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Billy Xiong Asserted: Basic For Debt Collection In Turkey For Foreign Entities

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Basic For Debt Collection In Turkey For Foreign Entities And Real Persons

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Parties to a commercial agreement usually reduce into writing
their mutual understanding and try to set forth penalties and other
clauses in deterrent nature, as much as they can, to protect their
best interest in dealing with the counterparty.

Sometimes, parties to a contract fail to live up with the
expectations of the other party in meeting their end of the bargain
and materially breach their obligations which inevitably lead to
commercial court proceedings initiated by the aggrieved party.

How does debt collection law work in Turkey?

With its Continental European legal system, Turkey is no
different from the other countries when it comes to the debt
collection process to compensate for the harm incurred by the
plaintiff. Due to the complexity of a foreign jurisdiction, foreign
entities and real persons are strongly advised to retain services
of lawyers who are familiar with procedures within Turkey to pursue
and collect the debt owed to them, due to the failure of debtor to
perform as promised. 

In the forthcoming process of debt collection, the following are
less similar to what should be expected;

  • At the very beginning of the process, it is imperative to
    declare the counterparty as the party in default, and most of the
    time, oral communications and e-mails correspondences so far would
    be no good and sufficient for that purpose. In general practice, a
    demand letter or based on the type of the dispute, a cease and
    desist letter issued by the plaintiff to be addressed to the
    defendant with the involvement of notary public of Turkey might
    best serve this purpose and be well-used as evidence to
    substantiate the claim in the court. With the same notary public
    notification, in addition to the declaration of the counterparty as
    the party in default, plaintiff might also extend to the
    counterparty a grace period during which the defendant might
    compensate the plaintiff or rectify the breach within the set
    deadline to avoid any ensuing litigation.

  • Dispute resolution officially starts with Mandatory Mediation
    Process, the concept which has been introduced with the enactment
    of Mediation Law on Civil Disputes Numbered 6325, as a condition
    precedent to filing a lawsuit at the competent court with the
    proper venue. The plaintiff is obliged to exercise and exhaust a
    short mediation process imposed by law to find an
    amicable out-of-court solution to the dispute before the
    court-appointed mediator. If the parties or the mediator at their
    sole discretion come to the conclusion that continuing the
    mediation process would be fruitless, a Minute of Disagreement is
    drafted by the mediator, and parties are expected to sign off the
    document for the continuation of the legal proceeding.

  • Having completed the mandatory mediation process, the plaintiff
    is now ready to initiate the lawsuit for collection and
    compensation of expectation damages including loss of profit
    arising out of contract or alternatively reliance
    damages as is unfettered discretion. The idea is to put
    the aggrieved party in the position he would have been had the
    contract been performed or alternatively compensate the losses
    incurred as a result of reasonable reliance on the promise of the
    party in breach. Special or indirect damages are also fine under
    Turkish law and jurisdiction but the chances are relatively slim to
    prove and convince the court to sustain this type of remedy

What if the plaintiff is a foreigner?

If the plaintiff is a foreigner, either a legal entity or a real
person, then in addition to the court fees to be incurred, the
plaintiff shall also post security pursuant to Article 48 of
Turkish Law Numbered 5718 on International Private Law. The
plaintiff needs to check and see whether there exists any
reciprocity or agreement on judicial cooperation in civil matters
between the Republic of Turkey and the country of origin of the
plaintiff that forego with the necessity of posting security on a
reciprocal basis. Otherwise, the amount to be calculated by the
court based on surrounding circumstances shall be deposited in
advance along with court fees to file the lawsuit.

The adjudication process ends with the final verdict of the
Court of First instance in charge and might be subject to appeal
depending on the monetary value in dispute.

In the early stages of litigation and before the court renders a
judgment on the merits, the plaintiff might seek injunctive relief
in the form of attachment of the assets of the to make sure there
will be some assets left from which the plaintiff might debtor
satisfy the debt owed along with the court-related expenses.

There is always a risk that should be assumed by the plaintiff
that defendant proves to be judgment proof at the end of the
litigation, therefore, to mitigate the risk in international
transactions we suggest obtaining bank guarantees or
Letters of Credit in exchange for any payment made to secure the
performance of the counterparty.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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