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Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

Security over immovable property In order to secure a debt, the most frequently applied method of ensuring an assurance is a mortgage imposed on the immovable property. A mortgage entitles the mortgagee to ensure the foreclosure of the mortgaged property that is registered with the land registry if the debt is not paid when due.

As per Article 881 of Civil Code 4721, any debt that is present or that has not yet arisen, but will probably arise, may be secured with a mortgage.

The amount of security should be indicated in Turkish lira. However, a mortgage may also be imposed in terms of foreign currency by the credit institutions conducting activity both in Turkey and abroad, in order to secure the loans extended in foreign currency or foreign limping standard.

Unless otherwise stipulated in the law (eg, Articles 892 and 893 of the Civil Code), an agreement regarding the mortgage should be executed by and between the mortgagee and the mortgagor in the presence of a deed officer in order to impose a mortgage. This mortgage should be registered with the land registry.

Security over movable properties pledge

As per Article 3 of the Movable Pledge in Commercial Transactions Code 6750, a pledge agreement can be executed by and between:

  • Turkish banks;
  • financial leasing companies;
  • factoring companies and Turkish public institutions authorised to lend or provide guarantees;
  • merchants;
  • craftsmen;
  • farmers;
  • producer organisations;
  • self-employed individuals; and
  • legal entities acting as lenders.

The pledge agreement must be executed in writing (before the Pledged Movable Registry or by having the signatures of parties approved by a notary) or in electronic form (signed with an electronically secured signature) and registered with the registry. Once registration is complete, the right of mortgage is deemed established.

Lien In terms of Article 950 of the Civil Code, a lien is a right entitling the creditor to retain, as security for its receivables, the movables and valuable papers pertaining to the debtor which are in its possession and which should be returned when the debt is paid, and to convert the same into cash by giving advance notice.

Retention of title  As per Article 764 of the Civil Code, a retention of title agreement and clause in a sale agreement can be effective only when the agreement is executed before the notary of the buyer’s residence and registered with the special registry of the relevant movable.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

The ranking of creditors claims is determined as per Article 206 of the Execution and Bankruptcy Law. Debts arising from liquidation and public debts arising from the assets of estates (eg, customs duty, building and land tax and inheritance and transfer tax) must be paid first. The mortgage and pledge right owner’s claims will be paid next. As per Article 206, other claims following the claims of the mortgage and pledge right owners are ranked as follows:

  • claims of employees, unpaid pension plan contributions and alimony receivables;
  • guardian and ward claims;
  • public debts and privileged claims accepted based on their own laws; and
  • all other claims (ordinary claims). 

Can this ranking be amended in any way?

The ranking stipulated in Article 206 cannot be amended. However, creditors may object before the court to rankings (including the rankings of other creditors) determined by the bankruptcy administration.

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