Ali Temuçin Akalın June 19 2020 Attachment of debts arising from letters of guarantee Selvi & Ertekin | Banking & Financial Services - Turkey Ali Temuçin Akalın Banking & Financial Services IntroductionAttachment proceedings by applicant's creditorsAttachment request before payment request is submittedAttachment request after payment request is submittedApplicant's attachment under letter of guaranteeIssuing bank's attachment under letter of guaranteeIntroductionLetters of guarantee are an instrument under which a bank guarantees the payment of a certain amount to a beneficiary on request if an obligation undertaken by the applicant against such beneficiary is unfulfilled.It is common in practice that a debtor's creditors are willing to directly levy an attachment on letters of guarantee.As per Court of Cassation precedent, a letter of guarantee, not being a negotiable instrument unlike bonds or bills of exchange, is not attachable; however, it is legally possible to levy an attachment on receivables arising from a letter of guarantee in accordance with the rules and principles of the debt enforcement procedures, as a letter of guarantee is a form of guarantee agreement.If the issuing bank is the applicant's creditor, the bank can also attach receivables under a letter of guarantee.Attachment proceedings by applicant's creditorsThere may be two scenarios which vary from each other depending on when the payment request notice is served to the issuing bank (ie, before or after the applicant submits a payment request with respect to a letter of guarantee).Attachment request before payment request is submittedWhere a beneficiary does not request payment and its creditors attach their receivables arising from a letter of guarantee and inform the bank thereof, the attachment proceedings will be conducted in accordance with the rules and principles of the debt enforcement procedures. Under the relevant regulation, on the creditor's request, the attachment of debt will be reported in writing and the bank will be informed through a first lien notification. As a result, the bank will make the payment to the execution office once the payment request of the beneficiary has been submitted.It is also possible to attach a beneficiary's debts to be incurred. A debt to be incurred is present where there is a legal relationship and the debt to be incurred from this relationship and the debtor are definite.However, in such a case, the payment will not be made to the beneficiary but to its creditors, since the beneficiary may be informed that there is an attachment request notice served to the issuing bank and may have the chance not to submit a payment request.Attachment request after payment request is submittedWhere a beneficiary submits a payment request to an issuing bank, but the payment has not been affected by the issuing bank due to operational or other reasons, the issuing bank will make the payment to the execution office if the issuing bank receives the attachment notice from the execution office.In such a case, since it would be impossible to withdraw the payment request, no action could be taken by the beneficiary and the payment would be affected.Applicant's attachment under letter of guaranteeSome may question whether a party can also attach receivables under a letter of guarantee if they are the applicant of that letter of guarantee.Despite different opinions, as an applicant can also be a creditor of the beneficiary it should not be deemed that the applicant has waived its attachment rights and therefore the applicant should have the right, this time as a creditor, to attach such receivables.Issuing bank's attachment under letter of guaranteeThe issuing bank guarantees to pay the amount on the letter of guarantee where the condition under a letter of guarantee is met. The bank might have a receivable from the beneficiary under a commercial relationship other than the letter of guarantee.Thus, the creditor bank can attach the beneficiary's receivable under the letter of guarantee. Although it is controversial, some legal scholars say that the issuing bank, alternatively, can also deduct its receivable with the receivable under a letter of guarantee. However, in the latter case, it could be questioned since there would be a conflict between the bank's payment obligation and the deduction to be made.For further information please contact Ali Temuçin Akalın at Selvi & Ertekin by telephone (+90 212 236 12 12) or email ([email protected]). The Selvi & Ertekin website can be accessed at www.selviertekin.com.