Security And Collateral in Turkey
Types of Collateral
Under Turkish law, security interests on a variety of assets can be granted as collateral for a inancing. It is possible to establish mortgages on immovable assets, pledges on (public listed and privately held) shares, on bank accounts, on receivables, on intellectual property and on movable assets, and to assign rights and receivables under contracts and insurances. Certain establishment and perfection requirements, notarisation and notiication requirements apply depending on the type of the collateral.
The Law regarding Pledges on Movable Property for Commercial Transactions, abolishing the Commercial Enterprise Pledge Law has entered into force on 1 January 2017. The said law has introduced certain novelties for establishing pledges on movable property, especially in relation to the parties, scope and registry of the pledge, the competent authority to register the pledge records and the rights of the pledgor and the pledgee, bringing a whole new system to pledges on movable property.
Enforcement
The enforcement of security shall be subject to procedures of the Enforcement and Bankruptcy Law. The general principle under Turkish law (i.e. lex commissoria principle) prohibits a secured party to take over the ownership of the secured assets. It also restricts the security provider to contractually provide an undertaking to transfer the ownership of the secured assets to the secured party in an event of default. However, such restrictions shall not apply after the occurrence of an event of default. Accordingly, upon agreement between the security provider and secured party, the security provider may transfer the ownership of the secured assets for the purposes settling the outstanding debt.
However, private sale of a secured asset without applying the procedures set out in the Enforcement and Bankruptcy Law is not possible. As a general rule, the creditors are obliged to primarily foreclose the secured asset. Following the foreclosure of asset, creditors may apply for the execution procedures for the unsatisied amount of the claims, the foreclosure of property may be followed by other execution procedures (based on court judgment or ordinary). There are certain exceptions to this rule where private sale would be possible (e.g. pledge on publicly listed shares). There are also other exceptions in the relevant legislation to the lex commissoria principle (e.g. the Law regarding Pledges on Movable Property for Commercial Transactions).