Action for Annulment of Dispositions

As a rule, before attachment and bankruptcy, a debtor may dispose of its assets and rights as it wishes. As long as the creditor can collect its receivable from the debtor, it cannot interfere with the debtor’s dispositions. However, before or after legal proceedings are initiated, it is possible for the debtor to make dispositions over its assets with the aim of putting assets beyond the creditor’s reach. The purpose of the action for annulment of dispositions, which emerged to protect the creditor in all these situations, is to ensure that the assets the debtor put beyond the creditor’s reach through valid dispositive transactions it made earlier return to the debtor’s assets, and that the creditors are satisfied out of these assets.

The Assembly of Civil Chambers (YHGK) of the Court of Cassation (Yargıtay) has defined the action for annulment of dispositions as follows: “An action which, when brought by the creditor harmed by the disposition in order to obtain its receivable, ensures that the assets and rights, or the values replacing them, that the debtor removed from its assets with the intent of harming its creditor pass back into the debtor’s assets; in short, an action aimed at rendering ineffective, limited to the creditor’s receivable, the dispositions the debtor made in order to put assets beyond the reach of its creditors...” (YHGK, 08.10.2019, Docket No. 2017/17-2248, Decision No. 2019/998) In the same decision, the purpose of this action is explained as follows: “...to enable the creditor to collect its receivable through compulsory enforcement, as if the asset or right subject to the transaction still belonged to the debtor, by treating as ineffective, limited to the creditor’s receivable, the unilateral legal transactions and acts carried out by the debtor that reduce its assets or prevent their increase in order not to pay a debt, and all legal transactions the debtor made with persons who knew or ought to have known the debtor’s aim.”

1. Who are the parties to an action for annulment of dispositions?

In an action for annulment of dispositions, the defendant side consists of at least two natural and/or legal persons. The defendants are the debtor and the third parties who entered into a legal transaction with the debtor or to whom the debtor made payments, as well as their heirs. In addition, an action for annulment may also be brought against third persons acting in bad faith. In an action for annulment of dispositions, there is mandatory joinder among the defendants. The action for annulment must not infringe the rights of third persons acting in good faith (İİK Art. 282). Except in the situations listed in Art. 278 of the İİK, third parties who prove that they acted in good faith can escape the adverse consequences of the action for annulment.

2. What are the preconditions for bringing an action for annulment of dispositions? Can an action for annulment of dispositions be brought on the basis of a certificate of insolvency obtained by someone else?

The action for annulment is regulated in Articles 277–284 of the Enforcement and Bankruptcy Law No. 2004 (İİK).

“For such actions to be heard, the plaintiff’s receivable from the debtor must be genuine, the enforcement proceedings against the debtor must have become final, the disposition whose annulment is sought must have been made after the debt subject to the proceedings, and there must be a final or provisional certificate of insolvency obtained against the debtor (Art. 277 of the İİK). Where these preconditions are met, it must then be examined whether the conditions for annulment set out in Articles 278, 279 and 280 of the İİK are present.” (Court of Cassation, 17th Civil Chamber, 16.09.2018, Docket No. 2017/3902, Decision No. 2018/8266)

Accordingly:

1) the plaintiff’s receivable from the debtor must be genuine,

2) the enforcement proceedings against the debtor must have become final,

3) the disposition whose annulment is sought must have been made after the debt subject to the proceedings,

4) there must be a final or provisional certificate of insolvency obtained against the debtor; where these conditions are met together, an action for annulment of dispositions may be brought.

A certificate of insolvency documents that there are insufficient assets in the debtor’s estate. In its decisions, the Court of Cassation takes the certificate of insolvency into account ex officio as a procedural requirement. However, in its most recent decisions, the Court of Cassation has ruled that a provisional or final certificate of insolvency may be submitted to the file at any stage of the proceedings.

“Based on the claims, the defense and the evidence collected, the court dismissed the action due to the absence of a procedural requirement, since the plaintiff’s attorney had not submitted a certificate of insolvency; the judgment was appealed on points of law by the plaintiff’s attorney. The action concerns a request for annulment of dispositions based on Articles 277 et seq. of the İİK, and such actions may be brought by creditors holding a final (İİK Art. 143) or provisional (İİK Art. 105) certificate of insolvency. This is a condition for the action to be heard and must be taken into account by the court ex officio (of its own motion). The certificate of insolvency may be submitted before the action is filed, after the action is filed, or after the appeal stage, and even after the judgment has been upheld or reversed by the Court of Cassation.” (Court of Cassation, 17th Civil Chamber, Docket No. 2017/5425, Decision No. 2019/10539, 13.11.2019)

It is not possible to bring an action for annulment on the basis of a certificate of insolvency obtained by another creditor, or on the basis of a certificate of insolvency obtained by the same creditor as a result of other enforcement proceedings.

“For each set of proceedings it has initiated, the creditor must submit to the court the certificate of insolvency issued from that enforcement file (...) The certificate of insolvency must relate to the enforcement proceedings initiated by the creditor. An action for annulment cannot be brought on the basis of a certificate of insolvency obtained by another creditor in relation to its own receivable. The practice of the Court of Cassation is settled in this direction.” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2017/17-1791, Decision No. 2019/498, 30.4.2019)

As a rule, lawful dispositions made by the debtor do not concern the creditor. However, where the debtor does not have attachable assets sufficient to satisfy the creditor, the creditor may have the relevant disposition annulled with respect to its own receivable.

3. Are there situations in which a certificate of insolvency is not required?

Under both the law and case law, the requirement to submit a certificate of insolvency is not imposed in certain situations. A creditor against whom a third-party claim action (istihkak davası) has been brought may bring an action for annulment as a counterclaim. In this case, no certificate of insolvency is required. To give an example: if a third party brings a third-party claim action against the creditor, claiming that the asset was sold to it by the debtor, the creditor may in turn bring an action against the third party for the annulment of this sale.

“Actions for annulment of dispositions brought directly under Articles 277 et seq. of the İİK are heard by the general courts. (İİK Art. 281) However, if a third party has brought a third-party claim action based on an attachment (İİK Art. 97/6-9 ), the defendant creditor in the enforcement proceedings may bring an action for annulment of dispositions in response to this action without being obliged to submit a provisional or final certificate of insolvency. (İİK Art. 97/17) In this case, the action for annulment of dispositions brought as a counterclaim is examined and decided by the enforcement court hearing the third-party claim action.” (Court of Cassation, 8th Civil Chamber, Docket No. 2016/19103, Decision No. 2019/11400, 17.12.2019)

Apart from this, under Provisional Article 13 of Banking Law No. 5411, no certificate of insolvency is required either in actions for annulment of dispositions concerning the collection of the Fund’s receivables. “On the other hand, Provisional Article 13 of Banking Law No. 5411, which was adopted on October 19, 2005 and entered into force upon publication in the Official Gazette of November 1, 2005, provides that public banks may also bring actions for annulment of dispositions without a certificate of insolvency, and its Provisional Article 16 provides that this amendment will have retroactive effect (will apply to the past). In this case, since the requirement of a provisional or final certificate of insolvency, which is a precondition of the action, has been removed, the merits of the action must be examined and a judgment rendered.” (17th Civil Chamber, 19.7.2007, Docket No. 2007/1079, Decision No. 2007/2553)

Furthermore, no certificate of insolvency is required either in actions for annulment of dispositions brought under the Law on the Procedure for the Collection of Public Receivables (AATUHK). “The action concerns a request for annulment of dispositions brought on the basis of Law No. 6183. Therefore, the dispute must be resolved in accordance with the provisions of Articles 24 to 31 of Law No. 6183. Since these articles contain no provision stating that the submission of a certificate of insolvency is mandatory, it is not correct for the court, instead of examining the merits of the dispute and reaching a conclusion, to rule for “dismissal of the action” on the ground “that there is no provisional or final certificate of insolvency against the debtor”” (17th Civil Chamber, 6.5.2008, 864/2398)

4. Does an attachment report take the place of a certificate of insolvency?

Certificates of insolvency are divided into two types: final and provisional. If, during attachment, the debtor has attachable assets but it becomes clear that these assets will not cover the receivable subject to the proceedings, the attachment report documenting this situation qualifies as a provisional certificate of insolvency under İİK Art. 105.

“In other words, if, during attachment, the debtor has some assets but it becomes clear that, according to their appraised value, they are not sufficient to cover the receivable subject to the proceedings, the attachment report relating to this is deemed a provisional certificate of insolvency. The attachment report must state explicitly that the debtor has no attachable assets. Otherwise, the report does not qualify as a certificate of insolvency. As with the final certificate of insolvency, no separate certificate of insolvency is issued to the debtor. The attachment report relating to this has the effect of a provisional certificate of insolvency. It gives the creditor the rights set out in Art. 277 of the İİK. That is, it gives the right to bring an action for annulment. Unlike a final certificate of insolvency, a provisional certificate of insolvency does not qualify as an instrument containing an acknowledgment of debt within the meaning of Art. 68 of the İİK.” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2019/17-16, Decision No. 2020/7, 14.1.2020)

5. Which legal transactions can be the subject of an action for annulment, and which cannot?

For a legal act to be the subject of an action for annulment, it must first be characterized as a disposition. A disposition is a transaction that transfers, restricts or extinguishes a right. “Through an obligatory transaction, an asset or right does not leave the debtor’s assets. The subject of an action for annulment consists of dispositive transactions that cause a reduction in the debtor’s assets.” (Court of Cassation, 17th Civil Chamber, Docket No. 2009/307, Decision No. 2009/2610, 22.4.2009). The debtor need not necessarily be acting in bad faith when making these dispositions.

Obligatory transactions are not the subject of an action for annulment of dispositions. For this reason, the creditor may attach the asset without resorting to an action for annulment of dispositions or, in the event of bankruptcy, claim the asset from the bankruptcy estate. Where the debtor disposes of assets that cannot be attached, these dispositions cannot be the subject of an action for annulment either. This is because creditors cannot suffer harm as a result. Whether the asset subject to the action for annulment of dispositions can be attached is examined and assessed by the court hearing the action. Legal transactions directly relating to personality rights, such as divorce and adoption, cannot be the subject of an action for annulment either.

In addition, the disposition that is the subject of the action must be voluntary. Transfers resulting from a court decision and sales made through compulsory enforcement are not the subject of an action for annulment. However, where enforcement proceedings are conducted within a creditor-debtor relationship with the aim of putting assets beyond the reach of creditors, an action for annulment of dispositions may also be brought.

“When the material and legal facts in the file are assessed together, it is understood that the checks subject to the action between the defendants, and the enforcement proceedings based on these checks, are subject to annulment under Art. 280/1 of the İİK; therefore, whereas the court should have ruled for their annulment limited to the receivable subject to the plaintiff’s proceedings and its accessories, and for the amounts collected by the defendant third party through the enforcement proceedings subject to the action to be paid to the plaintiff, the dismissal of the request regarding annulment, even though the court assessed the evidence in this direction, was not found correct.” (Court of Cassation, 17th Civil Chamber, Docket No. 2013/17392, Decision No. 2014/9848, 24.6.2014)

Against changes in assets resulting from a disposition of the court, the remedy of retrial regulated in Art. 375 of the Code of Civil Procedure (HMK) may also be pursued if its conditions are met.

6. Which dispositions are subject to an action for annulment?

İİK Art. 277 states: “The purpose of the action for annulment is to obtain a judgment declaring the nullity of the dispositions set out in Articles 278, 279 and 280.” In these articles, the dispositions that may be the subject of an action for annulment are regulated as follows:

- Gratuitous dispositions (Art. 278)

- Dispositions made in a state of insolvency (Art. 279)

- Annulment on grounds of intent to harm (Art. 280)

This is how the Law regulates them.

7. What are the gratuitous dispositions regulated in İİK Art. 278?

Gratuitous dispositions are to be understood as unilateral transactions by which the person in whose favor the disposition is made is enriched without giving anything in return. İİK Art. 278 expresses this point verbatim as follows:

“With the exception of customary gifts, all donations and gratuitous dispositions made within the period running back from the attachment, from insolvency due to there being no assets to attach, or from the opening of bankruptcy, to the date on which the oldest of the receivables that gave rise to the attachment or to the issuance of the certificate of insolvency, or that were admitted to the estate, arose, are void. However, this period cannot exceed the two years preceding the attachment, insolvency or bankruptcy.”

A point to note here is that customary gifts will not be subject to annulment. Customary/reasonable gifts given in the context of occasions such as weddings, engagements, holidays and birthdays are not the subject of an action for annulment.

The legislator has treated certain legal transactions as donations or as gratuitous, even if they are made for consideration (İİK Art. 278). These are:

- Dispositions for consideration made between spouses, between ascendants and descendants, between relatives by marriage up to and including the third degree, and between adopter and adoptee,

- Contracts in which, at the time the contract was made, the debtor accepted as consideration a grossly low price relative to the value of what it gave,

- Contracts by which the debtor creates an annuity or a usufruct for life for itself or for the benefit of a third person, and contracts of lifelong maintenance.

When these conditions are examined, it is of no importance whether or not there was good faith.

“Where the grounds set out in Art. 278 of the İİK exist between the purchaser from the debtor and the debtor, the annulment of the disposition between them is ordered regardless of the purchaser’s good faith.” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2017/17-2248, Decision No. 2019/998, 8.10.2019)

What should be understood by the expression “a grossly low price” here may be open to debate. On this point, the case law of the Court of Cassation states that, on the date of sale of the asset, there must be at least a twofold difference between the performances to the detriment of the debtor. “In İİK Art. 278/3-2, 'contracts in which, at the time they were made, the debtor accepted as consideration a grossly low price relative to the value of what it gave' are treated as donations, and it is accepted that these dispositions are subject to annulment without any requirement regarding good faith. For a disposition to be annulled under this subparagraph, there must be an excessive disproportion between the actual value of the asset on the date of sale and the sale price. According to the settled case law of the Court of Cassation, for there to be an excessive disproportion between the performances, there must be at least a twofold difference between the performances to the detriment of the debtor on the date of sale of the asset. If there are mortgage and attachment entries on the immovable sold, since the purchaser will have bought the immovable subject to these entries, the sale is deemed to have been made on the basis of all of them. For this reason, the mortgage and attachment amounts in the land registry record must also be taken into account in determining the disproportion. Apart from this, if the defendant third party claims to have made payments in addition to the sale price stated in the title deed, then, if it proves this claim, the payment made outside the title deed must also be taken into account.” (Court of Cassation, 17th Civil Chamber, 24.02.2014, Docket No. 2014/1621, Decision No. 2014/2409)

8. What does “state of insolvency” in the heading of İİK Art. 279 mean, and what are the dispositions made in that state?

Although the wording of the article refers to a state of insolvency, what is meant here, in parallel with the Swiss source law, is a state of over-indebtedness. In practice, too, this article is applied to the state of being over-indebted. In a 2019 decision, the Assembly of Civil Chambers of the Court of Cassation stated: “...in relation to dispositions the debtor made while over-indebted, the existence of the grounds set out in Art. 279 of the İİK is examined.” (YHGK, 08.10.2019, Docket No. 2017/17-2248, Decision No. 2019/998) Over-indebtedness, in turn, refers to situations where the debtor’s debts exceed its existing assets and receivables, that is, where its assets are not sufficient to cover its debts. The dispositions covered by this article are:

- Pledges created by the debtor to secure an existing debt, where the debtor had not previously undertaken to provide security,

- Payments made by means other than money or customary means of payment,

- Payments made for a debt not yet due,

- Annotations in the land register made to strengthen personal rights.

The transactions listed above must have been made within one year before the attachment, the insolvency due to the absence of assets, or the opening of bankruptcy. Older dispositions do not fall within the scope of this article. In addition, the legislator has granted the third party who carries out the disposition with the debtor the right to exculpatory proof (kurtuluş beyyinesi). Accordingly, if the third party benefiting from these dispositions proves, to the standard of prima facie proof, that it did not know the debtor’s situation and circumstances, the action for annulment cannot be heard (İİK Art. 279, last para.).

“Considering that, under İİK Art. 279/1, the attachment reports, which are deemed provisional certificates of insolvency under İİK Art. 105, are dated March 20, 2012; that the disposition subject to the action was made on August 17, 2011, before the expiry of the 1-year period referred to in İİK Art. 279; that it could not be proven either that a mortgage undertaking document, annotated in the land register, had been executed between the defendants in connection with this establishment of a mortgage subject to the action; and that it is understood that the contrary was not claimed and proven; and, under Art. 280/1 of the İİK, considering that the defendant ... Metal operates in the same sector as the defendant debtor, that the parties accept that there is a long-standing commercial relationship between them, that, according to the witness statements heard in the file, the sector in which the defendants operate is a small sector, and that it was stated that the defendants know each other, rendering a decision as written as a result of incomplete examination, without assessing whether the defendant third party ... Metal is among the persons who knew or ought to have known the defendant debtor’s financial situation and its intent to harm its creditors, and without the court examining the provisions of İİK Articles 277, 279, 280 and 283, is contrary to procedure and law.” (Court of Cassation, 17th Civil Chamber, Docket No. 2016/4452, Decision No. 2019/9821, 23.10.2019)

9. What are the conditions for an action for annulment on grounds of intent to harm under İİK Art. 280?

For an action for annulment on grounds of intent to harm, as regulated in İİK Art. 280, to be brought:

- Proceedings by way of attachment or bankruptcy must have been initiated against the debtor within five years from the date on which the disposition subject to the action for annulment took place,

- The debtor must be over-indebted,

- The debtor must have had the intent to harm the creditor,

- The debtor’s financial situation and intent to harm must have been known, or ought to have been known, to the third party.

For third parties to know the debtor’s financial situation and intent, it is sufficient that there are clear indications. Here, if the third party carries out a disposition with another third person, that person must also know of the existing intent. In a 2019 decision, the 17th Civil Chamber of the Court of Cassation held as follows: “In the sale made with respect to the defendant ..., who is in the position of a fourth party, there being no significant difference between the sale price and the market value on the date of sale as determined by the court-appointed expert, the bad faith of the fourth party must have been proven. With respect to the defendant ... (a third party in bad faith under Art. 282 of the İİK), İİK Art. 280/3 has no application. Since the bad faith of the defendant fourth party ... could not be proven, whereas the court should have dismissed the action with respect to the defendant ... and, with respect to the defendant ..., accepted that the action had been converted into a claim for compensation and held the defendant ... liable for compensation under Art. 283 of the İİK, limited to the receivable, in proportion to the value of immovable parcel No. 679 subject to the action on September 20, 2006, the date on which it was disposed of, rendering a decision as written is not correct.” (Court of Cassation, 17th Civil Chamber, Docket No. 2017/109, Decision No. 2019/11038, 25.11.2019)

İİK Art. 280/2 provides that if the third party is the debtor’s spouse, ascendant or descendant, a blood relative or relative by marriage up to and including the third degree, or the debtor’s adopter or adoptee, it will be presumed that the third party knew the debtor’s financial situation and intent described above. However, if the relative benefiting from these dispositions proves that they did not know the debtor’s situation and circumstances, the action for annulment cannot be heard (İİK Art. 280/para. 2, last sentence).

“In the present case, considering that the authorized officer of the defendant debtor ... Group company and the defendant ... are siblings, and that it is understood that the defendant third party is among the persons who knew and ought to have known the situation of the defendant debtor, it is established that the defendants were in the wrong in the action, and whereas they should have been held jointly and severally liable for the costs of the proceedings, rendering a decision as written on the basis of an erroneous assessment is also not correct.” (Court of Cassation, 17th Civil Chamber, Docket No. 2018/3028, Decision No. 2019/11823, 11.12.2019)

Another presumption adopted by the legislator is that a person who, after acquiring all or a significant part of a commercial enterprise or of the commercial goods existing at a place of business, also actually takes over that place of business and begins to operate it is deemed to have known of the debtor’s intent to harm. This presumption can be rebutted only by proving that the matter was notified in writing to the creditor bringing the action for annulment at least three months before the date of the transfer, sale or surrender, or that it was announced in the Trade Registry Gazette in addition to visible signs being posted at the location of the commercial enterprise, or, where this is not possible, by appropriate means ensuring that all creditors are informed.

“Since it is understood that the plaintiff’s receivable is a promissory note issued on April 12, 2013 for 90,000.00 TL, that enforcement proceedings were initiated against the defendant debtor and became final, that the receivable is genuine, that the dispositions whose annulment is sought were made after the receivables subject to the proceedings, and that the action was brought in time, the preconditions of the action are met. When the facts that the defendant debtors transferred their 7 parcels, together with the hotel and its outbuildings on them, to the other defendant company through a notary, and that the share sales were made on the same day, before the same notary, with consecutive journal numbers, are assessed together, it is understood that, in addition to the intent to put assets beyond the reach of creditors, the dispositions are subject to annulment under the last paragraph of Art. 280 of the İİK, which is to be applied by analogy because all the parcels were transferred; therefore, whereas the court should have accepted the action, its dismissal on the grounds stated was not found correct.” (Court of Cassation, 17th Civil Chamber, Docket No. 2016/12327, Decision No. 2019/3706, 27.3.2019)

The court assesses ex officio and applies the grounds set out in Articles 278, 279 and 280 and, without being limited to these, other grounds beyond them. “The debtor’s dispositions subject to annulment made before its insolvency or bankruptcy are regulated under three groups in Articles 278, 279 and 280 of the İİK. However, these articles do not list exhaustively all the dispositions that can be annulled. By making a general definition for certain dispositions subject to annulment, the Law has left the determination of which dispositions are subject to annulment to the discretion of the judge (İİK Art. 281. For this statutory reason, even if the plaintiff has relied on one of Articles 278, 279 and 280 of the İİK, the court is not bound by this and may order annulment under one of the other articles (YHGK judgment dated 25.11.1987, Docket No. ..., Decision No. 1987/872). In general, it can be said that the debtor’s dispositions that can be annulled are gratuitous dispositions or dispositions made in a state of insolvency that are aimed at putting assets beyond the reach of its creditors, and dispositions made with the intent to harm its creditors.” (Court of Cassation, 17th Civil Chamber, Docket No. 2016/20021, Decision No. 2019/6290, 16.05.2019)

10. What are the consequences of an action for annulment of dispositions?

As a result of the action for annulment of dispositions, the creditor may request the attachment and sale, through compulsory enforcement, of the assets subject to the disposition. Where the assets subject to the action for annulment of dispositions have also left the third party’s hands, the third party must pay the creditor compensation in proportion to the asset in question. In other words, the third party, like the debtor, is liable for the debt with all its assets, limited to the value of the asset on the date it disposed of it.

“If the asset subject to the action is in the hands of the third party in whose favor the disposition was made, the subject of the action for annulment is the continuation of compulsory enforcement on that asset or right; if the person in whose favor the disposition was made has disposed of the asset, the subject of the action is then that the third party must be ordered to pay compensation in proportion to the value of that asset.” (Court of Cassation, 17th Civil Chamber, Docket No. 2016/15030, Decision No. 2019/3914, 01.04.2019).

In this case, without the need to open a new enforcement file, the judgment is submitted to the existing enforcement file and proceedings are carried out by attaching all the assets of the third party as if it were the principal debtor in the proceedings.

“In its application to the enforcement court, the debtor, together with its other requests, requested the annulment of the duplicate proceedings, stating that, whereas the proceedings initiated against the debtor ... in the file with Docket No. 2013/28988 of the .... Enforcement Office, which is the subject of the underlying judgment, should have been continued by sending it an enforcement order, separate proceedings had been initiated against it on the basis of the judgment annulling the disposition, in the file with Docket No. 2016/5085 of the ... 8th Enforcement Office (...) Under Art. 283/2 of the İİK mentioned above, the action for annulment of dispositions has been converted into a claim for the value, and its execution may be requested through the same enforcement file. In that case, an enforcement order must be served on the complaining debtor from the enforcement file with Docket No. 2013/28988 of the .... Enforcement Office in line with the judgment. Therefore, whereas the court should have upheld the complaint and annulled the proceedings, rendering a judgment as written is incorrect.” (Court of Cassation, 12th Civil Chamber, Docket No. 2018/4862, Decision No. 2018/14117, 25.12.2018)

11. Can other creditors of the debtor also benefit from the value of the assets whose disposition has been annulled as a result of an action for annulment of dispositions?

Another feature of the action for annulment is that it is personal, not in rem, in nature. As a result, the plaintiff creditor has the right to collect its receivable first from the value of the assets subject to annulment.

“The action for annulment under Articles 277 et seq. of the İİK is not an action in rem but a personal action, and it gives the creditor who wins the action the right to collect its receivable first from the annulled disposition. The creditor who brings an action for annulment of dispositions has priority, to the extent of the disposition it has had annulled, over the creditors who did not bring an action. Since the plaintiff creditor who had the disposition relating to the immovable subject to distribution in this ranking table, whose annulment is sought, annulled has a right of priority, whereas the decision should have been reversed, upholding it was not correct; it has been decided to set aside this Chamber’s upholding decision dated 12.02.2019, Docket No. 2016/2120, Decision No. 2019/406, and to reverse the decision on the grounds stated above.” (Court of Cassation, 23rd Civil Chamber, Docket No. 2019/1715, Decision No. 2020/733, 6.2.2020)

A decision annulling a disposition does not need to become final in order to be enforced. Before the annulment decision becomes final, it is possible to request the attachment and sale of the asset subject to the action by submitting the decision to the enforcement file. Once the sale has taken place, the money in the enforcement office’s cash desk can be withdrawn.

12. Which court has jurisdiction over an action for annulment of dispositions, what is the procedure, and can precautionary attachment be sought?

The court with subject-matter jurisdiction over an action for annulment of dispositions is the Civil Court of First Instance, which is the court of general jurisdiction. Even if the disposition to be annulled appears to arise from a commercial relationship, the action must be brought before the Civil Court of First Instance.

“It is understood that there is a commercial sale relationship between the creditor and debtor companies in the action. However, what is the subject of the action is not this sale relationship between the parties, but the transaction between the defendant company and the other defendant third party that is alleged to be simulated and whose annulment is sought. As specifically emphasized, in an action for annulment of dispositions or, as in the present case, in actions brought under Art. 19 of the Turkish Code of Obligations (TBK) with a request for the application of the İİK by analogy, the commercial sale relationship between the creditor and the debtor, or the commercial or general loan agreements giving rise to a bank receivable, cannot be taken into account in determining subject-matter jurisdiction. Since neither the action for annulment of dispositions nor the simulation action brought under TBK Art. 19 with a request for the application of Art. 283 of the İİK by analogy has the character of an absolute or relative commercial case as set out in Art. 4 of the Turkish Commercial Code (TTK), they fall within the jurisdiction of the Civil Court of First Instance, which has general jurisdiction under Art. 2 of HMK No. 6100.” (Assembly of Civil Chambers of the Court of Cassation, Docket No. 2014/17-2389, Decision No. 2016/129, 10.2.2016)

The court hears and decides actions for annulment under the simple procedure (İİK Art. 281).

The judge may, at the creditor’s request, issue a precautionary attachment order regarding the assets that are the subject of dispositions subject to annulment. Whether security is needed, and its amount, are assessed and determined by the court (İİK Art. 281). Where the court orders an interim injunction, the interim injunction will be deemed to have the nature of a precautionary attachment.

“For a request for precautionary attachment to be accepted, it is not necessary either for all the procedural requirements to be met. The purpose of actions for annulment of dispositions is to enable the creditor to collect its receivable by annulling the disposition subject to the action in proportion to the plaintiff creditor’s receivable and granting the power of compulsory enforcement. For this reason, these actions are not in rem but personal in nature, and, under the special provision in the first sentence of Art. 281/2 of the İİK, upon request, the court may issue a precautionary attachment order on the asset subject to the action. Since this is not an interim injunction but a precautionary attachment order, it is also not necessary for the asset itself that is the subject of the action to be in dispute. The precautionary attachment mechanism applicable in actions for annulment of dispositions has been introduced to enable the plaintiff to obtain its receivable, and the settled practice of the Court of Cassation also accepts that interim injunctions issued are “in the nature of precautionary attachment”. In the present case, the "precautionary attachment annotation" applied by the ... Land Registry Office is also consistent with the settled practices of the .... Civil Chamber of the Court of Cassation and of the Court of Cassation. (Court of Cassation .... Civil Chamber, 18.04.2017, Docket No. 2016/12805 – Decision No. 2017/4171 and Court of Cassation .... Civil Chamber, 17.06.2013, Docket No. 2013/7541 – Decision No. 2013/9171 ) In summary, it is clear that, since the precautionary attachment order issued by the court will become a definitive attachment upon acceptance of the action for annulment of dispositions, compulsory enforcement may continue once the plaintiff creditor submits the judgment to the enforcement file. Even where the court issues, instead of a precautionary attachment, a "precautionary attachment order in the nature of an interim injunction", it is necessary to accept that the order issued is a "precautionary attachment order".” (Court of Cassation, 20th Civil Chamber, Docket No. 2019/5737, Decision No. 2019/7603, 18.12.2019)

Where the third party has also transferred the asset to someone else, if the third party’s liability for compensation under İİK Art. 283 is to be pursued, a precautionary attachment order cannot be issued without security being provided (İİK Art. 281).

“The action concerns a request for annulment of dispositions brought under Articles 277 et seq. of the İİK. Art. 281/2 of the same Law contains the provision “ the judge may, at the creditor’s request, issue a precautionary attachment order regarding the assets that are the subject of dispositions subject to annulment. Whether security is needed, and its amount, are assessed by the court. However, where the action concerns the value replacing assets that have been disposed of, a precautionary attachment order cannot be issued without security being provided”. In the statement of claim, the plaintiff’s attorney asserted that enforcement proceedings had been initiated against one of the defendants, ..., that the debtor had no attachable assets sufficient to cover its debt, that the immovable subject to the action had been sold to the defendant third party ... in order to put assets beyond the reach of the creditor, and that the latter had in turn sold it to a person not party to the action who was in the position of a fourth party, and requested the annulment of the disposition and, since the immovable had been disposed of by the defendant third party, that the defendant third party Dürrin be held liable for the value of the immovable on the date it was disposed of, thus converting the action into a claim for the value. In this case, whereas the court should have ordered, under İİK Art. 281/2, a precautionary attachment on the movables and immovables of the defendant third party ... and on its rights and receivables held by third parties, in return for security to be deemed appropriate, for the purpose of collecting the receivable amount in the enforcement file subject to the action..” (Court of Cassation, 17th Civil Chamber, Docket No. 2017/2674, Decision No. 2018/11572, 3.12.2018)

Att. Ömer Çebi

Trainee Att. Batuhan Özata

This article is a general assessment prepared in accordance with the legislation in force on its date of publication; it does not constitute a legal opinion. This English text is a translation of the Turkish original; in case of any discrepancy, the Turkish version prevails.

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