Debt collection in Turkey

Turkey’s economy is bad: bond and lira collapse. Within a year, the currency suffered a decline of over 25%, entering a phase of hyper-inflation. In this context, delays in payments are not surprising.

Turkey is a very interesting economy: in 2017 the GDP grew by 7% compared to 2016 and, by the end of 2018, it is expected to increase by 5.5%.

This figure marked a significant change of direction after a phase of economic slowdown in the period 2015-2016, due to the numerous attacks that hit the country and the failed coup d’état of 15 July 2016.

But despite positive forecasts on the economy, the latest available data are negative; In fact, within a year the currency has suffered a decline of over 25%, entering a phase of hyper-inflation. Also the unemployment rate was negative, registering 10.4%.

Another factor that negatively affects the performance of the economy is Erdoğan’s  policy. The Turkey of Recep Tayyp Erdoğan –  which after the June elections has gained a power that some consider almost absolute –  returns to face the abyss of a financial crisis.

While the rumors of an intervention by the International Monetary Fund and restrictions on capital movements are among the investors, the Country is experiencing a financial instability that risks becoming a real spiral.

Therefore, with an inflation rate of over 15% at the 15-year highs, the first move to calm foreign investors on the run would be an increase in interest rates, to which Erdoğan has firmly opposed.

However, the main Turkey’s partners are: China, Germany, Russia, United States, Italy, France, Korea and United Kingdom. 

Instead the most imported products are:

  • Mineral fuels including oil: US $37.2 billion
  • Machinery: $27.2 billion
  • Electronic equipment : $21.2 billion
  • Gems, preciuous metals: $17.4 billion
  • Vehicles: $ 17.4 billion
  • Iron and steel: $ 16.8 billion
  • Plastics: $ 13.3 billion
  • Organic Chemicals: $ 5.4 billion
  • Medical &Technical equipment: $5 billion
  • Pharmaceuticals: $ 4.4 billion.

The issue of Debt collection is also very delicate because – in addition to hyperinflation and high unemployment – Turkey’s credibility is put at risk by tensions with the European Union and even more so with the United States.

As a result, the deterioration in the geopolitical environment had a negative impact on exports and foreign investments. The late payment of invoices by companies slowed significantly, which led to an 80% increase in bankruptcies of new companies in the first three years of activity.

In a such economic-political context, how to move in case of Insolvency?What actions should foreign companies follow to recover their credits?

In Turkey, companies have an obligation to dispute invoices or commercial correspondence within 8 days of notification. In default, it is assumed that the recipient has accepted the contents of the invoice.

The same principle applies to letters confirming commercial negotiations by telephone or e-mail. Although in the last few years some fundamental changes have been made in relation to the Turkish judicial system, it will still take some time to make the legal system more effective.

Simultaneously with these changes, various agreements have been made to resolve disputes through conciliation and arbitration, in addition to Ordinary Courts.

Invenium, in the last two years has managed Debt collection practices towards Turkey for supplies of plants (oil & gas), aluminum, tiles and household products for over 6 million euro.

Only in exceptional cases, and only after obtaining a debt recognition, it was necessary to issue the injunctive order following which the debtor paid with a repayment plan.

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