Borrowing against artTypes of security interest
In your jurisdiction what is the usual type of security interest taken against art, antiques and collectibles?
A pledge (possessory or non-possessory) may be taken over stock, or movable property. According to article 939 of the TCO, the main form of collateral for movable property is the pledge. A pledge transfers the lender only a limited right in rem over the collateral. As a rule, a pledge may only be validly affected through delivery of the pledged assets to the lender, or to a third party trustee by an agreement, established between the lender and the borrower. However, there was a change in Turkish legislation regarding lending markets in the form of the Law on the Pledge of Movable Properties in Commercial Transactions (No. 6750) and its secondary legislation, which were introduced on 1 January 2017, to create an alternative method, particularly for small and medium-sized enterprises, to use movable pledges as security for financing purposes. Accordingly, this Law allows the borrower to keep possession of the movable property, which has a limited impact on art assets.Consumer loans
If the borrower borrowing against art assets in your jurisdiction qualifies as a consumer, does the loan automatically qualify as a consumer loan, and are there any exemptions allowing the lender to make a non-consumer loan to a private borrower?
Despite the fact that a limited number of private banks accept art as collateral because of legal, art-related and risk complexities, under Turkish legislation, if the borrower is acting for non-commercial reasons, he or she will qualify as a consumer and the loan will be accepted as a consumer loan.Register of security interests
Is there a public register where security interests over art, antiques or collectibles can be registered? What is the effect of registration? Is the security interest registered against the borrower or the art?
No. Transfer of the physical possession of movable property to the pledgee or a reliable third party is the only requirement for a successful pledge under the TCO, with certain exceptions. However, the newly adopted Law on the Pledge of Movable Properties in Commercial Transactions does not require a physical delivery but instead provides for specific procedural requirements. The pledge agreement must be prepared either in written form and signed before an official of the Pledged Movable Property Registry, or certified before the notary public; or in electronic form, and signed using a secured electronic signature. The pledge agreement shall be registered to the Pledged Movable Property Registry, which was established for the perfection, monitoring and public disclosure of the pledged assets, determining priority among the pledgees and registering disposals on the pledged movable assets.Non-possessory security interests
Can the lender against art collateral perfect its security interest without taking physical possession of the art?
See question 18.Sale of collateral on default
If the borrower defaults on the loan, may the lender sell the collateral under the loan agreement, or must the lender seek permission from the courts?
Under general principles of Turkish law, any agreement stating that the pledged property (movable or immovable) would become the absolute property of the pledgee in the event of a default by the pledgor will be null and void. The Enforcement and Bankruptcy Law provides for two separate proceedings for the enforcement of security interests, which are the following:
- Execution proceeding without judgment. The lender can apply to the execution office along with the documents proving the existence of its receivables.
- Execution proceeding with judgment. The lender can apply to the execution office with a decision given by the competent court, or a document with similar legal effect.
Does the lender with a valid and perfected first-priority security interest over the art collateral take precedence over all other creditors?
Yes. The lender with a valid and perfected first-priority security interest over the art collateral takes precedence over all creditors. However, debts arising from the expenses of the bankrupt estate administration or taxes arising from the assets of the bankrupt company have priority over all foregoing debts during the liquidation of the bankrupt estate. According to the Enforcement and Bankruptcy Law, the proceeds of sale of the debtor’s assets are distributed among creditors in the following order:
- debts incurred during the administration of the bankrupt estate;
- taxes, duties, fees and other governmental charges;
- secured obligations;
- employees’ wages for the past year, severance payments and unemployment insurance funds;
- certain debts of the bankrupt estate under domestic family law;
- privileged receivables of the bankrupt estate under specific laws (eg, attorneys’ fees, utilities debts); and
- unsecured receivables.