Legal framework


What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

Insolvency and restructuring proceedings are primarily regulated by the Enforcement and Bankruptcy Law 2004. The Commercial Code 6102 includes provisions on the loss of capital and overindebtedness of capital companies, as well as the liability of their directors and officers. The effects of insolvency and restructuring proceedings on contracts are generally regulated by the Code of Obligations 6098 and other special laws concerning the relevant contract subject. The insolvency processes of banks, financial institutions and insurers are regulated by special provisions of their unique codes. 

Regulatory climate

On an international spectrum, is your jurisdiction more creditor or debtor friendly?

The Enforcement and Bankruptcy Law gives absolute priority to the prevention of a debtor’s prospective bankruptcy. However, this prevention is conditioned on the requirement that the creditor’s best interests be ensured. Therefore, if the liquidation of a debtor is found to be more favourable as a result of a liquidation analysis, the law does not prevent a bankruptcy.

Sector-specific regimes

Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?

Special provisions for banks

Pursuant to Article 14/3 of the Law on Banks 4389, the management and supervision of banks which fail to fulfil their obligations when due will be transferred to the Saving Deposits Insurance Fund (SDIF) and their permission to execute banking transactions will be removed. A special bankruptcy proceeding is applied to those banks of which the permission to execute banking transactions has been revoked and the management and supervision have been transferred to the SDIF. The bankruptcy of such banks may be requested only by the SDIF.

Special provisions for insurers and pension companies

Regulation of the Treasury is particularly important when dealing with insolvent insurers and pension companies. The Treasury and relevant ministers are involved in executing the proceedings.

Special provisions for financial institutions

The insolvency process for distressed financial institutions is subject to Capital Market Law 6362. In each case, the Capital Market Council plays an important role.


Are any reforms to the legal framework envisaged?

On 15 March 2018 amendments to the Enforcement and Bankruptcy Law were introduced by Law 7101 and published in the Official Gazette. The most significant changes are the rearrangement of composition proceedings and the abolishment of bankruptcy postponement proceedings.

The amendments are based on the revisions made to the Swiss Debt Enforcement Law in 2013. The legislature’s aim was to introduce a more efficient restructuring model by regulating essential concepts such as:

  • automatic stay;
  • ipso facto clauses;
  • creditors’ committees; and
  • creditor priority in financing a debtor in composition proceedings.

More significant changes to the Enforcement and Bankruptcy Law modernising debt enforcement proceedings and reorganising the court and office structures are expected in the future.

Director and parent company liability


Under what circumstances can a director or parent company be held liable for a company’s insolvency?

In general terms, in order for a director to be held liable, there must be damage that can be attributed to the faulty acts of the relevant director and such a director must be responsible for any non-compliance with the articles of association or law, if such non-compliance is within his or her control. In this respect, directors cannot be held liable for damages incurred by the company, its shareholders or creditors where such damage is not caused by the faulty act of the relevant director or where such damage is beyond the relevant director’s control. 


What defences are available to a liable director or parent company?

As per Article 369 of the Commercial Code, directors must carry out their duties with the due diligence expected of a prudent business person. Directors should therefore prove that they have exercised their duties with due diligence and good faith. However, the term ‘prudent business person’ is interpreted broadly by the courts and in each case it should be evaluated whether there is damage that can be attributed to a faulty act of a relevant director and whether the circumstances were beyond that director's control. 

Due diligence

What due diligence should be conducted to limit liability?

In order to avoid directors’ personal liabilities, directors should act diligently and with the utmost care while carrying out their management duties.

Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

Security over immovable property

In order to secure a debt, the most frequently applied method of ensuring an assurance is a mortgage imposed on the immovable property. A mortgage entitles the mortgagee to ensure the foreclosure of the mortgaged property which is registered with the land registry if the debt is not paid when due.

As per Article 881 of Civil Code 4721, any debt that is present or that has not yet arisen, but will probably arise, may be secured with a mortgage.

The amount of security should be indicated in Turkish liras. However, a mortgage may also be imposed in terms of foreign currency by the credit institutions conducting activity both in Turkey and abroad, in order to secure the loans extended in foreign currency or foreign limping standard.

Unless otherwise stipulated in the law (eg, Articles 892 and 893 of the Civil Code), an agreement regarding the mortgage should be executed by and between the mortgagee and the mortgagor in the presence of a deed officer in order to impose a mortgage. This mortgage should be registered with the land registry.

Security over movable properties pledge

 As per Article 3 of the Movable Pledge in Commercial Transactions Code 6750, a pledge agreement can be executed by and between:

  • Turkish banks;
  • financial leasing companies;
  • factoring companies and Turkish public institutions authorised to lend or provide guarantees;
  • merchants;
  • craftspeople;
  • farmers;
  • producer organisations;
  • self-employed individuals; and
  • legal entities acting as lenders.

The pledge agreement must be executed in writing (before the Pledged Movable Registry or by having the signatures of parties approved by a notary) or in electronic form (signed with an electronically secured signature) and registered with the registry. Once registration is complete, the right of mortgage is deemed established.


In terms of Article 950 of the Civil Code, a lien is a right entitling the creditor to retain, as security for its receivables, the movables and valuable papers pertaining to the debtor which are in its possession and which should be returned when the debt is paid, and to convert the same into cash by giving advance notice.

Retention of title 

As per Article 764 of the Civil Code, a retention of title agreement and clause in a sale agreement can be effective only when the agreement is executed before the notary of the buyer’s residence and registered with the special registry of the relevant movable.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

The ranking of creditors’ claims is determined as per Article 206 of the Enforcement and Bankruptcy Law. The law gives absolute priority to a mortgage and pledge right owner’s claims. Public debts arising from the assets of estates (eg, customs duty, building and land tax and inheritance and transfer tax) will be paid next. As per Article 206, other claims following the foregoing claims are ranked as follows:

  • claims of employees, unpaid pension plan contributions and alimony receivables;
  • guardian and ward claims;
  • public debts and privileged claims accepted based on their own laws; and
  • all other claims (ordinary claims). 

Can this ranking be amended in any way?

The ranking stipulated in Article 206 cannot be amended. However, creditors may object before the court to rankings (including the rankings of other creditors) determined by the bankruptcy administration.

Foreign creditors

What is the status of foreign creditors in filing claims?

There is no specific provision on registration of foreign creditors’ claims. Therefore, foreign creditors can register their claims in the same manner as other creditors.

Unsecured creditors

Are any special remedies available to unsecured creditors?

There is no special remedy available to unsecured creditors. Unsecured creditors must register their claims with the bankruptcy estate. 

Debt recovery

By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?

In order to recover unpaid debts, creditors generally apply to obtain precautionary attachment over properties of debtors or initiate a debt enforcement proceeding or lawsuit against the debtors. However, once a bankruptcy decision is rendered by the court, creditors can register their claims only with the bankruptcy estate. Creditors cannot initiate a separate debt enforcement proceeding against a debtor after the date of the bankruptcy decision.

Is trade credit insurance commonly purchased in your jurisdiction?

The use of credit insurance in practice is a growing trend and also being supported by the government. Creditors’ demand for credit insurance is also increasing as trade credit insurance products generate positive outcomes and provide practical solutions to creditors.

Liquidation procedures


What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

As per the law, a bankruptcy decision can be rendered only against merchants or persons subject to merchant provisions. In this respect, the following are subject to bankruptcy pursuant to Article 18 of the Commercial Code:

  • collective companies;
  • commandite companies;
  • joint stock companies;
  • commandite companies with share capital;
  • limited liability companies;
  • cooperatives;
  • foundations and associations operating a commercial enterprise in order to achieve their goal; and
  • institutions and corporations established by the state, a special provincial administration, municipality, village or other public legal entity, for the purpose of being managed or commercially operated in accordance with the private law provisions pursuant to their own laws of establishment.


What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

Bankruptcy proceedings are the main way to liquidate an insolvent company. Both voluntary and compulsory liquidations have the same consequences. A company may also be liquidated in a composition proceeding with assignment of the assets. A company may also be liquidated in a composition proceeding with assignment of the assets.

How are liquidation procedures formally approved?

Bankruptcy decisions are rendered by the specialised commercial courts. The commencement of liquidation is stipulated in the decision with the date and hour. The bankruptcy office is notified of the decision. The bankruptcy office automatically notifies the land registry, trade registry, customs and postal administrations, the Banks Association of Turkey, local chambers of commerce, chambers of industry, stock exchanges, the Capital Market Board and other necessary authorities. The bankruptcy office also publishes the decision in:

  • a national newspaper with circulation in excess of 50,000;
  • a local newspaper at the debtor’s centre of main interest; and
  • a trade registry gazette.

What effects do liquidation procedures have on existing contracts?

As a general rule, agreements are not terminated automatically upon the bankruptcy of one party. The law states that the following exceptional agreements are deemed to be terminated upon the bankruptcy of one party:

  • usufructuary lease agreements;
  • attorney agreements;
  • commission agreements;
  • agency agreements;
  • life annuity agreements;
  • ordinary partnership agreements; and
  • current account agreements.

For other agreements, commencement of bankruptcy liquidation may have important effects aside from termination and this should be evaluated in terms of each agreement. For example, pursuant to the Code of Obligations, in an agreement burdening mutual debts, if a party goes bankrupt, the other party should refrain from fulfilling its obligations until its performance is secured. Therefore, for such agreements, if a bankruptcy administration does not provide security, the other party can terminate the agreement. In this respect, bankruptcy administrations are entitled to continue the agreements which are in favour of the bankruptcy estates, but they are not obliged to do so. 

What is the typical timeframe for completion of liquidation procedures?

The Enforcement and Bankruptcy Law allows for a six-month period for completion of liquidation procedures. However, this may be extended by the enforcement court. In practice, liquidation processes may be lengthy and the liquidation period is extended annually.

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

Liquidation is ordinarily executed if the debtor’s assets meet the liquidation costs. Ordinary liquidation is managed by the bankruptcy administration, which consists of three people appointed by the enforcement court from the six nominees nominated by each creditor in the first creditors’ meeting. The powers and responsibilities of the bankruptcy administration are limited to those stated in the Enforcement and Bankruptcy Law. In this respect, the authority and responsibility of the directors remain for unstated matters under the Enforcement and Bankruptcy Law. Bankruptcy administration should be separately authorised by creditors to sell the assets by way of negotiation rather than auction.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

The courts are involved in appointing the bankruptcy administration, hearing complaints against transactions of the bankruptcy administration, closure of liquidation and hearing requests for the termination of bankruptcy decisions.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

Creditors cannot initiate a new proceeding against the debtor during the bankruptcy liquidation. However, the secured creditors may continue the selling process of the pledged property. As per the law, creditors are entitled to:

  • nominate the bankruptcy administration;
  • authorise the bankruptcy administration to sell by way of negotiation;
  • decide on the composition offer of the bankrupt and suspend the liquidation;
  • decide on the continuation of litigations;
  • object to the rankings determined by the bankruptcy administration; and
  • make complaints regarding the transactions of the bankruptcy administration.

Creditors may also continue the litigation process which is not followed by the bankruptcy administration. 

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

Directors and shareholders of the debtor are obliged to show the debtor’s assets to the bankruptcy office and comply with its requests. The authority and responsibilities of directors and shareholders continue only for the matters over which the bankruptcy administration has no power or responsibility. Shareholders can also request the rescission of the bankruptcy decision when the debts are paid.

Restructuring procedures


What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?

Any debtor may prevent its bankruptcy by initiating composition proceedings allowing it to restructure, reschedule or reduce its debt by concluding a composition agreement with its creditors.


What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?

Composition proceedings

A debtor with actual or future inability to pay its debts as they fall due may commence composition proceedings before the specialised commercial courts by submitting the following to the court:

  • its financial statements;
  • its profit and loss statements;
  • a liquidation analysis; and
  • a provisional restructuring plan.

Following the debtor’s application, the court will grant a provisional three-month moratorium if the documents attached to the application are complete. The provisional moratorium can be extended to five months and is followed by a definitive moratorium of up to 24 months, subject to the successful prospect of the restructuring or the conclusion of a composition agreement. During the provisional and definitive moratoria, all debt enforcement proceedings are stayed. No new enforcement proceedings can be commenced during the moratorium except for the secured debts and debts owed to the employees.

The court-appointed composition administrator plays the main role in composition proceedings. Its main roles are to:

  • supervise the debtor and its activities;
  • contribute to the conclusion of the restructuring plan; and
  • analyse the prospect of a successful composition and restructuring.

The court may appoint a creditors’ committee to supervise the administrator. During the composition proceedings, the debtor, as a debtor in possession, is entitled to manage its activities and business with a restriction on transactions, such as asset transfers, subject to the court’s pre-approval. 

During composition proceedings, the debtor is also given the opportunity to include secured debts in the proceedings. The negotiations with secured creditors will take place separately and for a successful debt restructuring, the debtor should conclude individual agreements with secured creditors representing at least two-thirds of the total amount of secured debts.

How are restructuring plans formally approved?

Court approval of a composition proposal is subject to the following conditions:

  • The proposal must be more favourable for creditors than the recovery to be reached in the bankruptcy liquidation.
  • The proposal amount must comply with the debtor’s resources.
  • The proposal must be accepted with an affirmative vote by a quorum of either:
    • half of the creditors representing half of the total debt; or
    • one-quarter of the creditors representing two-thirds of the total debt.  
  • Security for the claims of employees and the debts which arise during the moratorium must be provided.
  • The judicial costs of the proceeding and composition duty (1.138% of the total composition amount) must be paid in full by the debtor.

What effects do restructuring procedures have on existing contracts?

Ipso facto clauses will not apply following a debtor’s application for composition proceedings. In the scope of a restructuring plan, the debtor may terminate the agreements preventing the composition proceedings from succeeding by obtaining court approval.

What is the typical timeframe for completion of restructuring procedures?

Following the initiation of composition proceedings, the provisional and definitive moratorium periods can be extended by up to 29 months. The effects of a moratorium may continue during the appellate period.

Court involvement

What is the extent of the court’s involvement in restructuring procedures?

During composition proceedings, the court mainly deals with:

  • the application;
  • the appointment of an administrator and a creditors’ committee;
  • the granting of provisional and definitive moratoriums;
  • the approval of the transactions in relation to the debtor’s assets; and
  • the approval of the composition proposal.

Creditor involvement

What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?

Creditors are entitled to oppose a debtor’s composition application within one week from its announcement. As an approval condition of the composition proposal, the creditors play an important role by voting on it. The creditors’ committee is entitled to supervise the composition administrator.

Creditors cannot pursue debt enforcement proceedings against the debtor during moratorium periods, as the automatic stay remains in effect.

Under what conditions may dissenting creditors be crammed down?

An approved composition project by the court is valid and binding for all creditors subject to the composition agreement, irrespective of their positive or negative votes.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in restructuring procedures?

During composition proceedings, directors and shareholders retain their status. The court takes preventive measures regarding the debtor’s assets and, following the provisional moratorium, the debtor cannot:

  • put liens on its assets;
  • be a guarantor; or
  • transfer its business partially or fully without court approval.

Otherwise, the transactions will be null and void.

Informal work-outs

Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?

Out-of-court restructuring procedures are not recognised in legislation. However, in practice, debtors actively seek and execute confidential and flexible private negotiations and debt restructuring agreements.

Transaction avoidance

Setting aside transactions

What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?

The voluntary acts of disposal performed and the donations granted by the debtor during the two years before the commencement of the bankruptcy liquidation, except the ordinary and usual gifts, are subject to setting aside.

The following transactions carried out by the debtor during the year before commencement of bankruptcy liquidation are subject to setting aside:

  • pledges imposed by the debtor for the purpose of securing an existing debt, except where the debtor has previously undertaken to give security;
  • payments made through any means other than money or usual means of payment;
  • payments made for an overdue debt; and
  • annotations given to the land registry for the purpose of strengthening personal rights.

Any and all transactions that are carried out by a debtor whose property holding is insufficient to cover its own debts for the purpose of causing damage to its creditors may be cancelled in cases where the debtor’s financial position and intention to cause damage are known or expected to be known by the other party to the transaction, provided that a proceeding is initiated against the debtor through attachment or bankruptcy within five years of the date on which the transaction is realised.

Transactions relating to the three categories above can be challenged by:

  • the bankruptcy administration;
  • creditors with insolvency certificates; and
  • creditors that undertake litigation under Article 245 of the Execution and Bankruptcy Law.

Operating during insolvency


Under what circumstances can a company continue to conduct business during an insolvency procedure?

During the restructuring process, a debtor can continue to conduct business. The commencement of liquidation also does not prevent continuation of the business unless a contrary decision has been rendered. 

Stakeholder and court involvement

To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?

During the restructuring process, directors can continue with their duties, subject to the supervision of the compostion administrator and court approval for certain transactions involving the debtor’s assets. During the bankruptcy liquidation, the bankruptcy administration or its appointed directors are entitled to manage the business.


Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?

During the restructuring process, any debt approved by the administrator during the moratorium cannot be subject to composition conditions and must be secured by the debtor as a condition for the approval of its composition. Such debt will have priority over all other creditors except upon the debtor’s bankruptcy. Therefore, the new financings obtained by the debtor during the moratorium periods are given absolute priority. However, during the bankruptcy liquidation, bankrupt companies cannot obtain credit or take out additional secured loans.


Effect of insolvency on employees

How does a company’s insolvency affect employees and the company’s legal obligations to employees?

Bankruptcy decisions do not automatically terminate employment contracts. The bankruptcy administration may decide to continue all or some of the existing employment contracts following the continuation of the trade decision. However, in the absence of such a decision and when security has not been demonstrated by the bankruptcy administration, employees can unilaterally terminate the employment contract. 

Cross-border insolvency

Recognition of foreign proceedings

Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?

Turkey has no special provisions regulating and responding to the needs arising from the complexity of cross-border insolvency proceedings. Instead, any question arising from each cross-border case is handled according to concepts such as reciprocity and territoriality of bankruptcy, and execution or recognition of foreign judgment processes as defined in the International Private and Procedural Law 5718. 

Winding up foreign companies

What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?

Only Turkish branches and affiliations of foreign companies are subject to bankruptcy in Turkey. 

Centre of main interests

How is the centre of main interests determined in your jurisdiction?

The centre of main interest is determined by the trade registry location of the debtor. However, any creditor may challenge this presumption. 

Cross-border cooperation

What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?

Although the European Convention on Certain International Aspects of Bankruptcy (due to be referred to as the Istanbul Convention) was signed in 1990, it has not drawn sufficient interest and has not entered into force. In this respect, Turkey has no special provisions regulating cross-border cooperation with foreign courts regarding insolvency proceedings. The general approach of the courts is to request the foreign administrations or courts to go through the enforcement and recognition process.