Turkey: Collateral Assignments In Respect Of Credit Agreements: Belt Or Suspender For Foreign Companies In Turkey?

Last Updated: 30 October 2014
Article by Safak Herdem

Turkey has been one of the fastest growing economies during the course of the last decade. Its strong and resilient economy has transformed Turkey in to one of the most important economic hubs in its region. The banking sector has a crucial role to play in this story of success. The ongoing tendency for more regulation vis-a-vis the banking sector in Turkey will likely to create an atmosphere in which the banks will impose more stringent rules on various different parts as they still have concerns on collateral assignments and related rights in Turkish legislation. In addition, many international corporations operating in Turkey to pledges their receivables from Turkish entities to the banks for their global credit lines require to know more how to secure the assignments in Turkey. In this article you will find more about the collateral assignments.

The assignment of receivables and related rights are defined under the Turkish Code of Obligations. Accordingly, the receivables and the related rights are assignable to a third party without the consent of the debtor which is contrary to the general belief and unless restricted by particular laws, agreements and the nature of the business allows.

The non-eligible receivables are counted are limited to those subject to prohibition or restriction by Turkish Law such as privileged rights.

Turkish law allows the existing receivables to pass over to the assignee and also any future receivables on the date such future receivables arise. Together with the receivables all security interest and other rights pertaining thereto are transferred to the assignee as the nature and result of the assignment. Therefore the law strictly requires making assignment agreements in written form. In cases where the debtor is not notified the assignment, either by the assignee or the assignor it rids of the debt upon payment to the last known creditor in good faith.

In the event that the assignor and the debtors open a current account, the assignor is also allowed to transfer and assign to the assignee with a power of attorney to exercise on behalf of the assignor, its rights and claims to terminate such account(s), to determine and confirm the balance of such account(s) including those rights and claims which result from the balance that was determined or confirmed or will be determined or confirmed in the future. Even there are some discussions about the non-assignability of the future rights this is solved in practice thru providing the accurate and complete records of assignor's receivables and all payments and collections thereon to be provided the assignee with an up-dated a list of all receivables.

If the assignor employs a third party or delegates any of its one of the entities, affiliate, sister company, subsidiary for its bookkeeping and/or data-processing, the Turkish law also allows assignor to authorize the assignee to obtain the list of receivables that eases the management of the relationship between headquarters and Turkey based entities of foreign companies.

In the event of payment by the debtor(s) of receivables by cheques, title of ownership to the cheques shall be transferred to the assignee upon acquisition of possession by the assignor pursuant to the article 190 of the Turkish Code of Obligations and delivery of cheques and bills of exchange shall be replaced by the assignor safekeeping them for the benefit of the assignee or, in the event that the assignor does not acquire possession, by the assignor transferring and assigning in advance to the assignee who hereby accepts such assignment, any rights and claims to request delivery of the documents from third parties. Pursuant to the article 190 of the Code of Obligations, to the extent the assignee is entitled to collect the receivables, it may request that all documents relating to the receivables be handed over to it.

It seems the collateral assignments are well regulated in Turkish law however there are still complications in execution of such agreements arising out of the assigning parties positioning especially in transactions where intermediary companies are involved. Since the issuance of the invoices are not only for payment purposes in transactions where the intermediary exporters are involved, the circulation of invoices many times poses a risk on banks to define the real right owner of the receivable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Safak Herdem
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