INKO LEGALINKO LEGAL Attorneys at Law
COMMERCIAL AND COMPANY LAW

Banking and Finance Law

The annexes to a loan agreement are usually read not on the day of signature but when payment difficulties arise; yet it is those annexes that define the powers in the bank's hands. The work in this area is to set up the security structure correctly when the loan is extended and, when problems arise, to manage the restructuring negotiations and the enforcement process.

In a loan relationship, the powers in the bank's hands are limited by the agreement and the security documents: a mortgage is created by official deed at the land registry; in a suretyship, the maximum amount and the date of the suretyship must be written in the surety's own handwriting as a condition of validity (Article 583 of the Turkish Code of Obligations No. 6098, TBK). In the event of payment difficulties, restructuring should be set down in a written protocol with the bank; if no agreement is reached, for mortgage-secured claims the bank may commence enforcement by way of realisation of the mortgage. In consumer loans, Law No. 6502 additionally provides protections such as the right of withdrawal and the early repayment discount.

What we do in this area

Banking files have two sides: the bank extending the loan and the company or individual using it. The work on this page is carried out mainly on the borrower's side. The general loan agreements of mid-sized companies are reviewed before signature, the burden that the security package (mortgage, pledge, suretyship) places on the company and its shareholders is set out, and when payment difficulties arise, restructuring negotiations and disputes with the bank are conducted. This heading is the financing side of our commercial and company law work and proceeds largely at the advisory level.

In a loan relationship, the decisive text is usually not the loan agreement itself but its annexes: unless the general loan agreement, the official mortgage deed, the suretyship text and the pledge agreement are read together, the true extent of the risk cannot be seen.

Security structures

Security How it is created Point examined
Mortgage By official deed at the land registry office The scope of the maximum-amount (limit) mortgage; which debts it secures
Pledge over movables Registration in the pledged movables registry (Law No. 6750) Correct definition of the pledged asset and the secured claim
Suretyship In writing The maximum amount and the date written in the surety's own handwriting (Article 583 of the Turkish Code of Obligations No. 6098, TBK); the spouse's consent (Article 584 TBK)
Letter of guarantee The bank's guarantee undertaking The scope of the payment-on-first-demand clause; the counter-guarantee burden

The most disputed form of security in practice is the suretyship. It is common for shareholders and their relatives to be made sureties for a company loan; yet the validity of a suretyship depends on strict formal requirements, and the absence of one of these requirements can eliminate liability. On the mortgage side, the maximum-amount entry in the official deed determines for which claims, and how much, the bank can recover from the property.

Payment difficulties, restructuring and enforcement

When loan instalments fall into arrears, the bank usually first serves a notice, then closes the account and accelerates the entire debt. At this point there are two routes: restructuring the debt or enforcement.

Restructuring is a negotiation process and its outcome should be set down in a written protocol. Headings in the protocol as important as maturity and interest are whether the existing security will be preserved, whether new security is requested, and what becomes of the protocol if payments fall into arrears again. Payments made in reliance on an oral understanding turn into a picture that is hard to prove at the enforcement stage.

If no agreement is reached, for mortgage-secured claims the bank proceeds to enforcement by way of realisation of the mortgage, regulated in the Enforcement and Bankruptcy Code No. 2004 (İİK). Objection to the payment order, objection to the valuation and annulment of the auction are each subject to short time limits; we have described this process in detail on the enforcement and bankruptcy law page.

Disputes with banks

Foremost among disputes arising from loan relationships are the fees and commissions charged, obligations added to the agreement later, and the scope of the security. In consumer transactions, the Law on Consumer Protection No. 6502 establishes a separate protection regime: the right of withdrawal in consumer loans, the interest reduction on early repayment and the review of unfair terms rest on this law. In commercial loans, the review proceeds mainly on the basis of the contract text and the general provisions; pre-signature review helps identify these contractual risks.

Financial leasing

A significant share of investment in machinery, equipment and vehicles is financed through financial leasing under Law No. 6361. In this model, ownership of the asset remains with the lessor company for the term of the agreement; the parties may agree on a purchase option at the end of the term (Article 23 of Law No. 6361), but completing payments does not automatically transfer ownership. If payments fall into arrears, the lessor may terminate the agreement, allowing the periods required by the law, and demand the return of the asset. The post-termination settlement (amounts paid, the value of the asset and the remaining claim) is the main point of contention in these files.

This is general information; every loan relationship is assessed on its own agreement and security documents.

The page where we describe the process in detail: Our working process.

FREQUENTLY ASKED

What people ask about this area

I stood surety for a company loan; what is my liability limited to?
The surety's liability is limited to the maximum amount stated in the suretyship text; under Article 583 of the Turkish Code of Obligations No. 6098 (TBK), it is a condition of validity that this amount and the date of the suretyship are written in the surety's own handwriting. In a joint and several suretyship, the creditor may proceed against the surety without first enforcing against the principal debtor or realising immovable security only if the conditions in Article 586 TBK are met, including default and an unsuccessful demand or manifest insolvency; separate conditions apply to receivables and movable pledges; this clause too must be handwritten. The absence of one of the formal requirements affects the validity of the suretyship; a definitive assessment is not made without examining the original suretyship text.
Can I stand surety without my spouse's consent?
As a rule, no; under Article 584 of the Turkish Code of Obligations (TBK), a suretyship requires the spouse's written consent given at the latest at the time the contract is concluded. Certain suretyships relating to a business registered in the trade registry are exempted from this rule. Because a breach of the consent requirement affects the validity of the suretyship, banks require the spouse's consent at the signing stage.
The bank has called in the loan and a formal notice has arrived; what should I do?
The first step is to contact the bank in writing within the period given in the notice and to have the restructuring request placed on record. At this stage the calculation of the debt is also checked: the interest rate, default interest and the fees charged are compared with the agreement. If enforcement begins, the objection periods are short and vary according to the type of proceeding; the notice must be assessed without delay.
Is the bank obliged to accept a restructuring?
As a rule, no; restructuring is a contract negotiation and the bank is not obliged to accept the proposal. In the negotiation, the fate of the security should be discussed as much as the payment plan: whether the existing mortgages and suretyships will be carried over to the new plan must be written expressly in the protocol. Making payments in reliance on an oral understanding creates a problem of proof in the event of dispute.

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IMPORTANT NOTICE

This page is general information only and does not constitute legal advice. Every file is assessed on its own documents, dates and parties; the general explanations here cannot be applied directly to your own situation. Prepared in line with the Union of Turkish Bar Associations’ advertising restrictions. This English text is a courtesy translation prepared by the firm; in case of any discrepancy the Turkish text prevails.

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