Beyond any doubt, England is the trendsetter in the finance sector, ranging from Islamic finance to conventional finance. The mechanisms developed by England have been tested many times in various types of projects, deals and countries, serving to strengthen such mechanisms. As a result, the finance providers prefer English law, and most countries use English law documents as the basis to establish their own systems. In these circumstances, certain obstacles may arise in legal infrastructure and practice while implementing the mechanisms that belong to the Anglo Saxon legal system, such as England, to a civil law legal system, such as Turkey1. For instance, the notion of Trust2 under English law has not been recognised by civil law countries, such as Turkey. Alternative solutions have been adopted in this respect. In this newsletter article, among other alternatives, the parallel debt method, as well as its legal nature, will be set out, in a nutshell.

Reason to Establish Parallel Debt

A loan that is provided by more than one institution3 is called a syndicated loan. Due to the fact that of finance providers' reluctance to deal with the procedures of security, separately, their desire to manage the securities through one single person, to eliminate the requirements to change each security upon any change4 in the finance provider, the borrower and the sponsors grant such security interest to a Trust instead of granting those to each finance provider, separately. As per the notion of Trust under English laws, property rights are divided in two, those being the legal property right and the economic property right. Under Turkish law, property rights may not be divided and, as well, the institution of Trust has not been recognised.

There are two kinds of collateral under Turkish law: (i) accessory collateral and, (ii) non-accessory collateral. Accessory collateral, in contrast to non-accessory collateral, is a dependent form of security interest, where the validity of the accessory collateral depends on the validity or existence of an underlying debt5. Pledges over shares, bank accounts or movables, and mortgages or sureties, are types of accessory collaterals recognized under Turkish law and are required to be granted in favour of the lenders6. In this context, as a matter of Turkish law, it is not possible to grant accessory collaterals in favour of a Trust instead of for finance providers.

Parallel Debt

In order to implement the financing in the Anglo-Saxon system, all security interests are convened in a pool and granted as security to an institution selected as the security agent for its central management7. In the civil law system, as a solution for the aforementioned obstacles, among other methods8, the parallel debt method is used.

Parallel debt is a right to claim is in addition to, but independent from, the actual loan, and is under the facility agreement, which is represented by the borrower that is owed in the amount equal to the sum of the underlying loan to the security agent. Since the amount of the parallel debt is linked to the underlying loan, in order to eliminate double payment, the amount of the parallel debt would be increased by repayment of the underlying loan or, to the contrary, would be decreased by the same amount9.

Legal Nature

Scholars are at odds with respect to the legal nature of the parallel debt under the doctrine. As per the dominant scholarly view, which is becoming more recognised under Turkish law, the parallel debt is an abstract acknowledgement of debt10. According to Article 18 (Abstract Acknowledgement of Debt) of the Code of Obligations, even if an acknowledgement of a debt does not refer to a cause, such debt would be valid. As such, acknowledgment of a debt to the security agent without establishing any grounds would not render such debt acknowledgment void, but it would make the debt abstract11.

The abstractness of a parallel debt acknowledgement is subject to certain criticisms, and some assert that such a debt acknowledgement is not abstract. Linking the amount of the parallel debt to the underlying loan amount and enabling the allegation of the objections and defences arising from the underlying debt to the parallel debt remove the abstract nature of the parallel debt acknowledgement. However, to establish a bond only in terms of loan amounts, instead of their validity, would not prejudice the abstract nature of the debt acknowledgement. Moreover, there is no provision under the legislation that prevents the parties from contractually agreeing to give voice to objections and defences arising from the underlying debt to the parallel debt. Thus, the parties may thusly agree on this issue based on the freedom of contract principle12.

As stated above, the abstract nature of a debt means that the reasons of a debt acknowledgement are not stated. On the other hand, in order to avoid a defence of unjust enrichment, an underlying reason for the parallel debt should be alleged. The underlying reason of the parallel debt is to have the ability to establish the accessory collaterals in favour of the security agent. Although the parallel debt method has been criticised13 in many aspects, it has not yet been tested before the Turkish courts.


Under English law, by means of the Trust system, lenders can manage security interest through one single party, meanwhile not engaging in any procedural details, and are not required to reflect any change in the consortium concerning the securities. However, as Turkish law does not recognise the notion of Trust and, thus, the accessory collaterals are ineligible to be granted to a Trust on behalf of the lenders. In order to avoid this, and to provide a solution to make the financing structure work, the notion of parallel debt has been developed. Parallel debt is a right to claim, which is undertaken to be paid to the security agent in the amount equal to the sum of the underlying loan, and which is separate and independent from the underlying loan. Although there are many contradictory scholarly views, the dominant scholarly view claims that a parallel debt is an abstract acknowledgement of a debt.


[1] Aksoy, Hüseyin Can: Securing Syndicated Loans with Accessory Collateral, Onikilevha, İstanbul, March, 2019 (Refer: Aksoy), p. 3.

[2] The details of the notion of Trust under English law: Ersanlı, Ekin; 'Approach to Trust Law from a Civil Law Perspective,' Erdem & Erdem Newsletter, November, 2017 ( (access date: August, 2019).

[3] As per the scholars' opinions, the consortium that is established by the syndicated lenders with an aim to provide financing is an ordinary partnership. For details: Aksoy, p. 26 ff.

[4] Under English law, the changes to the finance providers would be performed by way of novation due to certain tax advantages. However, as a matter of Turkish law, novation of a pre-existing agreement creates a new agreement, thereby terminating the pre-existing agreement and thus, results in termination of any security interest that is attached to the novated loan. As such, the securities granted to the lenders of the novated loan would be removed. For details of the impacts of novation over the accessory collateral: Aksoy, p. 84 ff.

[5] Aksoy, p. 56 ff.

[6] Aksoy, p. 57.

[7] Aksoy, p. 89 ff.

[8] For details of methods developed to grant the securities to the security agent (joint creditors and unauthorised representation) other than a parallel debt referred to under this newsletter: Aksoy, p. 146 ff.

[9] Aksoy, p. 100 and 101.

[10] Aksoy, p. 102 ff.

[11] Aksoy, p. 104.

[12] Aksoy, p. 106 and 107.

[13] For details of criticism to parallel debt: Aksoy, p. 113 ff.

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.