A controversial Turkish precedent on the jurisdiction of arbitrators over claims initiated through bankruptcy proceedings – Insolvency / Bankruptcy

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The decision provides that, notwithstanding a valid arbitration agreement, the Turkish courts, and not the arbitrators, will have jurisdiction to determine whether an alleged debtor, against whom bankruptcy proceedings have been opened, is indebted or not. This practically means that when creditors initiate bankruptcy proceedings, they can circumvent the jurisdiction of the arbitral tribunal and help the Turkish courts to hear the merits of the dispute despite the parties having agreed to arbitrate and therefore not to litigate.

This article first summarizes Turkish enforcement and bankruptcy proceedings, and their interaction with the jurisdiction of arbitral tribunals. It then develops the reasoning of the decision and its potential practical impacts on the practice of arbitration in Turkey.

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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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