European Union: Major Security Mechanisms Under Turkish Law And The Effect Of Bankruptcy

Last Updated: 24 November 2009
Article by Akdogan | Uslas Attorneys At Law

Few would deny that "security" is a key term in business. Whatever activity a company carries out, there is always a risk that its debtors do not or cannot fulfill their payment obligations, which may trigger an "event of default1". Events of defaults are undesirable situations, but they do happen. Thus, it is up to the creditor of any agreement to take the necessary precautions against a potential failure of its debtor in performing its payment obligations. Such precautions would certainly be in the nature of solid security provided by debtor. Although it is possible for creditors to secure their receivables by using various methods, some of the foreign-imported practical inventions (e.g., trust) rarely lead to success. Below, you may find summary information on the most widely used security mechanisms in Turkey.

  • Mortgage on Real Property (ipotek)

Mortgage is one of the most common and secure tools for a creditor to guarantee its receivables. In order to duly establish a mortgage, an official mortgage deed must be executed in accordance with the recent "Regulation on the Principles and Procedures as regards the Official Deeds to be Prepared by Title Deed Registries"2 before the title deed registry where the real property subject to mortgage is located, and such mortgage deed must be registered with the same registry.

Foreclosure of mortgages is subject to the procedure set forth under the Execution and Bankruptcy Law No. 2004 (the Bankruptcy Law).

Finally, the real property on which a mortgage is to be established does not have to be owned by debtor. In other words, one may consent to the establishment of a mortgage on his/her real property as a security not only for his/her own debt but also for a third party debt (e.g., Company A, which fully owns Company B, may grant a mortgage in favor of Bank C as a security of the debt of Company B. In this example, although the underlying contractual relationship is between Company B and Bank C, Company A enters into a separate mortgage agreement with Bank C.).

  • Pledge on Movables (tasinir rehni)

Pledge on movables is permissible under Turkish law. As a general rule, in order to validly establish a pledge on a movable property, the actual transfer of the possession (zilyetlik) (i.e., delivery) of the movable to the pledgee or to a third party such as an escrow agent is a must. On the other hand, Article 940 of the Turkish Civil Law (the Civil Law) provides that pledge may also be established on movables, which have to be registered with a registry by law (e.g., motor vehicles registered with the Traffic Registry, construction machinery registered with the relevant registries held by the Chambers of Industry), without delivery of the same.

In order to circumvent the above mentioned delivery requirement, in practice, parties to pledge agreements also enter into tripartite "collateral management agreements". The structure in collateral management agreements is as follows: Debtor (i.e., pledgor) leases the portion of land on which the movables to be pledged (e.g., raw materials in a plant, mineral ores extracted out of a mine) are located to a collateral manager acting as creditor's (i.e., pledgee's) agent. As long as the movables remain in the leased portion of land, they are deemed to be delivered to the pledgee since the collateral manager takes delivery of the movables on behalf of the creditor. It should be noted that the validity of collateral management agreements has not been tested so far before any Turkish court.

  • Pledge on Receivables (alacak rehni)

Pursuant to Turkish law, a pledge cannot be established on an agreement but on the receivables arising out of it. The pledge on receivables is governed by the same rules as the pledge on movables explained above.

  • Bank Account Pledge (banka hesap rehni)

The above rules governing the pledge on movables are also applicable to pledge over bank accounts of a debtor. Yet, in bank account pledge, apart from the bank account to be pledged, the creditor must also assure the existence/deposit of a minimum amount of money therein. Otherwise, such pledge may be useless. Needless to say that the bank holding the pledged account plays a crucial role in the management of bank account pledge agreements. In this respect, acknowledgment letters are signed by banks.

  • Share Pledge (hisse rehni)

Pledge over shares of a company is another type of pledge on movables and should be structured in accordance with the company type that the creditor is dealing with. There are two major company types used in Turkey by foreign investors. Thus, establishment of share pledge should be analyzed by considering the legal form of the debtor company (whose shares are to be pledged) in question and its share types.

  • Joint stock companies: The rules governing share pledge vary, among others, according to (i) whether or not shares are represented via share certificates (hisse senedi) or temporary share certificates (ilmuhaber); and (ii) their forms (i.e., bearer or registered form).
  • Limited liability partnerships: Although it is not possible to issue share certificates in such companies, unless otherwise provided under their articles of association, share pledge in limited liability partnerships is doable according to the general provisions stipulated under the Civil Law.
  • Commercial Enterprise Pledge (ticari isletme rehni)

The delivery requirement in pledge on movables caused the Turkish legislator to create a new security mechanism in 1971: Commercial enterprise pledge (CEP). Regulated by the Law No. 1447 on Commercial Enterprise Pledge (the CEP Law), CEP is intended to establish a security on a pledgor's movable properties and intangible rights, which are dedicated to the operation of a certain commercial enterprise owned by itself. CEP differs from pledge on movables discussed above, since there is no actual transfer of possession (i.e., delivery) of the pledged property to the pledgee.

In accordance with the CEP Law, the creditor party in CEP agreements (i.e., the pledgee) may be banks3. As for the pledgor, any physical person (gercek kisi) or legal entity (tuzel kisi) owning a commercial enterprise may be pledgor under a CEP agreement. With its Article 3, the CEP Law determines the scope of CEP. Accordingly, items including but not limited to commercial title (ticaret unvani), business name (isletme adi), and machinery, equipment, tools and motor vehicles (i) dedicated to the operation of the commercial enterprise and (ii) existing at the time of pledge shall be within the scope of CEP.

  • Assignment of Receivables (alacagin temliki)

Under Turkish law, in order to realize a valid assignment of receivables, inter alia, a written agreement must be executed between the debtor assignor and the creditor assignee. Although the assignor's debtor (i.e., the third party person/entity that is not party to the assignment of receivables agreement) must pay the debt to the assignee, its consent to such assignment is not required. Once such agreement is executed, the assignor's right to the relevant receivable is transferred to the assignee. An overwhelming majority of the Turkish scholars are of the view that even future receivables may be assigned provided that their subject matter is determinable. For instance, an agreement under which a party would assign all of its future receivables to the other party would be invalid. However, an agreement under which a party assigns the rentals of a certain real property owned by itself to the other party would be valid because in such case which specific receivables are to be assigned is determinable from the outset.

In case of an assignment of receivables, some elements relating to the original debtor-creditor relationship are not transferred to the assignee and thus persist. As such, assignment of receivables differs from transfer of agreement (sozlesmenin devri).

  • Guarantee Agreement (garanti sozlesmesi)

According to Turkish law, there is no specific legislation as regards to guarantee agreements. Therefore, guarantee agreements are subject to the general provisions of the Turkish Code of Obligations No. 818 whereby the obligation of the guarantor is characterized by its independent (bagimsiz) nature. In other words, the guarantor does not only guarantee the debtor's ability to pay but also the existence and suability of its debt. Thus, the validity of the underlying contractual relationship does not affect the enforceability of the guarantee obligation. No need to say that making sure of the guarantor's solvency is crucial when entering into a guarantee agreement.

Finally, it is worth to mention that bank letters of guarantee (banka teminat mektuplari) are pure guarantee agreements, with banks being always the guarantor party.

  • Suretyship (kefalet)

Although the suretyship appears to be similar to guarantee agreement, the security obligation of the surety (kefil) depends on the validity of the debtor's debt. This is to say that in case debtor's debt becomes invalid for any reason whatsoever; the surety is -contrary to guarantee agreement- entirely released of all its obligations. Accordingly, surety's liability is always ancillary (fer'i) in nature. A future or conditional debt may also be secured via suretyship.

  • What happens in case of bankruptcy?

Same as in most jurisdictions, a bankrupt debtor ceases to have right to dispose over its own assets. Instead, the bankruptcy administration (iflas idaresi) takes over the authority to manage all of debtor's assets, which all together constitute the bankruptcy estate (iflas masasi). The main duty of the bankruptcy administration is to liquidate the bankruptcy estate through public auctions and to distribute the sales proceeds to the debtor's creditors. The ranking among such creditors depend on the type of their receivables. What kind of receivables are to be paid first is determined by the Bankruptcy Law as follows:

1. Tax receivables as regards commodities and real property;

2. Conservation and sales costs of the pledged property, receivables arising out of maritime lien (if any), certain receivables arising out of the Civil Law;

3. Receivables secured via pledge;

4. Privileged (imtiyazli) receivables (i.e., employee receivables, custody and curatorship receivables, etc.); and

5. Unprivileged (imtiyazsiz) receivables.


1. "Event of default" is a commonly used term especially in term loan facility agreements, which includes the circumstances thorougly described under such agreements where the debtor fails in performing its payment obligations.

2. Published in the Official Gazette dated 10 November 2009 and numbered 27402.

3. There are two other types of pledgee stipulated under the CEP Law, but in practice only banks resort to CEP as security for loans that they extend to their clients.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions