What is a Fraudulent Conveyance Action?
A fraudulent conveyance action is a type of lawsuit filed by a creditor who is unable to collect a debt from the debtor through enforcement proceedings against the debtor and any third party who acquired the property, seeking to invalidate any conveyances made by the debtor within the last five years with the intent to conceal assets.
The action for avoidance of transactions is regulated in Articles 277 et seq. of the Enforcement and Bankruptcy Code (EBC).
Who are the Parties in Actions for Avoidance of Transactions?
Article 277 of the EBC regulates “who can file” the cancellation lawsuit, while Article 282 regulates “against whom” it can be filed. There are at least three parties in a transaction cancellation lawsuit: the creditor who cannot collect their claim through enforcement proceedings and who has obtained a certificate of insolvency against the debtor is the plaintiff. The debtor who transferred their assets with the intent to conceal them from the creditor is the defendant. The third party who holds the asset subject to the action for avoidance of the transaction and who transferred the asset to the defendant debtor is the third-party defendant/defendant in the case.
Conditions for a Transfer Cancellation Lawsuit
a) For a transfer cancellation lawsuit to be filed, there must first be a genuine debt relationship between the creditor and the debtor. Since the transfer cancellation lawsuit will be filed against the debtor and the third party who acquired the property from the debtor, the legal security of the third party is thus protected. If the debt relationship arising between the plaintiff creditor and the defendant debtor is not based on a genuine legal relationship, an action for cancellation of the transaction cannot be brought.
In order to determine whether the transfer in question relates to a genuine debt payment, the defendant debtor and the non-party … All tender documents dated February 16, 2009, between the defendant debtor and the Training Home (contract, entitlement reports, payment documents, whether the tender work in question could be performed by a subcontractor, etc.) shall be requested from the relevant administration, and the commercial records of the defendant debtor O., the defendant S., and the company outside the lawsuit that the defendant S. stated he managed shall be examined by a financial advisor or accounting expert expert, and a report shall be obtained. (after requesting commercial registry records to determine defendant S.‘s connection to the aforementioned company) must be examined by a certified public accountant or accounting expert, and a report must be obtained…’’ (17th Civil Chamber, 11.03.2013, 14091/3212).
b) There must be a final or provisional certificate of insolvency regarding the debtor; a certificate of insolvency must be obtained regarding the debtor of the claim subject to enforcement proceedings. However, a certificate of insolvency is not required at the stage of filing the lawsuit. The certificate of insolvency is one of the conditions of the lawsuit that can be substituted later. The creditor, i.e., the plaintiff in the action for cancellation of the disposition, may submit the certificate of insolvency to the court at any stage of the proceedings, including the appeal process. The plaintiff who submits a provisional certificate of insolvency at the beginning of the case must later submit a final certificate of insolvency to the file. A seizure record showing that the debtor has no seizable property also serves as a certificate of insolvency.
No final or provisional certificate of insolvency has been submitted to the file. In this case, since the final or provisional certificate of insolvency, which is a condition for the lawsuit, was not submitted, the court should have decided to dismiss the case. However, it was not considered correct to decide to accept the case as a result of incomplete examination and investigation (Y17. H.D. Case No: 2012/2516 Decision No: 2013/224 K.).
c) The enforcement proceedings initiated against the debtor must be finalized; if the person against whom enforcement proceedings have been initiated objects to the enforcement proceedings or if the notification has not been made to him/her in accordance with the procedure, it cannot be said that the enforcement proceedings have been finalized, and therefore, it is not possible to file a lawsuit for the cancellation of the disposition against the debtor based on the said enforcement proceedings.
d) For a claim for cancellation of a transaction based on Articles 277 et seq. of the Enforcement and Bankruptcy Law to be filed, the transaction sought to be canceled must have been made after the date on which the debt subject to enforcement proceedings arose.
For actions for cancellation of disposition to be heard, it is a prerequisite that the debt arose before the disposition sought to be canceled, and this must be investigated ex officio by the court. If the prerequisite for the action is not met, no ruling can be made on the merits of the case. In the present case, the debt subject to the action for the defendant debtor Rüstem, as similarly accepted in the Supreme Court of Appeals General Assembly of Civil Law’s ruling dated 13/10/2010, with case number 2010/17-398 and decision number 2010/497, arose from a loan agreement signed with a bank not involved in the lawsuit, and it is possible to file a cancellation lawsuit for the debtor’s dispositions after this date. (HGK -K.2015/1759)
