Bankruptcy and Composition — Conditions, Procedure and Creditors' Rights

The Enforcement and Bankruptcy Law subjects the collective liquidation of the assets of a debtor liable to bankruptcy, and the restructuring of debts by composition, to different conditions and consequences. Bankruptcy is directed at the liquidation of the estate's assets in the statutory order of priority; composition, at the implementation of a plan accepted and confirmed under the supervision of the court and a commissioner. This article explains the application, moratorium, liquidation and creditors' rights of both institutions on the basis of İİK Arts. 43, 154 et seq. and 285 et seq. as in force on 10 August 2026.

What Is Bankruptcy and Who Can Be Made Bankrupt?

Bankruptcy is the collective liquidation of a debtor's attachable assets, formed into an estate, for the benefit of all bankruptcy creditors. Unlike individual attachment, it covers not only the creditor pursuing enforcement but all creditors who register their claims with the estate, within the statutory rules on priority and distribution.

Under İİK Art. 43 the bankruptcy route may as a rule be used against merchants, persons treated as merchants under the Turkish Commercial Code or subject to the provisions applicable to merchants, and persons made liable to bankruptcy by special statute. Commercial companies fall within that scope. For a merchant who has ceased trading, the publication and one-year liability regime in İİK Art. 44 applies. A natural person who is not a merchant is as a rule not liable to bankruptcy; the debtor's own application and the special statutory cases are reserved.

Upon bankruptcy, attachable assets and rights enter the estate, the bankrupt's power of disposition over the estate assets is restricted, and administration is carried out by the liquidation organs. Claims not yet due as a rule fall due. Interest does not cease entirely; the order and payment conditions in İİK Art. 196 apply.

What Are the Routes to Bankruptcy?

In bankruptcy following enforcement, the creditor requests that a bankruptcy payment order be served on a debtor liable to bankruptcy; depending on any objection or payment, a bankruptcy action is brought before the commercial court of first instance. Applying the deposit order and publication procedure in İİK Art. 158, the court assesses whether the debt has been paid and whether the conditions for bankruptcy are met. There are special provisions in Art. 171 et seq. for the bankruptcy route specific to negotiable instruments.

Direct bankruptcy may be sought without prior bankruptcy proceedings, but only in the cases listed in İİK Art. 177 and in special statutes. The principal examples are that the debtor's place of residence is unknown, that they have absconded to escape their obligations or engaged in fraudulent transactions, that they have suspended payments, that a debt based on a final judgment has not been paid despite an enforcement order, and certain statutory consequences relating to composition. Not every payment difficulty is of itself a ground for direct bankruptcy.

A debtor may request their own bankruptcy on the conditions in İİK Art. 178. In capital companies and cooperatives, notification of over-indebtedness is subject to TTK Art. 376 and the relevant provisions of the Enforcement and Bankruptcy Law; the liability of the management organ is assessed together with the current balance sheet, the prospects of recovery and the composition options.

How Does the Bankruptcy Process Work?

The bankruptcy order is given by the commercial court of first instance. Upon the order, the debtor's attachable assets and rights enter the bankruptcy estate; liquidation is carried out through the bankruptcy administration and the enforcement office. Creditors register their claims upon publication. A claim not registered in time may be registered before the liquidation is completed; but the costs arising from the delay are borne by the creditor, who cannot participate in distributions already made.

Upon the opening of bankruptcy the bankrupt's debts as a rule fall due; interest does not cease entirely. On claims not secured by pledge, statutory interest continues to run in non-commercial matters and commercial interest in commercial matters; the interest calculated is paid only from any sum remaining after the principal has been paid. Priorities such as secured claims and claims for wages and maintenance are classified under İİK Art. 206 and special provisions; it cannot be said that all public claims rank equally in every case.

What Is Composition and How Does It Differ from Bankruptcy?

Composition is a collective restructuring institution enabling a debtor who cannot pay their debts as they fall due, or who is at risk of being unable to do so, to pay them under a plan for reduction or extension, subject to the supervision and majority requirements laid down by statute. A debtor may seek an ordinary composition whether or not they are liable to bankruptcy; composition after bankruptcy and composition by abandonment of assets are also provided for by statute.

Bankruptcy is essentially directed at the liquidation of assets, and composition at the restructuring of debts under a confirmed plan. In composition the debtor as a rule continues to conduct their business under the supervision of a commissioner; the court may restrict the power of management or entrust it to the commissioner. In bankruptcy, the power of disposition over the estate assets passes to the liquidation organs. No fixed generalisation applicable to every file can be made as to the rate of recovery by creditors.

Application for Composition and the Provisional Moratorium

A debtor who cannot pay their debts as they fall due, or who is at risk of being unable to do so, may seek a composition; a creditor entitled to seek bankruptcy may also apply by reasoned petition. The application must be accompanied by the preliminary plan, comparative tables, a statement of assets, a list of creditors, a financial analysis report and documents showing reasonable assurance, as listed in İİK Art. 286. The independent audit report and the exceptions to the assurance requirement are assessed together with the current regulation.

If the documents are complete the court immediately grants a three-month provisional moratorium and appoints a commissioner; that period may be extended by a maximum of two months. The provisional moratorium produces the effects of a definitive moratorium and the statutory publications are made. Appeals against decisions refusing or granting the application are subject to the special provisions in İİK Art. 287 et seq. according to the type of decision; it cannot be said that all decisions are final.

The Definitive Moratorium and the Composition Commissioner

If the court is satisfied that there is a prospect of success it grants a definitive moratorium of one year; in particularly difficult cases an extension of up to six months is possible on the commissioner's reasoned report and request. During the moratorium the debtor continues to conduct their business under the commissioner's supervision; the court may make certain transactions subject to the commissioner's permission or entrust management to the commissioner.

Under İİK Art. 294 no enforcement proceedings may as a rule be brought and proceedings already begun are stayed; but enforcement by attachment is possible for the privileged claims in the first rank under İİK Art. 206. Pledge enforcement may be commenced or continued, but no protective measures may be taken and no sale made. Without the court's permission the debtor may not create a pledge, act as surety, transfer an immovable or the permanent installations of the business, or make a gratuitous disposition; transactions to the contrary are void.

The Creditors' Meeting and Acceptance of the Plan

The commissioner invites creditors by publication to declare their claims and asks the court to rule on voting rights for disputed claims. Only claims affected by the plan are taken into account in the vote; the unsecured portion of a secured claim is included. The debtor's spouse, children, parents and siblings are not counted in the majorities of claims and creditors.

The plan is accepted by a majority exceeding half of the registered creditors and of the registered claims, or by a majority exceeding one quarter of the registered creditors and two thirds of the claims (İİK Art. 302). The vote alone does not suffice for confirmation; the court examines the conditions in İİK Art. 305, such as that the sum offered exceeds the probable sum in bankruptcy, that it is proportionate to the resources, that the necessary majority was obtained, that the privileged claims are paid, and that the litigation costs and fee have been deposited.

Termination of a Composition and Its Consequences

Any creditor to whom performance is not made under the composition plan may, preserving the new rights they have acquired, have the composition terminated in respect of themselves alone (partial termination). Complete termination of a composition vitiated by bad faith may be sought by any creditor. The court's decision and appeals are subject to İİK Arts. 308/e and 308/f; “termination” is not an institution producing bankruptcy as a single, automatic consequence.

Creditors' Rights and Remedies

In bankruptcy a creditor may register their claim with the estate upon publication; a late registration may be made before the liquidation is completed, but with the consequences of bearing the costs of delay and being unable to participate in earlier distributions. In disputes over the schedule of ranking concerning the admission of a claim or another creditor's rank, the fifteen-day action in İİK Art. 235 applies; the provisions on complaint apply, according to the specific claim, only as regards ranking and unlawfulness in the acts of the bankruptcy administration. The rights to attend the creditors' meeting, to take part in electing the bankruptcy administration and to make requests protecting the interests of the estate are subject to the statutory quorums and procedure.

In a composition a creditor declares their claim, examines the commissioner's reports and the plan, votes where the conditions are met, and presents objections at the confirmation hearing. Appeals against the confirmation decision and requests for partial or complete termination where the plan is not performed at all or not properly performed are subject to İİK Arts. 308/e–f. Only the unsecured portion of secured claims is counted in the general vote; although pledge enforcement may continue during the moratorium, there is a prohibition on protective measures and sale. Restructuring of secured claims is subject to the special conditions in Art. 308/h; the generalisation that they are “wholly unaffected by the composition” is incorrect.

The debtor's earlier dispositions prejudicing creditors may be the subject of an action to set aside under İİK Arts. 277–284. The right of action, the conditions of insolvency or bankruptcy, the forfeiture period, the type of disposition and the third party's position are examined together; not all gratuitous or undervalue transactions are automatically set aside.

The Abolition of Postponement of Bankruptcy and Composition

The institution of postponement of bankruptcy was abolished in 2018 by Law No. 7101. For capital companies and cooperatives in financial difficulty, composition and the measures on loss of capital and over-indebtedness in TTK Art. 376 form the current framework. The former provisions on postponement of bankruptcy are not an available route for new applications; the transitional provisions may matter only for past files.

Composition involves the provisional and definitive moratoria, supervision by a commissioner, the declaration and vote of creditors, and the court's confirmation review. The prospects of success, the debtor's resources and the outcome the plan would produce for creditors compared with bankruptcy are assessed on concrete financial documents; the institution does not provide automatic protection in every financial difficulty.

Frequently Asked Questions

How long are the provisional and definitive moratoria?

The provisional moratorium is three months, extendable by up to two months; the definitive moratorium is one year, extendable in special cases by up to six months.

Are all enforcement proceedings prohibited during the moratorium?

The rule is a prohibition; there are statutory exceptions for first-rank privileged claims and for pledge enforcement. In pledge enforcement no protective measures or sale may take place.

By what majority is the plan accepted?

By a majority exceeding half of the creditors and of the claims, or exceeding one quarter of the creditors and two thirds of the claims.

Is a late-declared claim lost entirely?

No; it may be registered before the liquidation is completed, but the costs of delay and the inability to participate in earlier distributions may follow.