It is increasingly common for companies or individuals to be declared bankrupt in one country while still holding significant assets in another. If your debtor has been placed into insolvency or bankruptcy proceedings abroad but owns real estate, bank accounts or shares in Turkey, you cannot simply assume that the foreign insolvency automatically “covers” the Turkish assets. Under Turkish law, some additional steps are usually required.
This article gives a practical overview for foreign creditors who want to reach a debtor’s assets in Turkey after a foreign bankruptcy has been opened.
1. No automatic extension of foreign bankruptcy to Turkey
As a starting point, foreign insolvency or bankruptcy decisions do not automatically produce full effects in Turkey. Turkish law is still largely territorial in insolvency matters. That means:
- The foreign insolvency practitioner (trustee, liquidator, administrator, etc.) does not automatically gain control over the debtor’s assets located in Turkey.
- Local creditors may still try to start individual enforcement (icra takibi) in Turkey unless and until a Turkish court decision or local insolvency proceeding limits this.
Therefore, if you are a foreign creditor, you should not rely solely on the foreign insolvency to protect your position in Turkey. You need a specific Turkish strategy.
2. Recognition of foreign insolvency judgments
One option is to seek recognition and enforcement of the foreign insolvency judgment through a lawsuit in Turkey. In principle, foreign court decisions can be recognised and enforced if certain conditions are met (finality, due process, no conflict with public policy, and – where required – reciprocity).
In the insolvency context, this can be used, for example, to:
- Have the foreign decision recognised so that the debtor’s legal capacity and the authority of the foreign insolvency office-holder are accepted in Turkey.
- Support later applications for Turkish proceedings or for measures to protect the estate.
However, even if the foreign insolvency decision is recognised, Turkish courts will still examine how far its effects can extend to assets and creditors located in Turkey. Recognition alone does not necessarily replace all local procedures.
3. Opening separate insolvency or bankruptcy proceedings in Turkey
Because of the territorial nature of Turkish insolvency law, it is often necessary or at least strategically useful to consider separate bankruptcy proceedings in Turkey for the debtor’s assets located here.
This may be requested when, for example:
- The debtor has its main centre of interests or a place of business in Turkey, or
- There are substantial assets (factories, real estate, bank accounts, shares in Turkish companies) that need to be collected under a collective procedure.
If a Turkish court declares the debtor bankrupt, a Turkish bankruptcy estate is formed. All enforcement procedures against the debtor’s assets in Turkey are then typically stayed and replaced by the collective bankruptcy process. Foreign creditors can (and should) then file their claims in the Turkish bankruptcy, usually on the same footing as local creditors, subject to ranking rules (secured/unsecured, privileged claims, etc.).
4. Individual enforcement versus collective proceedings
A key practical question for foreign creditors is whether to:
- Start individual enforcement proceedings (icra takibi) in Turkey to seize specific assets, or
- Support or initiate collective insolvency proceedings (iflas) in Turkey.
If there is not yet any Turkish bankruptcy, individual enforcement can be a powerful tool:
- You may obtain interim measures or quick security (such as attachment on bank accounts or real estate).
- You may reach assets before other creditors “wake up”.
However, you must always consider the risk of later bankruptcy. If a bankruptcy is opened in Turkey after your enforcement has started, your proceedings may be absorbed into the collective process. Secured creditors may keep their priority to the extent of their security, but unsecured creditors will join the general pool.
In cross-border situations, timing and coordination with foreign proceedings are crucial. Acting too late may leave you behind other creditors or behind the foreign insolvency estate.
5. Practical steps for foreign creditors
Foreign creditors who want to reach a debtor’s assets in Turkey after a foreign insolvency should consider:
- Early asset mapping: Identify properties, bank accounts, receivables and shares in Turkey as soon as possible. Land registry, trade registry and other databases can be used through local counsel.
- Choice of route: Assess whether individual enforcement, support for a Turkish bankruptcy petition, or a combination of both is strategically preferable in your case.
- Documentation: Have your contracts, invoices, guarantees and the foreign insolvency documents properly translated and, where necessary, legalised or apostilled.
- Coordination with the foreign insolvency office-holder: Sometimes cooperation with the foreign trustee or administrator is in your best interest, especially when negotiating how the Turkish assets will be treated.
- Local legal advice: Cross-border insolvency is a technical area. A local lawyer experienced in both enforcement and insolvency will help you navigate jurisdictional questions, deadlines, ranking of claims and potential objections by the debtor or other creditors.
6. Conclusion
A foreign bankruptcy does not mean that Turkish assets are automatically lost or frozen beyond your reach. At the same time, it does not give you a direct enforcement title in Turkey. You must make a conscious choice between recognition of the foreign insolvency, individual enforcement in Turkey, and possibly opening separate Turkish insolvency proceedings.
Acting quickly, understanding the limits of the foreign judgment in Turkey and designing a clear enforcement plan will greatly increase your chances of recovering from assets located in Turkey.
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