WHAT SHOULD BE CONSIDERED IN DISPUTES DUE TO THE COLLECTION OF FOREIGN CURRENCY RECEIVABLES UNDER TURKISH LAW? 14 May 2020

In today's commercial life, which has gained a global dimension with each passing day, especially in international contracts, it is often seen that money debts are determined in a currency other than the national currency. On the other hand, in the collection of foreign currency debt that cannot be collected on maturity date, it is important to determine the matters in which the performance of the debt can be requested, the exchange rate to be applied and the interest rate to be requested.

Article 99 of the Turkish Code of Obligations (“TCO”) firstly brought a bilateral distinction in terms of collection of the foreign currency receivables. Accordingly, if the contract between the parties is decided to be paid in kind or in a similar manner, the payment of the debt determined in foreign currency cannot possible to be claimed in Turkish Lira.

If it is not stated in the agreement that the debt can only be paid in foreign currency, TCO has granted to the creditor and the debtor some elective rights depending on whether the debt is paid in due time. Accordingly, if the debt is to be paid on due date, the debtor can pay his debt in foreign currency, as well as in Turkish Liras at the exchange rate of the money at the due date. As can be seen here, the currency to be used in the payment of foreign currency debt is selected by the debtor.

In the event that the foreign currency debt is not paid even after the due date and provided that the agreement does not contain a provision regarding the debt to be only paid in foreign currency, the right to determine the currency and the exchange rate to which the debt will be paid is transferred to the creditor. Accordingly, the creditor may request that the debt  to be paid in foreign currency or in Turkish Liras. In the conversion of the receivable to Turkish Lira, the right to make a request at the exchange rate on the maturity date or actual payment date also belongs to the creditor.

IS IT POSSIBLE TO COLLECT THE FOREIGN CURRENCY RECEIVABLE THROUGH EXECUTION PROCEEDINGS?

The right of the creditor to claim the foreign currency in kind or in Turkish Lira also applies in cases where the collection of the receivable is requested by lawsuit. The creditor can either open the case of the receivable regarding the contractual receivable in Turkish Lira or request the collection of the receivable in foreign currency. However, it is necessary to make a distinction regarding the cases of annulment of the objection to be filed in cases where the receivable is primarily subject to enforcement proceedings. Because, in accordance with the regulation in the Article 58 of the Execution and Bankruptcy Law (“EBL”), the amount of the debt in Turkish Lira and the currency of the date on which the foreign currency receivable is requested must be stated in the enforcement request. Accordingly, the subject of the lawsuit to be filed with the cancellation of the objection to the execution proceedings will be the receivable subject to the execution proceedings. Therefore, if the execution proceeding initiated as a foreign currency or converted into Turkish Lira are subject to an objection, it is not possible to issue a monetary amount other than the currency mentioned in the execution proceedings in the cancellation of the objection case. In other words, if the execution of foreign currency is subject to the execution proceedings by converting it to Turkish Lira, it is no longer possible to open the case of cancellation of the objection through the foreign currency.

WHAT ARE THE MATTERS TO BE CONSIDERED BY THE COLLECTION OF THE FOREIGN CURRENCY RECEIVABLES?

As explained above, unless otherwise agreed on the contract concluded between the parties, the creditor has the right to demand the unpaid money debt to be paid in foreign currency or in Turkish Lira. The creditor can use such right before applying for litigation or enforcement proceedings as well as through a initiation of a case for the payment of the receivable in foreign currency of Turkish Lira. In this case, the creditor is also obliged to indicate in his petition the request for the collection of the foreign currency receivable at the exchange rate at maturity or actual payment date.

The point to be noted here is that the creditor has an obligation to choose between the maturity date and the exchange rate at the actual payment date in accordance with Article 99 of the TCC. The creditor has no authority to choose another rate, which may be more favorable for him, other than those two dates. Undoubtedly, the issues such as the current economic situation, the length of the enforcement and litigation periods and the value of the Turkish Lira against foreign currency should be carefully examined in the selection of the payment of the receivable in foreign currency or Turkish Lira, and the exchange rate at the maturity or actual payment date.

WHAT ARE THE INTEREST RATES THAT WILL BE APPLIED IN THE COLLECTION OF THE FOREIGN CURRENCY RECEIVABLES?

In accordance with the Article 4/a of the Law No. 3095 on Legal Interest and Default Interest (“Law No. 3095”), in cases where no higher contractual or delay interest is determined in the contract, the interest rate of the foreign currency debt is a one year term deposit opened with that foreign currency. It is regulated that the highest interest rate paid to its account will be based on.

In this context, in accordance with Article 99 of the TCC, in cases where the creditor requests the conversion of the foreign currency receivable to the Turkish Lira over the exchange rate at the actual payment date, the receivable subject to the request will be considered as foreign currency receivable until the date of collection. Therefore, until the date of payment, interest will be processed according to the highest interest rate paid by the state banks to the one-year deposit account opened in that currency. In cases where foreign currency receivables are demanded by converting them into Turkish Liras at the exchange rate on maturity date, according to the Article 2 of the Law No. 3095, the default interest will be operated according to the Turkish Lira.

As a result, under Turkish law, certain options have been granted to the creditor regarding the collection of foreign currency receivables. The exercise of these rights has a quality that will significantly affect the value of the receivable within the framework of changing economic conditions. For this reason, it is important to make planning by evaluating the amount of the receivable, contractual arrangements and the value of the Turkish Lira against the relevant foreign currency before applying legal remedies for the collection of foreign currency receivables.