Each individual has the freedom to dispose of the property in his/her possession. This freedom of disposition may be subject to restrictions for certain reasons arising from the law of execution and bankruptcy. In practice, ill-intentioned debtors who face restrictions on their freedom of disposition may transfer their assets through dubious transactions in order to avoid the seizure of their assets or the distribution of their assets through bankruptcy. The action for annulment of dispositions regulated under Article 277 and following of the Bankruptcy and Execution Law is a type of lawsuit filed for the annulment of legal transactions made by the debtor with third parties in order to evade the creditor. With this lawsuit, the creditor, who cannot collect his receivables from the debtor, has the opportunity to cancel the malicious transfers made by the debtor. While the creditor who cannot collect his/her receivables in the case of cancellation of disposition and who has obtained a certificate of insolvency against the debtor has the title of plaintiff, the debtor who transferred his/her goods to third parties by evading the creditor is the defendant. The third party who holds the property subject to the lawsuit and has realized the transfer transaction with the debtor is the third party defendant in the lawsuit. The action for annulment of the disposition is subject to a 5-year prescription period starting from the date of the transaction subject to the lawsuit.

Conditions of the Action for Cancellation of Disposition

• There must be a real debt relationship between the creditor and the debtor.
• There must be a finalized enforcement proceeding.
• The legal transaction that will be subject to the action for annulment of the disposition must be made after the date on which the debt in question arose.
• The creditor must have a provisional or definitive certificate of insolvency against the debtor. The certificate of insolvency may be submitted to the court by the creditor at any stage of the case. However, if a provisional certificate of insolvency is submitted at the beginning of the case, it is obligatory to submit a final certificate of insolvency at later stages.

Competent and Authorized Court

The competent court for the annulment of savings is the civil courts of first instance.

There is no provision regarding the competent court in Article 277 and its continuation of the Execution and Bankruptcy Law. For this reason, the general provisions of the CCP shall be applied. According to the provision, the court of residence of one of the defendants has jurisdiction. If there is more than one person as a defendant, this lawsuit can also be filed in the residential court of one of them. 

Cancellation of Unrequited Disposals

According to Article 278 of the EBL, “Except for customary gifts, all donations and gratuitous dispositions made within the period from the date of sequestration or insolvency due to lack of property to be seized or the opening of bankruptcy until the date on which the oldest of the receivables that were the reason for the sequestration or the issuance of the certificate of insolvency or the receivables admitted to the table were established are void. However, this period shall not exceed two years prior to the attachment or insolvency or bankruptcy.”

In order to protect creditors from debtors who intend to evade property, the Law has subjected all gratuitous dispositions and donations, with the exception of customary gifts, to annulment.

According to the aforementioned article, the dispositions that have the effect of donation are as follows:

• Fiduciary dispositions made between husband and wife, parents and children, relatives by marriage up to the third degree (including this degree), adopters and adoptees,
• Contracts in which the debtor accepts a price that is too low in relation to the value of what he has given at the time of the contract
• Contracts where the debtor establishes a right of usufruct and usufruct for himself or for the benefit of a third party on condition of life and contracts of maintenance until death,

Cancellation of Disposals Made in Insolvency

According to Article 279 of the EBL, “The following disposals are also null and void if they are made by a debtor who has failed to pay his debt within one year prior to foreclosure or insolvency due to lack of assets or the opening of bankruptcy:

1. Pledges made by the debtor to secure an existing debt, except where the debtor has previously undertaken to pledge collateral
2. Payments made in a form other than money or usual means of payment
3. Payments for outstanding debt
4. Annotations given to the title deed to strengthen personal rights.

If the beneficiary of these disposals proves that he did not know the debtor's status and condition, the annulment action shall not be heard.”

Cancellation of Disposition due to the Debtor's Intention to Harm the Creditor

According to Article 280 of the EBL, “All transactions made by a debtor whose assets are insufficient for his debts, with the intention to harm his creditors, may be annulled in cases where the financial situation of the debtor and the intention to harm are known or known to the other party to the transaction. Provided, however, that an attachment or bankruptcy proceeding must have been initiated against the debtor within five years from the date of the transaction.”

According to the provision of the Article, the third party to whom the goods are transferred must know or be in a position to know that the debtor is acting to the detriment of the creditor. Otherwise, the disposition cannot be canceled. It is assumed that the debtor's close relatives and some of his circle are not in good faith. Accordingly, “If the third party is the debtor's husband or wife, his/her progeny or children, his/her relatives by blood or marriage up to the third degree (including this degree), his/her adoptive or adopted children, it shall be presumed that he/she knows the situation of the debtor stated in the first paragraph. The third party may prove the contrary only according to the last paragraph of Article 279.”

And again, it is presumed that the person who transfers or purchases the whole or a substantial part of the debtor's commercial enterprise knows that the debtor intends to harm its creditors. However, the third party has the right to prove that he did not know this.