About the Amendments Made to the Enforcement and Bankruptcy Law (EBL) On 24 November 2021

*Att. Kaan Ayten   There have been significant changes made to the Enforcement and Bankruptcy Law no. 2004 in force by virtue of the Law on Amendments to Enforcement and

    *Att. Kaan Ayten

     

    There have been significant changes made to the Enforcement and Bankruptcy Law no. 2004 in force by virtue of the Law on Amendments to Enforcement and Bankruptcy Law and Certain Laws, which was enacted on 24 November 2021 and published in the Official Gazette on 30 November 2021. Among these amendments are, in addition to the provisions applicable to the action of replevin, which was added by virtue of Article 97/A of the Enforcement and Bankruptcy Law, new provisions applicable for the claim and implementation of the decision for a stay of enforcement in enforcement proceedings under “Specimen No:10” which are initiated by means of a judgment and judgement-like documents, as well as to the claim of the value assessment report for the assets subject to the enforcement and the sale of the debtor’s such assets.

     

    In light of such information, we will make explanations under three main headings which have a significant effect on implementation.

     

     

     

     

    Provisions added pursuant to Article 97/A of the EBL and applicable to the replevin

     

    From the point of view of the Enforcement Law, replevin means a claim that a third party has rights in and over assets of the debtor that can be attached under an enforcement file, whereby there is a claim for attachment and custody of such assets.

     

    The said claim of right argues that said goods belong to a third party, and because the goods subject to this claim are movable commodities, it is the claimant who shall be under the burden of proof. The most fundamental reason here is the following provision in Article 97/A of the EBL: “Where the debtor and third parties jointly possess movable goods, the goods shall be deemed under the possession of the debtor.”

     

    Pursuant to this provision, up until the change dated 24.11.2021, unless the party who claimed replevin proved his allegation before the enforcement officer without leaving any margin of doubt, as the goods there were deemed to be the property of the debtor, attachment and custody procedures continued and the party claiming replevin only had the chance to recover his assets under custody following a trial.

     

    By virtue of the amendment dated 24.11.2021, covered herein, the following provision was added to Article 97/a of the EBL: “In this case, where the third party accepts to act as a custodian, this good cannot be placed under custody. However, it is placed under custody in the event that it is decided to resume the enforcement proceedings pursuant to the first paragraph of Article 97.” Therefore, if the third party who claims replevin accepts to act as a custodian, it will no longer be possible for the creditor to be the custodian of the goods that are the subject of attachment until the Civil Court of Enforcement orders that enforcement proceedings should resume under Article 97 of the EBL. Accordingly, if the claiming party accepts to act as a trustee for goods subject to attachment demand, the creditor in the case may not take those goods into custody until the Enforcement (Bailiff) Court considers and finalizes the action for replevin. This provision is intended to ensure that goods subject to the claim of replevin shall be taken under guarantee without any custody until the finalization of the replevin trial when the party claiming for replevin agrees to act as a trustee so that those potential future losses that the third party and the debtor may sustain and that are hard to repair are avoided.

     

    Presumption of ownership in actions for replevin:

    Article 97/a

     

    …. In this case, where the third party accepts to act as a trustee, this good may not be placed under custody. However, in the event that it is decided to resume the enforcement proceedings pursuant to the first paragraph of Article 97, such goods may be placed under custody.

     

    In our opinion, by virtue of such provision introduced by the legislator, the claim for replevin now operates in line with its very nature. In the case of actual attachments, it is possible, in practice, for the attorneys of the creditor to visit the address which is designated as the debtor’s address together with officers from the Enforcement Office without any inquiry. Before this new provision, if there were third parties who are unrelated to the debtor at the visited address, there was a risk that the assets of these third parties could be seized; however, pursuant to this new provision, if such third parties agree to act as trustee, this risk of seizure is now eliminated so that assets of third parties are not lost. As a dematerialized attachment is made over these goods, the creditor’s interest enjoys protection until the decision is ordered by the Enforcement Law.

     

    Provisions for the demand and implementation of the stay of enforcement in the case of enforcement proceedings with judgment

     

    As the enforcement proceedings with judgement, which can be initiated by means of a document that is a court decision or that is considered as a judgement in the law, as underlying basis, is a type of proceeding that cannot be ceased upon the objection of the debtor, there is a legal remedy, which is the “stay of enforcement”, that the debtor may resort to if the debtor wishes to argue that he is justified in terms of the document that is a court decision or is considered as a judgement, as underlying basis, and is not willing to face a threat of attachment via the enforcement file in this respect. Accordingly, a debtor may secure its assets against threats of attachment under the enforcement file when he starts the procedure for the stay of enforcement against the creditor that initiates the enforcement proceedings with judgement, based on a court decision.

     

    Before the introduction of the new amendment dated 24 November 2021, the said application for the stay of enforcement was evaluated and decided by the high court to which the application was made before the main trial started. Pursuant to the amendments to the Enforcement and Bankruptcy Law dated 24.11.2021 which came in force upon their publication in the Official Gazette dated 30.11.2021:

     

     

    “Time period to be granted for the stay of enforcement:

     

    Article 36 – … The enforcement officer grants a reasonable period of time to it TO OBTAIN A DECISION FROM THE ENFORCEMENT COURT. This term may be extended only in the case of mandatory situations.”

    …”

     

    As it is obvious from said amendments, the authority who shall order the stay of enforcement in that court is now an Enforcement Court rather than the Regional Court of Appeal or the Supreme Court of Appeals. Accordingly, notwithstanding the fact that objections to the merit of the case are to be evaluated by the high court, which shall handle the trial, now an urgent demand for the stay of enforcement shall be directly evaluated and decided by the Enforcement Court.

     

    In our opinion, the process will be considerably quickened thanks to this change, given the fact that a demand for a stay of enforcement needs to be addressed first and that the Enforcement Court will address it as it is the authority which currently considers letters of guarantee in practice.

     

     

    Notwithstanding the foregoing, we would like to note that the EBL still prescribes certain provisions that are applicable to the issuance of a certificate of fixed term, which is the time period granted to the party who resorts to the legal remedy for obtaining an order for the stay of enforcement, and it is currently not clear in practice whether or not the time period to be granted by the Enforcement Office and the order which will be issued by the Enforcement Courts for the stay of enforcement will run concurrently.

     

    On the other hand, upon the introduction of this change, there is an uncertainty in practice if the Enforcement Office will remand the case to the Enforcement Court which shall consider the demand for the stay of enforcement ex officioor the applicant needs to file a further application. Moreover, there is an uncertainty as to whether the stay of enforcement will be tried by the Enforcement Law by means of a main trial or under a “miscellaneous case” file.

     

    In this respect, if it becomes mandatory for the applicant to file a separate lawsuit under a “main case file” or under a “miscellaneous case file” so that the procedure for the stay of enforcement can be initiated, and the debtor under the enforcement file is required to pay an additional court fee to obtain the decision for the stay of enforcement, then we are of the opinion that this new regulation will go beyond its purpose and extend the process. In our opinion, a debtor under the enforcement file to whom the right for a stay of enforcement has been granted under the applicable law is required to follow up the stay of enforcement procedure without the obligation to file an additional case and to pay court fees. How this provision will be applied in practice will become clear soon.

     

    New provisions applicable to the demand for the value appraisal report for the assets subject to the enforcement proceedings and for the sale of the debtor’s assets

     

    This new amendment introduces provisions that are directly added to the Enforcement and Bankruptcy Law by virtue of Article 111/A of the EBL and will in practice quicken the value appraisal and sale of the movable and/ or immovable properties subject to a demand for sale. Before the said amendment, a debtor’s assets used to be sold at a price lower than the industrial benchmark as a result of sales tenders put out at the value equal to the half of the sum determined in the value appraisal through the enforcement office, and for this reason, it was both challenging for the creditor to recover its receivables and a cause for grief by the debtor because its assets could not be sold at prices prevalent in the industry.

     

    Those provisions that were introduced by the legislator pursuant to Article 111/A of the EBL seem to be favourable for both the debtor and the creditor under the enforcement file if one looks at them in detail. A debtor has now greater means to pay its debt more reasonably while a creditor has a greater chance to recover his credits.

    In this respect:

    Authorizing the Debtor to sell its assets

    ARTICLE 111/a

     

    Within seven days following the receipt of the value appraisal, a debtor may demand to be authorized to sell its attached goods by virtue of its consent. In circumstances without a value appraisal, the debtor may also apply for an appraisal.

     

    In the case of sale by consent, the price may not be less than the aggregate of enforcement costs incurred for the attached assets up to that point plus the greater of the amount representing ninety percent of the appraised value of such assets and the aggregate of the receivables which are secured with such assets and which have priority over the receivable of the party asking for sale.

     

    In the event that the buyer who makes an agreement with the debtor pays the sale price to the case file within fifteen days granted to the debtor pursuant to the first paragraph, the enforcement officer will immediately send the file to the enforcement court for the approval of the sale and for a decision for the completion of the transfer and delivery procedures in the event that the officer determines, based on necessary documents and data collected by him, that the conditions above have been met. The court shall finally accept or reject the demand based on a review of the case file at the latest within ten days. Upon the decision of acceptance, the title to the goods passes to the buyer and all attachments are seized, and transfer and delivery procedures take place. If a rejection decision is granted, the sum deposited by the buyer shall be refunded to it…”

     

    A debtor who shall exercise his authority for sale is granted a 15-day period in order not to allow it to delay the file. There are specific requirements in addition to this time period. First of all, provided that it is not less than 90 percent of the value appraisal, the sale may be made at a specific price. In addition, the debtor may make the sale at a price that is not less than the aggregate of enforcement costs incurred for the attached assets up to that point plus the greater of the amount that is secured for this asset and the aggregate of the receivables which have priority over the receivable of the party asking for sale.

     

    An enforcement officer who determines that the said sale procedure is in conformity with the described terms and conditions shall remand the said case file to the Enforcement Court ex officio, and the Enforcement Court shall decide to accept or reject the sale at the latest within 10 days based on a review on the basis of the review of the file. While the said review shall take place without a hearing, the Enforcement Court shall decide upon a review if the criteria introduced by the legislator pursuant to Article 111/A of the EBL are met.

     

    *Yavuz&Uyanik Law Firm, Attorney-at-Law