Bank finance and regulation. Multi-jurisdictional survey. Turkey. Enforcement of security interests in banking transactions

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1 Bank finance and regulation Multi-jurisdictional survey Turkey Enforcement of security interests in banking transactions Eda Cemali and Cem Davutoğlu Davutoğlu Attorneys at Law, Istanbul

2 Page 2 / 14 Part I - types of security 1. What are the most common types of security in banking transactions in Turkey (eg, standard security package)? Please provide a brief characteristic of each type of security. The most common type of security used in Turkish commercial practice is a mortgage on real estate (typically on land and buildings). Upon default of the mortgagor, the mortgagee may apply for foreclosure of mortgage proceedings and collect its claim from the sale proceeds. Pledge of movable property is perceived to be impractical as a result of the Turkish law requirement that the possession of the pledged property must be delivered to the pledgee. However, exceptions to this principle exist in the event a public registry is maintained for specific types of movable property (eg, ships and motor vehicles) where the right of pledge may be recorded. Pledge of a receivable from a creditworthy third party or pledge of shares of a valuable company would also constitute effective security, especially if such shares are quoted on the stock exchange. In Turkish banking practice, personal guarantees or surety contracts are also commonly used, especially between the creditor and a major shareholder (an individual or a company) or another financially-sound company in the debtor s group. The value of such security will, of course, depend on the creditworthiness and financial strength of the individual or company acting as guarantor or surety. A less common type of collateral, the commercial enterprise pledge, which is similar to a floating charge, covers certain material assets including plant, machinery and inventory, intellectual property rights may be granted in favor of credit institutions. Although not prescribed as instruments of security under Turkish law, promissory notes and post-dated checks are also widely used as collateral. Typically banks in Turkey do not have a standard security package, instead they cherry pick the most suitable security for each type of client and each type of financing. 2. In relation to the following types of assets, please provide the types of security that can be created or granted in Turkey and give details of any registrations required: (a) Real estate; To constitute a mortgage over land, the parties must enter into a written mortgage agreement which must be prepared by and executed ex officio, ie, before the Land Registry where the subject property is located. The mortgage documented by such agreement, must then be registered in the Land Title Registry to be enforceable against third parties. Definite amount mortgage and maximum amount mortgage are the two types of mortgages envisaged under Turkish Law. A definite amount mortgage provides security for a definite amount of money debt and covers the following: (i) (ii) (iii) the principal debt; the cost of foreclosing the security and interest due for delay in payment; the interest that has accrued but remains unpaid during the three-year period preceding the commencement of proceedings in bankruptcy or for foreclosure of the security, and the interest running from the last day of payment.

3 Page 3 / 14 A maximum amount mortgage provides security for claims arising from and/or expected to be arising from a certain contractual relationship between the mortgagee and the mortgagor/debtor, which could be drawn up to a maximum limit prescribed in the deed of mortgage. A definite amount mortgage gives the mortgagee a strong position in foreclosure proceedings. A creditor who has a definite amount mortgage is in the same position as a creditor with a favorable final court judgment who may initiate foreclosure proceedings with an execution order. The debtor may object to such execution order for a limited number of reasons. A maximum amount mortgage holder may, however, initiate foreclosure proceedings with a payment order. The debtor may object even to the merits of the payment order which may cause suspension of foreclosure proceedings until the final judgment of the court is rendered. Turkish Law stipulates fixed-ranks system in connection with the ranking of mortgages, according to which the debtor may divide the value of its property into fictional portions in the Land Title Registry and may create security rights on each portion independently. If there are several mortgages on the same property, the ranking among the existing mortgages is determined by their fixed ranks. The Turkish Civil Code (the CC ) permits foreign-currency denominated mortgages, provided that such mortgages constitute collateral for foreign-currency loans or foreigncurrency-indexed loans obtained from local or foreign credit institutions. Registration of a mortgage, changing mortgage ranks, assignment of a claim secured by a mortgage and cancellation of a mortgage require a registration fee of the land registry office and are subject to a stamp tax to be calculated according to the amount of debt secured. (b) Charging assets (inventory, stocks etc); Under Turkish law a Commercial Enterprise Pledge covers the following assets of a commercial enterprise: (i) (ii) (iii) the trade name of the enterprise; machinery, tools, equipment and motor vehicles that are allocated to the operation of the enterprise at the date of the establishment of the pledge; and money-measurable and transferable intellectual property rights (including trademarks, patents, copyrights, designs, licenses, etc) of the pledgee. A commercial enterprise pledge agreement may be entered into by lenders on one side and the owner of the commercial enterprise (to be pledged) on the other. The agreement shall contain a descriptive list of all of the assets that are subject to the pledge. Such pledge agreement shall be executed by and before a notary public authorised in the jurisdiction of the relevant registry where the commercial enterprise is registered. The right of pledge is perfected upon registration of the pledge in such registry. The Commercial Enterprise Pledge does require the transfer of possession of the assets pledged therefore is an exception to the general rules of pledge on a movable asset.

4 Page 4 / 14 (c) Movables; Pursuant to Turkish law a specific registry for recording pledges on movables is not kept; actual delivery of the pledged movable to the pledgee or a trustee is required by the CC in order to prevent the pledgor from disposing of the movable and therefore to protect the rights of the pledgee and any third parties. Non-compliance with the requirement to transfer of possession invalidates the pledge. Therefore in Turkish commercial practice, pledge of movable assets is not commonly used. As a rule, the pledgee or the trustee can only keep and maintain the pledged movable and cannot use it or have others use it. In practice, the pledgee usually leases space at the pledgor s facility to deposit pledged assets. This space must be suitable to seclude the pledged assets from any other assets and only the pledgee or the trustee must have access to and control over the pledged assets. The CC has been interpreted to enable the pledge to continue in case of a provisional delivery of the pledged equipment to the pledgor (eg, for maintenance, as the case may be.). During such period the pledge does not automatically terminate, but its terms and effects are suspended until the pledgee repossesses the pledged equipment. There are some exceptions to the general rule that the possession of the movable must be with the pledgee, such as pledges on ships and commercial enterprise pledges. In addition, for certain kinds of movable property which must be recorded in a special public registry (eg, motor vehicles), transfer of possession is not required as the right of pledge may be recorded in the registry. (d) Shares; It is possible under Turkish Law to create a pledge on shares in a company (a joint stock company) 1. In case the shares are issued to bearer, the pledge may be construed by transferring the possession of the shares to the pledgee, without the requirement of an endorsement or a separate agreement. If the shares are registered shares, a separate pledge agreement in writing or a pledge endorsement on the certificate representing the shares is necessary. Pledge on a share does not affect the owner s voting rights in the company s general assembly, unless agreed otherwise. (e) Rights under contracts (receivables); A pledge on receivables is established by a simple written document and transfer of the possession on the deed or document (if any) evidencing the receivable. In case of default of the pledgor, the pledgee may request the Execution Office to foreclose and to sell the receivable in a similar way as a pledged movable. It is also possible for the pledgee to collect the receivable from the debtor of the pledged receivable, if this is explicitly provided for in the pledge agreement. (f) Bank accounts; Please refer to the (c) Movables. (g) Financial instruments (eg, promissory notes, checks); Although not prescribed as instruments of security under Turkish law, promissory notes and post-dated checks are commonly used as collateral: 1 Rights of partners in capital companies other than joint stock companies do not represent a definite portion of the capital in the form of a share ; hence they cannot be subject to a pledge.

5 Page 5 / 14 Promissory notes Promissory notes are extremely valuable for expedited collection of receivables, since in cases where a creditor holds a promissory note which meets the requirements of Turkish law, the debtor is limited to a few possible objections (eg, forged signature, fraud) when the creditor seeks to collect the debt through attachment by the Execution Office. Checks The simplicity of the legal rules for issuance and enforcement of checks have made checks attractive payment instruments in Turkey. Although payable on demand under Turkish law, in Turkish commercial practice, the use of post-dated checks are very common. A post-dated check issued by the debtor may have the function of a security, where such date represents the due date that a payment must be made to the creditor under the main agreement between the debtor and the creditor. However, the beneficiary of the check (ie, the creditor) may present the check to the bank for payment before such date, and if funds are not available in the debtor s account for payment of such check, the creditor may initiate the enforcement proceedings, as briefly mentioned herein below. In the event that the drawer or the avalist 2 (guarantor) of a check fails to pay the amount of the check, the holder of the check may obtain a payment order from the Execution Office within six months running from the last date that the check may be presented for payment. If the drawer or guarantor fails to make payment within five days after the issuance of the payment order, or does not raise one of the applicable defenses 3, the assets of the drawer or the guarantor may be attached and sold through a public sale. The proceeds of such sale shall be awarded to the holder of the check, up to the amount of the face value of the check together with interest accrued thereon and expenses incurred for collection. The Check Law provides that non-payment of a check may give rise to criminal liability of the drawer, if the holder files complaint within six months from presentation of the check to the relevant bank. Non-payment of checks are punishable by monetary penalties calculated up to 1500 days for each unpaid check and such penalty cannot be less than the unpaid portion of each check. Such penalties are only applicable to individuals, ie, the persons authorised to represent and bind a company. In the event of non-payment of the penalties, the drawer will be punished by imprisonment; however, the drawer will be given an opportunity to negotiate a payment schedule with the prosecution office. (h) Intellectual property; Please refer to (c) Movables. 2 3 Aval is a type of guarantee which can be written on a check. Within five days following the receipt of the payment order, the drawer or guarantor may raise any of the following defenses: (a) there is no existing debt; (b) the amount allegedly due has already been paid, deferred or the statute of limitations has expired; (c) the signatures on the check are forged; or (d) the issuer did not have the legal capacity to issue the check. (Guarantor may not be able to raise all of the foregoing defenses.) The defenses raised by the drawer or the guarantor shall be reviewed and decided upon by the execution court (icra tetkik mercii). In the event that the drawer or the guarantor loses on any of its defenses, it will have to pay the face value of the check and interest accrued and expenses incurred. An additional penalty of at least 40 per cent of the face value of the check will be imposed on a drawer or a guarantor who raises a false defense that its signature was forged.

6 Page 6 / 14 (i) Plant and machinery; Please refer to (b) Commercial Enterprise Pledge. (j) Other assets. The pledge on a motor vehicle, ship and aircraft is more common because those assets are registered in a public ledger and the pledge thereof is registered as well. Please refer to (c) Movables for more details. 3. Can a trustee or security agent be used in Turkey, or must security be granted in favor of all lenders? Is the parallel debt clause concept recognised in Turkey? The use of a trustee or security agent is not an established practice under Turkish law. Usually a security is granted for each lender separately. Furthermore, the parallel debt clause concept is not recognised in Turkey. However, such practices are mostly encountered and recognised by Turkish law in international transactions with foreign law governed agreements. 4. Please explain the latest amendments to the law governing secured transactions in Turkey. Are there any amendments which will be introduced in the near future (within one to two years) which might have an impact on the legal framework of secured transactions? Please also explain recent practical developments regarding secured transactions in Turkey. The latest amendment to the law governing secured transactions in Turkey was the amendment of the CC in 2001 and to the best of our knowledge there are not any amendments planned to be introduced in the near future.

7 Page 7 / 14 Part II enforcement of security 1. Please explain briefly general rules of enforcement of security indicated in answer to the Question 1 in Part I above (excluding rules in a bankruptcy or insolvency proceeding see Question 3 below). In your answer please explain whether specific security may be enforced only through judicial proceedings or whether extra-judicial methods are also available. Furthermore, please provide estimate of costs (if they create significant obstacle in enforcement, including applicable taxes and any other duties/ costs) and timing for enforcing such security. Please also explain degree of difficulty (eg, burdensome formalities, whether enforcement requires actions of a state body) in enforcing security. Also please explain whether taking security by an entity from other jurisdiction influences possibility of establishing security and its enforcement. Under Turkish law, the enforcement of security interests is subject only to judicial proceedings. Although new legislation is aiming to remedy the shortcomings of the enforcement of security interest in Turkey, the foreclosure proceedings tend to be burdensome and time consuming. As a matter of Turkish law a secured creditor must initiate a foreclosure proceeding with respect to its secured rights before initiating any other proceeding. There are three exceptions to this rule: (a) (b) (c) in the event there is a payment instrument evidencing the debt, then a secured creditor does not have to foreclose on the collateral; with respect to the interest accrued on the principal amount, the creditor has an optional right to initiate an execution proceeding for attachment or to demand such amount as a part of its receivable under the foreclosure proceedings; and the creditor can also forfeit its right to foreclose on the security and initiate a general execution proceeding or to initiate bankruptcy proceedings. There are two types of foreclosure proceedings under Turkish law. If the creditor has a court order against the debtor evidencing the debt, a creditor can initiate a foreclosure proceeding based on such court order. Just like any execution proceeding, the creditor must file a claim with the Execution Office demanding the payment of the amount stated in the court order. The Execution Office will then issue a payment order. Upon receipt of such payment order, the debtor will have seven days to pay or to obtain a court order suspending the execution proceedings. In the event the debtor fails to pay or to obtain such a court order, the Execution Office will proceed with the foreclosure and sale of the assets and pay the proceeds from such sale to the creditor after deducting the expenses and taxes. If the security is mortgage on real estate and such mortgage agreement evidences an unconditional acknowledgment of the debt, then the creditor will be able to proceed with the foreclosure on such secured asset as if it has obtained a final and binding court judgment. In this case the Execution Office will issue a payment order and ask the debtor to pay the full amount within 30 days. If the debtor fails to pay or to obtain a court order suspending the execution process within 30 days, the creditor may request the sale of the real estate at a publicly held auction. If there are no bids equal to 60 per cent of the value of the real estate in the first auction, then the Execution Office will conduct a second public auction to be held within ten days following the first auction. In order for the Execution Office to approve the sale of the real estate the highest bid in the second public auction must be at least 40 per cent of the value of the real estate. Once the asset is sold as indicated above there will be certain tax and other levies deducted from the proceeds of the auction.

8 Page 8 / 14 The second type of enforcement is foreclosure on secured assets in the absence of a court order. In the event the creditor does not have a court order evidencing the debt or the mortgage contract registered with the land registry does not contain any unconditional acknowledgment of debt, the creditor may only initiate a foreclosure proceeding without a court order. In that case the creditor will be entitled to demand issuance of a payment order by the Execution Office. If the security is established on movable assets, the debtor will have seven days to pay or to object to the payment order. If the foreclosure request is on real estate, the debtor will have 30 days to pay the outstanding amount. The debtor may object to the payment order on various grounds, but the debtor cannot object to the validity of the mortgage agreement as it is a contract signed, ex officio, before the land registry. Any objection by the debtor will stop the execution proceeding. In order to proceed, the creditor must obtain an order from the Execution Court denying the objections raised by the debtor. The debtor can appeal the decision of the Execution Court; however, such appeal does not automatically stop the foreclosure proceedings. The debtor must deposit a security bond equal to 15 per cent of the amount claimed in order to stop the process until the Court of Appeals renders its final decision on the objections raised by the debtor. The creditor may request the sale of the real estate if a final decision is rendered in favor of such creditor. The minimum purchase price and the auction process is same as described above. When applying to the Execution Office, a creditor will be required to pay an application fee of an amount equal to five per cent of the Turkish Lira equivalent of the claimed amount as indicated in the enforcement request. The collection charge for such procedure depends on the timing of the actual payment made to the creditor and in each case, as a portion in the amount set forth herein, of the value of the amount collected: (i) If such payment is made upon a payment order issued to the debtor, then the collection charge would be 2.4 per cent of the value collected; (ii) if collection occurs only after the auction, then the collection charge together with other levies and expenses would be approximately 11 per cent of the sale proceeds. Charges are paid to the cashier of Execution Office which enforces the execution order. The debtor is liable to pay all fees and charges arising from the said execution proceedings. However, the creditor will be required to pay in cash and at the time of initiation of the execution proceedings, all fees relating to such proceedings and any other such fees that may be required for the service of a notice (if any) to the debtor or other related parties. Therefore, such expenses shall be collected from the debtor and deducted from the proceeds of the auctioned sale of the attached assets of the debtor. Additionally, there will also be common notary fees and charges involved, arising from the enforcement procedures which are not of substantive amounts. In the event the legal proceeding are initiated by a foreign entity, then the plaintiff entity will be required to deposit a security, ie, cautio judicatum solvi equal to 15 per cent of the amount claimed. If there is a bilateral treaty between Turkey and the country where the foreign entity is incorporated providing for an exemption then the foreign entity will not be required to post such a security deposit. 2. Please explain briefly specific features (if any) of enforcement of security established over following types of assets: As a general comment, Turkish law still applies the lex comissoria rule that prohibits a creditor to enter into a security arrangement whereby the creditor would acquire title to the

9 Page 9 / 14 secured asset upon default of the borrower. Although, the borrower can agree to transfer the title on the secured asset as fulfillment of payment obligation after default occurs, Turkish law does not allow the borrower to agree to this transfer before the event of default. Therefore, all security arrangements (other than those relating to cash and bank accounts) must include liquidation through official execution offices. (a) Real estate; Please refer to the answer of Question 1 herein above. (b) Charging assets (inventory, stocks etc); Movable assets that are subject of a commercial enterprise pledge will no longer be attached until the Execution Office decides that they should be sold in a public auction. Since the commercial enterprise pledge provides for a charge on assets essential to the operation of an enterprise (eg, machinery and equipment, intellectual property) the law allows such entities to continue their operations and to have the opportunity to generate revenue to pay their debt. (c) Fixed charge over movables; Please refer to the answer of Question 1 herein above. (d) Shares; Please refer to the answer of Question 1 herein above. (e) Rights under contracts (receivables); Please refer to the answer of Question 1 herein above. (f) Bank accounts; Please refer to the answer of Question 1 herein above. (g) Financial instruments (eg, checks and promissory notes); Should the amounts claimed by the creditor is evidenced by a payment instrument, such as a promissory note, check etc., then the creditor will be entitled to benefit from an expedited execution proceeding without the need for a court order. The procedural steps in this type of execution proceeding are essentially the same. First, a payment order will be served to the debtor through an Execution Office, then the payment order will be finalised (ie, no objections or rejection of such objections by the court), assets will be attached, sold and proceeds of such sale will be distributed. In order to initiate an expedited execution proceeding, the creditor must provide the original copy of the instrument in order for the Execution Office to issue the payment order. As at such point, the debtor still has the ability to raise objections with respect to the payment order issued by the Execution Office. In addition, the creditor must provide documentation evidencing that he/she has demanded payment under such instrument. In practice this requirement is usually satisfied with default notices served by the creditor on the debtor through a notary public. Upon receipt of such payment order, the debtor will have ten days to pay the outstanding amount or five days to object to the payment order. The debtor can only object on two grounds. The debtor can (i) object to the signature on the instrument or (ii) object to the amount of the debt. The debtor can only object to the debt if such amount has already been paid or if the debtor has a counterclaim against the creditor.

10 Page 10 / 14 In the event the counterclaim by the debtor is less than the amount owed under the instrument, such objection will be deemed as a partial objection. Unlike other execution proceedings, an objection by the debtor would not stop the procedure automatically. Accordingly, the Execution Office may proceed with the attachment of the assets of the debtor. In order for the debtor to suspend the attachment procedure the Execution Court must issue an order to stop the process until there is a final decision on the objections raised by the debtor. In addition, the debtor can also claim that the instrument in question is not a payment instrument and therefore the debtor can request the Execution Court to cancel the payment order. Such an objection would not stop the process unless the debtor is able to obtain an order from the Execution Court to this effect. (h) Intellectual property; Please refer to the answer of Question 1 herein above. (i) Plant and machinery; Please refer to the answer of Question 2 (b) herein above. (j) Other assets. Please refer to the answer of Question 1 herein above. 3. How does a commencement of a bankruptcy or insolvency proceeding influence the rights of the security holder to enforce its rights? In bankruptcy or insolvency proceedings, what are the suspect periods is claw-back possible, and what other types of rights (tax debts, employees, etc) have preference over security granted? In general, the commencement of bankruptcy or insolvency proceeding does not affect enforcement rights of a secured creditor per se. However, there are some types of costs and taxes that need to be covered before any payment to the secured creditor can be made from the proceeds of a security. Those costs and taxes are those directly related to the liquidation process of the debtor, incurred by the Bankruptcy Administration. The Bankruptcy Administration is the sole holder of the representation power to act on behalf of the bankruptcy estate. The representation power of the Bankruptcy Administration is vested by law. The costs that the Bankruptcy Administration undertakes in relation with the safeguarding and sale of the pledged assets as well as taxes that arise directly from the sale of such asset need to be deducted from the proceeds of such sale and be reimbursed to the Bankruptcy Administration. The remainder of the proceeds may only then be paid to the secured creditor. The claw- back provisions and suspect periods are regulated in the Turkish Execution and Bankruptcy Law. The creditors of a person (legal or real) who is unable to pay its debts (the insolvent party ) are entitled to apply to Turkish courts to invalidate certain transactions entered into by the insolvent party. The transactions which may be invalidated are those made for no consideration or for a consideration significantly less than the value provided by the insolvent party. Such transactions may be invalidated provided that they have taken place within two years prior to the insolvency. Secondly, transactions with an intention to harm the creditor may also be invalidated provided that the creditor has initiated execution or bankruptcy proceedings within 5 years following the transaction date. Such creditor must prove (i) the insolvency, (ii) the intention to harm the creditors, and (iii) the counterparty s knowledge of such intention.

11 Page 11 / 14 Thirdly, certain security arrangements undertaken by a person (legal or real) may, in the following circumstances, be declared null and void by the courts. According to the provisions of the Turkish Bankruptcy Law, (i) the constitution of a pledge over movables or a mortgage on real estate to secure an existing debt (where such pledge or mortgage was not originally promised); (ii) non cash payments such as promissory notes or transfer of a real estate to settle a debt; (iii) payments for undue debts; and (iv) annotations of rights in rem at the land registries in favor of third parties, would be voidable if established within one year prior to the declaration of the bankruptcy or insolvency. A creditor, whose claim has remained unsatisfied in part or in whole following the initiation of legal proceedings, is entitled to apply to a court to have such arrangements declared null and void. The court should not declare the arrangements null and void if the beneficiary third parties prove that they were not aware of the financial condition of the insolvent person. Please explain briefly specific features (if any) of enforcement of security established over following types of assets in a bankruptcy or insolvency proceeding: (a) Real estate; (b) Charging assets (inventory, stocks etc); (c) Fixed charge over movables; (d) Shares; (e) Rights under contracts (receivables); (f) Bank accounts; (g) Financial instruments (eg, checks and promissory notes); Although mostly preferred for collection purposes and for the same reason perceived as transaction security, checks and promissory notes under Turkish law are deemed to be payment instruments only. Therefore, checks and promissory notes do not benefit from the privileges of a pledge during the bankruptcy and insolvency proceedings. In the absence of a pledge, the underlying receivable of a check or promissory note will be considered as a regular receivable and will be superseded by the priorities of the following preferred obligations: a) Pledges and mortgages; b) (i) Obligations arising from employment contracts, including employment obligations incurred within one year prior to the bankruptcy procedure;

12 Page 12 / 14 (ii) Alimony payments arising from family law, including all alimony incurred within one year prior to the bankruptcy procedure; c) All receivables transferred to the debtor for representation and succession reasons within one year prior to the bankruptcy procedure; d) Some preferred obligations arising from special regulations including but not limited to the provisions of Banking Law to protect the deposits of account holders in case of bankruptcy of a financial institution; provisions of Insurance Law to protect the receivables of the insured parties in the event of bankruptcy of a insurance company, the provisions of Social Security Law to protect the receivables, assets and bank accounts of the Social Security Institution in any bankruptcy proceeding; etc. (h) Intellectual property; (i) Plant and machinery; (j) Other assets. 4. Are there any specific features or problems of enforcement proceedings if the security is granted to a trustee or security agent or the parallel debt structure is used? Since the use of a trustee or security agent or the parallel debt structure is not established practice under Turkish law, the enforcement proceedings do not provide for specific features or problems. 5. Please explain the latest amendments to the law governing secured transaction in your jurisdiction in relation to a bankruptcy or insolvency proceeding. Are there any amendments which will be introduced in the near future (within one to two years) which might have impact on the legal framework of the enforcement of secured transactions in the light of insolvency law? Please also explain recent practical developments regarding secured transactions in your jurisdiction in relation to insolvency law. The Turkish Execution and Bankruptcy Law was enacted in 1932 and was amended in 2003 to remedy some of its shortcomings. The goal was to update the old legislation which was clearly out of date, to amend such legislation to ensure that it is compatible with the current affairs of companies, to provide a second chance to commercial entities that have the capability to improve their financial condition to restructure debt, to protect their assets that are essential for their operations. The target was also to eliminate the pitfalls of the law that was utilised by the debtors to prolong the bankruptcy and execution proceedings. The harmonisation with the European Union legislation was another motive as well. In general the amendments to the execution and bankruptcy law aimed: (i) (ii) to expedite the execution process; to expedite the bankruptcy and konkordato process;

13 Page 13 / 14 (iii) (iv) (v) (vi) to ensure that all creditors are treated equally; to eliminate all actions and objections which was available in the old legislation that prolonged the judicial process; to maintain a balance between the debt restructuring process and liquidation of companies; and to ensure the fair market value of the assets of a debtor can be realised at the end of the judicial process. Another amendment to the Turkish Execution and Bankruptcy Law was realised with the enactment of Mortgage Finance Law, providing for long term financing of house acquisitions in Before the amendment the foreclosure process on real estate mortgages could take up to three years. The mortgagor had to first liquidate the mortgage and then ask for the sale of the other assets of the borrower if the proceeds of the mortgage were not sufficient to offset the receivables of the mortgagor. However, the amendments introduced by Mortgage Finance Law, provide for the possibility to attach the assets of the borrower without first having to pursue the liquidation of the mortgage. Thus, the amendments aim to shorten the foreclosure process of mortgages. Furthermore, the amount of the deposit required to suspend the foreclosure process and the penalty for the abuse of the sale annulment right have been doubled.

14 Page 14 / 14 SUMMARY The common types of security available in Turkey are mortgages, personal guarantees or surety contracts, commercial enterprise pledge, pledge over ships and/or vehicles, checks and promissory notes. The choice of a particular type of security mostly depends on the specific transaction, parties thereto and their assets. Banks in Turkey do not have a standard security package; instead they cherry pick the most suitable security for each transaction. Mortgages are the most preferred type of security for several reasons. In Turkish culture, real estate is the most secure and profitable mean of investment. Therefore any interest in real estate is perceived in the same manner. In addition, the registration of that security gives the secured creditor a claim against third parties and gives the debtor the flexibility to use the real estate without requirement of the transfer of possession to the creditor. Moreover, the enforcement of a mortgage is well protected in the event of bankruptcy of the debtor. Under Turkish law, the enforcement of a security interest is not possible through extra-judicial proceedings. However, the judicial proceedings usually tend to be burdensome and time consuming. In the event of bankruptcy of the debtor, the enforcement rights of the security interest holder are not affected per se. Only the costs and taxes incurred directly in relation with the liquidation of the secured assets supersede the priority rights of the secured creditor. The latest amendment to the law governing secured transactions in Turkey was the amendment of the CC in 2001 and to the best of our knowledge there are not any amendments planned to be introduced in the near future.

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