Judicial Sale of Ships in Turkey: A Practical Guide to Purchasing via Public Auction

In the maritime world, a judicial sale is often seen as the “gold standard” for acquiring a vessel because it provides the buyer with an unencumbered title. Turkey, with its strategic ports and robust maritime legal framework (aligned with the 1993 Geneva Convention on Maritime Liens and Mortgages), offers a transparent and efficient system for the public auction of arrested vessels.

1. The Legal Basis for Judicial Sales

Under the Turkish Commercial Code (TCC) and the Execution and Bankruptcy Law (EBL), a vessel may be sold via public auction if a creditor obtains a final and enforceable judgment or if the vessel is subject to a maritime lien that justifies a forced sale. The primary goal of the public auction is to convert the vessel into cash to satisfy the creditors’ claims in order of priority.

2. Pre-Auction Phase: Appraisal and Announcement

Before a vessel can be put up for a public auction, the Execution Office must complete several preparatory steps:

• Appraisal (Valuation): The court appoints a committee of experts (usually including a marine engineer, a master mariner, and a shipbroker) to determine the vessel’s current market value.
• The Announcement: Once the value is set, the public auction is announced in the Official Gazette and usually on a high-traffic national press portal. The announcement includes the vessel’s technical specifications, its current location, the appraised value, and the date of the auction.

3. The Public Auction Process: Two Tenders

Turkish law typically follows a two-stage bidding process conducted electronically or in person:

• The First Auction: For the vessel to be sold in the first tender, the highest bid must reach at least 50% of the appraised value, plus the costs of the sale and any claims secured by a higher-priority lien (such as maritime liens).
• The Second Auction: If the first auction does not result in a sale, a second public auction is held (usually 15-30 days later). The same 50% threshold applies. If no bid meets this requirement, the sale is canceled, and the process must be restarted.

4. Requirements for Foreign Bidders

Foreign individuals or legal entities are fully entitled to participate in a public auction in Turkey. However, they must fulfill certain requirements:

• Cash Deposit: Bidders must usually pay a “participation bond” or deposit, typically equal to 20% of the appraised value. This can be paid in cash or via a Turkish bank guarantee.
• Power of Attorney: If the bidder is not physically present, they must be represented by a lawyer or an agent holding a notarized and apostilled Power of Attorney.
• Tax Number: Foreign bidders must obtain a potential Turkish tax number to complete the financial transactions.

5. Transfer of Ownership and “Clean Title”

The most significant advantage of a public auction is the Clean Title principle.

• Article 1386 of the TCC stipulates that upon the completion of the judicial sale, all previous mortgages, maritime liens, and encumbrances on the vessel are automatically extinguished.
• The Execution Office issues a “Sale Decree,” which serves as the legal instrument to delete the vessel from its previous registry and register it under the name of the successful bidder in the Turkish International Ship Registry (TUGS) or to obtain a deletion certificate for foreign registration.

6. VAT and Transaction Costs

Bidders must factor in the following costs beyond the hammer price:

• Value Added Tax (VAT): Depending on the vessel’s type and registry status, VAT may apply (currently varying between 1% and 20%). In many cases involving commercial vessels, VAT exemptions may be applicable.
• Auction Fee (Damga Vergisi): A small percentage (0.569%) is charged as a stamp tax on the sale price.
• Dellaliye (Crier’s Fee): Usually around 1% of the sale price.

7. Challenging the Auction (Termination of Sale)

Under Turkish law, interested parties (debtors or other creditors) have 7 days from the date of the auction to file a lawsuit for the “Termination of the Tender”. Grounds for such a challenge are limited to procedural irregularities or collusion. If no challenge is filed, the sale becomes final.

Why Purchase via Public Auction in Turkey?

1. Transparency: The electronic bidding system ensures a competitive and fair environment.
2. Strategic Access: Vessels are often arrested in major hubs like Istanbul, Tuzla (shipyard region), or Izmir, making inspection and subsequent mobilization easy.
3. Legal Certainty: The Turkish judicial system provides a definitive document that is recognized globally for the deletion of old encumbrances.

Conclusion

Navigating a public auction in Turkey requires a blend of maritime expertise and local procedural knowledge. For a foreign buyer, the prospect of acquiring a vessel at 50% of its appraised value with a clean title is a highly attractive investment opportunity, provided the “due diligence” on VAT and priority claims is performed by specialized counsel.