor and the debtor, who expects to benefit from the sale of the seized goods and, of course, the debtor from being victimized.

Pursuant to Article 111/a added to the EBL by Law No. 7343, the debtor may request to be authorized to sell the seized goods outside the auction process in order to sell them at their value. This regulation is also a “first” for Turkish legislation. It aims at enabling the sale of the seized good with the least cost and the highest price. Until now, the sale of the seized good has been made only through an auction (or by paying the full debt amount to the execution file and lifting the attachments over the goods), but with this regulation, the seized property can be sold outside the auction process. The article includes the periods and processes related to the sale. It is also stipulated that the principles regarding the implementation will be determined by the Regulation. This Regulation entered into force through its publication in the Official Gazette dated 28.05.2022.

Article 111/a of EBL is as follows:

"The debtor may request authorization for the sale by consent of the seized property within seven days from the notification of the appraisal. In cases where no appraisal has been made, the debtor may also request an appraisal. After the finalization of the appraisal, the execution officer shall suspend the compulsory sale proceedings and give the debtor a fifteen-day period. From the beginning of the period given to the debtor and until the decision of the court of execution rendered pursuant to the third paragraph, the time period for the creditor to request sale shall not run.
With the sale by consent, the price cannot be less than the total of all costs made during the enforcement proceedings and 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, and in addition to this amount, the sum of the proceeding expenses incurred for this item until this stage.
In the event that the buyer who has agreed with the debtor pays the determined price to the file within the fifteen-day period given to the debtor pursuant to the first paragraph, after obtaining the necessary information and documents and determining that the above-mentioned conditions exist, the execution officer immediately sends the file to the execution court for the approval of the sale and for the decision to carry out the transfer and delivery of the goods. The court decides definitively on the acceptance or rejection of the request as a result of its examination on the file within ten days at the latest. With the acceptance decision, the ownership of the property passes to the buyer and all seizures are removed and the transfer and delivery procedures are realized. In case of a rejection decision, the amount deposited shall be returned to the buyer…”

As can be seen from the provision of the Law, the debtor may request authorization for the sale of the seized goods from the execution office within seven days from the notification of the appraisal, without waiting for the opening of the auction for the sale of the seized property. Thereby, the debtor will be able to do his/her best to sell the seized property at its value, and will also be able to prevent the occurrence of sales expenses that will arise if the auction proceedings are carried out by the execution office and covered from the amount obtained after the auction. The Law sets a time limit for the authorization to be granted to the debtor in order to prevent the auction process from dragging on. The time limit for the debtor to exercise the authority of sale by consent is set at 15 days.

The Regulation sets out the procedures and principles regarding the implementation of the provision on the authorization of a debtor for a sale by consent. Accordingly, an official document called “Template No. 57” is given to the debtor in case this authorization is granted. In this document, the debtor must write information about the creditor, the debtor, the goods subject to the sale and the minimum price for sale by consent.

Pursuant to the Regulation, in order to determine the minimum price for the sale by consent, the execution officer obtains the registered encumbrances of the seized property and asks the priority right creditor whether his/her receivable continues, and, if so, the amount of the receivable. The minimum price determined for the sale by consent 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 and in addition to this amount, the sum of the proceeding expenses incurred for the seized property until this stage.

The debtor must inform the execution office of the identity of the agreed buyer, the agreed price and the distinctive features of the goods within the fifteen-day period. The buyer shall deposit the price agreed with the debtor into the bank account of the execution office within the fifteen-day period given to the debtor, provided that it is not less than the minimum sale price determined for the sale by consent. If the execution officer determines that the conditions of the sale by consent are met, he/she sends the file to the execution court for the approval of the sale and the decision to carry out the transfer and delivery of the goods, and the court decides definitively on the acceptance or rejection of the request as a result of its examination on the file within ten days at the latest. After the court's acceptance, the ownership of the property passes to the buyer. The transfer and delivery of the property is carried out by the execution office and all encumbrances on the property are cleared. If the request is rejected, the price is returned to the buyer's account.

Conclusion

Although it is known that a new execution and bankruptcy law is being prepared, important amendments were made to the EBL No. 2004 and many new regulations, especially regarding implementation, entered into force. “Authorization of the Debtor for Sale by Consent,” the implementation principles of which are determined by the Regulation published in the Official Gazette dated 28 May 2022, is one of them. Using the methods defined in the regulation, it has become possible to sell seized property outside of an auction. Thus, the risk of not being able to sell the property for its real value in an auction is eliminated and no sales costs are incurred. In addition, the necessity to wait for an auction for the sale of seized property which has a potential buyer, has been eliminated. Thus, the property can be sold to its buyer without losing value, and it is ensured that both the buyer and the debtor are satisfied with the sale of the seized property.

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