Collecting Claims of Insolvency Creditors Arising from Financial Leasing Agreements

A financial leasing agreement is a contract between a financial leasing company and lessee and is essentially a type of financing method. Under this contract, the ownership of the property leased remains with the leasing company and its use is left to the lessee in return for a certain rental fee. Additionally, the ownership of the leased property is transferred to the lessee at the end of the specified contract period[1]. The financial leasing company will have to collect the debt arising from the contract from the insolvency assets in the event of the lessee becoming insolvent before the end of the contract period. In practice, the claims arising from the financial leasing contract are frequently contested by the insolvency administrators due to these types of claims requiring court proceedings. Therefore, an action for the determination of the claim is filed by the creditors. The claims arising from the financial leasing contract and the termination of these contracts will be examined in this article, alongside the case for the determination of a claim.

2. FINANCIAL LEASING CONTRACT

According to Article 18 of the Law on Financial Leasing, Factoring, Financing and Savings Financing Companies No. 6361, a financial leasing contract is “a contract that the lessor provides to leave the use of the leased property that upon the request and choice of the lessee has been purchased or otherwise acquired by the lessor from a third party or the lessee, to provide all kinds of benefits.”  According to Article 19 of the same code, it is possible for the subject of the contract to be movable or immovable property. However, intellectual and industrial rights such as patents cannot be subject to this agreement, except for the reproduced copies of computer software. The validity of the financial leasing agreement is dependent on the form and method of conclusion of the contract being compatible with the ways determined by the Association of Financial Institutions. Moreover, the financial leasing agreement is registered and annotated in the land registry for immovable and private registers for movables and notified to the Association of Financial Institutions.

Law No. 6361 also regulates the insolvency or enforcement proceedings the lessor or the lessee may face during the financial leasing contract. Pursuant to Articles 28 and 29 of the code, if the lessee becomes insolvent, the insolvency administrator will leave the property subject to financial leasing out of the insolvency assets. Similarly if the lessee is subject to enforcement proceedings, the property subject to financial leasing will be excluded from the execution proceedings. However, the creditors may object to these decisions of the insolvency administrator or bailiff. If the lessor goes insolvent, the contract is valid against the insolvency creditors for the period specified in the contract. Therefore, the property that has been financially leased is excluded from the insolvency assets.  Furthermore, if the lessor is subject to enforcement proceedings, it will not be possible to seize and issue restraints on the property subject to financial leasing before the end of the contract. Thus, Law No. 6361 provides the lessee that is party to the financial leasing agreement protection against insolvency creditors and enforcement proceedings.

3. TERMINATION OF CONTRACT AND LEGAL PROCEDURE

In practice, provisions are added to financial leasing contracts stating that the lessee will be legally notified and the contract will be terminated if the rental fees are not duly paid. The purpose of these provisions is to ensure that the lessor can retain the expected benefit from the financial leasing agreement. In this case, the leased property is taken from the lessee and delivered to the lessor. The lessor can file a case on the withdrawal of the property to ensure this situation as at this stage, the financial leasing agreement has not yet ended and the property has not passed to the lessee. If there is no possibility of returning the leased property exactly, the price of the leased property must be paid to the lessor. This price is the value to be determined according to the provisions of the contract on the date of the return obligation. The 11th Civil Chamber of the Court of Cassation explained the matter as, "However, due to the sale of the ship to a third party, it is not possible to return it exactly. Accordingly, the plaintiff can only claim the cost of the ship. However, the price to be paid to the plaintiff is not the value of the ship on the invoice date, but the value that will be determined on the date of the return obligation and in accordance with the 3rd paragraph of Article 30 of the contract.”[2]  It is also possible for the plaintiff to ensure that the property subject to the contract is secured by requesting interim relief from the court in accordance with Articles 389 et al. of the Code of Civil Procedure (HMK) during or before the lawsuit.

In the event of the defendant debtor becoming insolvent during the case on withdrawal of property, the outcome of the judicial process will be determined according to whether the said claim is contested by the insolvency administration or not. If the claim in question has been notified by the insolvency creditor and accepted by the insolvency administration, the case on withdrawal will seize to exist. However, if the claim is contested by the insolvency administration, the ongoing case on withdrawal will continue as a case for the registration and acceptance of the claim. In a relevant decision of the 19th Civil Chamber of the Court of Cassation, the court stated “The case on withdrawal shall seize to exist if the claim is notified to the insolvency administration and is accepted by the end of the second verification meeting. However, if the claim arising from the case on withdrawal is contested at the second verification meeting, the case shall be directed to the insolvency administration continued as a case on registration and acceptance of claims. Conclusively, the claims determined as of the date of insolvency shall be registered and accepted by the insolvency administration.”[3] In practice, it is seen that claims arising from financial leasing contracts are contested by insolvency administrations because they require court proceedings. Accordingly, the creditor will face a process where the case on withdrawal is continued as a case on registration and acceptance of claims in order to determine the value of the claim at the date of insolvency by an expert and register it with the insolvency administration.

4. ASSESMENT OF CLAIMS

The court determines the amount of the claim arising from the financial leasing contract and decides for the amount to be registered with the insolvency administration at the end of the case for the registration and acceptance of claims. The collection of the claim is not ruled in the judgment given as a result of this lawsuit. Pursuant to Articles 195 and 196 of the Code on Enforcement and Insolvency (İİK), the amount of the claim at the beginning of insolvency is calculated. Accordingly, the interest accrued on the claim until the date of insolvency, the proceeding costs and the initial claim is added together to calculate the amount to be registered with the insolvency administration. The 23rd Civil Chamber of the Court of Cassation stated that “According to Article 195 of the İ.İ.K., the claims to be registered with the insolvency administration shall be calculated and determined as of the date of insolvency. All claims, except ones secured by mortgage, become due with the beginning of insolvency. Hence, the interests accrued and proceeding costs until the date of insolvency shall be added to the initial claim and registered with the insolvency administration.”[4] Interest continues to accrue after the relevant claim is determined and registered. However, in accordance with Article 196 of the İİK, it is possible to apply commercial interest only on claims that are secured by nonpossessory lien. Non-commercial interest rates are applied to claims that are not secured by nonpossessory lien, such as receivables arising from financial leasing agreements. Some legal scholars share the standpoint that the word "nonpossessory lien" in İİK article 196 should be perceived as "collateral security" in accordance with the principle of applying the law with its word and essence, and that financial leasing is a newly created type of collateral security to meet today's needs. The scholars who support this view state that the claims arising from the financial leasing contract should also be charged with commercial interest after insolvency[5]. In any case, the interest that will accrue after the claim is registered with the insolvency administration can only be paid if there is still a balance on the table after all the initial claims have been satisfied. In its decision referred to at the beginning of the paragraph the 23rd Civil Chamber of the Court of Cassation followed with the statements “Even if interest continues to accrue on the initial claim, this will be paid separately only if the liquidation balance remains. In cases on registration and acceptance of claims, it is sufficient to decide on the registration of the claim with the insolvency administration, not the collection. The payment of the claim only takes place at the stage of the distribution of insolvency assets, and it can only be understood at this stage whether the claims will be paid in full or not”. In another decision, the 19th Civil Chamber of the Court of Cassation stated on the matter that “(…) even if legal interest continues to accrue after insolvency, the interest claim after insolvency cannot be requested to be registered with the insolvency administration.”[6]

5. CONCLUSION

Financial leasing contracts are increasing in importance and relevance every day.  Law No. 6361 provides the parties of the financial leasing contract with certain protections in terms of enforcement and insolvency law. The lessor will be able to file a case on withdrawal of property in the event of the financial leasing contract being terminated with just cause. Additionally, the lessor will resort to a case on registration and acceptance of claims, should the lessee become insolvent. The case on withdrawal of property will be continued as a case on registration and acceptance of claims if these two periods overlap. The court will decide to register the claim with the insolvency administration by adding the interest determined in the contract and the proceeding costs incurred until the insolvency date to the initial claim. The interest rate in non-commercial business will be applied to the claim arising from the financial leasing contract after the date of insolvency according to İİK article 196. In any case, this amount of interest accrued after insolvency will not be registered with the insolvency administration will be paid paid to the creditor only if there is a balance after all registered claims are paid.

BIBLIOGRAPHY

(1)https://www.qnbfl.com/leasingnedir/#:~:text=Leasing%20(finansal%20kiralama)%2C%20bir,ge%C3%A7mesini%20sa%C4%9Flayan%20bir%20finansman%20y%C3%B6ntemidir. (Accessed on 12.04.2022)

(2) 11th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2000/3720 Decision No: 2000/6885 Date: 21.09.2000

(3) 19th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2016/4573 Decision No: 2017/2796 Date: 05.04.2017

(4) 23rd CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2013/2912 Decision No: 2013/3772 Date: 04.06.2013

(5) OĞUZMAN/SELİÇİ/OKTAY-ÖZDEMİR, Eşya Hukuku, İstanbul, 2017, s. 1026

(6) 19th CIVIL CHAMBER OF THE COURT OF CASSATION Docket No: 2001/9061 Decision No: 2002/2976 Date:18.04.2002