Security over Collateral. TURKEY Pekin & Pekin

Transcription

1 Security over Collateral TURKEY Pekin & Pekin CONTACT INFORMATION Mete Yeğin / Fuat Tuaç Gözde Çankaya / Alican Kolay Sezin Akoğlu / Tunç Sözen Pekin & Pekin 10 Lamartine Caddesi Taksim Istanbul, Turkiye / finance@pekin-pekin.com 1. Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Under Turkish law, assets can be charged, liened, and encumbered subject to special regulations which will be explained in detail below. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? As per Article 23 of the International Private and Procedure Law of Turkiye (Law No. 2675) (published in the Official Gazette dated 22 May 1982, No ) (as amended from time to time) (the International Procedure Law ) provides that the rights in rem and ownership rights concerning the assets would be governed by the laws of location of such assets (lex loci situs) In this context, if the location of the assets in question is the Republic of Turkiye, such security agreement shall be subject to Turkish law. 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms?

2 A floating charge or a concept such as a blanket security to comprise overall assets of an entity does not exist under the laws of the Republic of Turkiye. Therefore, all assets of the entity would need to be pledged separately. For example, in the case of a real property, a mortgage needs to be established whereas in the case of movable properties a pledge would need to be established thereon. 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: (a) Aircraft; A mortgage can be granted as a security on an aircraft. As a requirement, all aircrafts that operate in Turkiye must be registered with the Turkish Civil Aviation Registry. The establishment of a mortgage over an aircraft that is already registered with the Turkish Aviation Civil Aviation Registry is a simple procedure which is free of charge. However, the registration of a mortgage over a new aircraft that is to be imported into Türkiye is slightly more complicated and costly and the aircraft in question needs to be registered first and there are some other requirements that are to be fulfilled in this respect. For an aircraft which is already registered with the civil aviation registry, a mortgage agreement must be executed before a notary public by the mortgagor and the mortgagee. A standard mortgage agreement is normally subject to a stamp tax obligation that is to be calculated at the rate of 0,75 % (ceiling) of the Turkish equivalent of the amount that is stated in the relevant agreement. However, if the mortgage is to serve as a security for a loan that is to be obtained from a foreign credit institution and to be utilised by a Turkish company and provided such condition is readily provided in the agreement, such agreement would be exempted from stamp tax obligation. In this context, under normal circumstances, a stamp tax obligation at the rate of 0,75 % that becomes payable immediately upon execution of the agreement plus a notary fee which is 30 % of this amount are to be applicable in an aircraft mortgage procedure. In addition to the aforementioned, a fee of TRY 11 is applicable per each page that is to be approved by the notary. Kindly note that the notary is under the obligation to review and approve not only the agreement itself but also the powers of attorney wherein the relevant signatories are authorised to sign on behalf of each company. The notary public is under a further obligation to review the signatory circulars in order to verify the authenticity of the signatures, therefore the fee of TRY 11 is applicable per each page of the signatory circular and the power of attorney as well. Following the due completion of the abovementioned procedures before the notary, the mortgage over the aircraft will subsequently be registered with the relevant beneficiary at the civil aviation registry. (b) Bank Accounts;

3 The establishment of a pledge over a bank account is possible through the fulfilment of the following requirements: entry by relevant parties into a written pledge agreement, a notification to be filed with the relevant account bank(s) followint the execution of the agreement by the parties and an acknowledgement from the account bank(s) in this respect. From the perspective of Turkish law, a pledge over an operating bank account is permitted and often used in practice especially in syndicated loan transactions. The account pledge works like a floating charge and would encompass any amounts standing to the credit of such account. (c) Animals, Crops (in ground and severed) and Timber; Placing a pledge on a live stock is a right granted to special legal persons. Only the Turkish Agricultural Bank (which is a bank established to provide incentives to the farmers and agricultural institutions), cooperatives and other similar establishments which have been granted permission by the governor of the relevant region may establish pledges on livestock. Such pledges should be registered with a live stock registry kept at the local execution office and for this reason there is no obligation to transfer the possession of the live stock to the pledgee. According to Article 22 of the Regulation on the Live Stock, placing a pledge on live stock imposes two obligations upon the pledgor. First, the pledgor shall be responsible for keeping the live stock free from defect during the pledge period. Second, in line with Article 23 of this regulation, the pledgor shall be responsible for preserving the live stock in the most diligent manner so as to avoid any decrease in the value of the same. It should further be noted that once a pledge is placed on live stock, it is not possible to place a second pledge until the first pledge is removed. Hence, the live stock registry should be verified for any former pledges before any steps in this respect are to be taken. Finally please be informed that the pledgor may not deal with activities that may be detrimental to the pledgee and may not transfer the ownership of the live stock to a third party without the consent of the pledgee. In case the pledgor the breaches the abovementioned obligations s/he shall have to compensate the damages of the pledgee. (d) Equipment; A pledge over an equipment is included within the scope of a commercial enterprise pledge. Under Turkish law, in order to create a pledge over moveables, physical possession of such moveables is required to be transferred to the pledgee in order to perfect the pledge. However, in the case of a commercial enterprise pledge, a pledge agreement should be entered into between the pledgor and pledgee which should be notarised by a Turkish Notary Public located at the same district where the commercial enterprise subject to pledge is registered, the assets which constitute the subject matter of such a pledge should be listed in the pledge agreement and the pledge agreement should be registered with the Trade Register where such commercial enterprise subject to pledge is registered. According to the Commercial Enterprise Pledge Law, pledge registered over a commercial enterprise constitutes an encumbrance over the following:

4 (i) (ii) (iii) the trade name and commercial title; the machinery, equipment, tools and transportation vehicles that are donated to the operation of the commercial enterprise as of the date of registration of the pledge; and intellectual property rights like licenses, trademarks, models, drawings, etc. However, one or more of the instruments other than the trade name, commercial title and the moveable operational installations, can be exempted from the pledge. The commercial enterprise of a legal entity can be pledged to more than one pledgee. In such case, rights of the pledgees shall be determined in accordance with the dates of their registrations with the relevant Trade Register. A commercial enterprise pledge does not prevent the legal entity from performing its ordinary business. However, such legal entity is required to obtain the permission of the pledgee in order to transfer, assign to a third party, change location, grant any encumbrance over or change the commercial enterprise or any of the assets that constitutes part of the pledge. In case of any change regarding in the assets subject to pledge, such change is required to be inserted in the list, which again requires notarisation by a Turkish Notary Public. (e) Intellectual Property; Although, as explained above under item (d), it is covered within the scope of a commercial enterprise pledge, a registered trademark may also be pledged independently from the commercial enterprise. For the perfection of the pledge over the trademark, such pledge should be registered in the Trademark Registry and published upon the application of either the pledgee or the pledgor. During the term of the pledge, any change made to the trademark (other than renewal or change of address) requires the consent of the pledgee. (f) Inventory; Pledge over an inventory of an entity is included in commercial enterprise pledge (g) Leases; As a matter of Turkish law, a lease contract or the leasehold interest created thereunder would not constitute an asset and therefore no security can be granted on the contract or the leasehold itself. A mortgage, as explained under item (j), is a security in the nature of a right in rem which can only be created over a real estate, and not on a leasehold interest. It is possible, on the other hand, to create a pledge or assignment over the receivables of the lessee arising out of the relevant lease agreement. It is not possible to take any security on leases and rents other than assignment or pledge of the lease and rent receivables by the owner of the property. This is to say that if a property is owned by a debtor who receives rent payments from a third party under

5 a rental arrangement between themselves, then such debtor may assign or pledge its receivables that it will receive under such rental arrangements to a lender, which is explained in detail under item (k). (h) Mineral Interests, including Hydrocarbons; According to Article 38 of Mining Law (Law No. 3213) (published in the official gazette dated June 15, 1985 and numbered 18785) (the Mining Law ); the establishment of pledge over mines can only be effective after the registration with the mine registry. This registry is made by the Mining Works General Directory. The establishment of pledges over ores shall be made by the licensed operator through a written application to the Mining Works General Directory. Such registry is also opened to public therefore; anyone can verify the records at such registry. (i) Promissory Notes and Chattel Paper; In addition to the aforementioned securities that are most commonly used in Turkish commercial life, there are some other securities that might be issued by a debtor in favor of its creditor as a security for the payment and performance of its obligations. These are: letter of guarantee from a bank, security promissory note (it is not a negotiable instrument under Turkish law), promissory note, checks, etc. (j) Real Estate; Under Turkish law and according to Article 881 of the Turkish Civil Code (Law No.4721) (published in the Official Gazette on December 8, 2001, No ) (the Turkish Civil Code ), a mortgage can be created as security for any kind of debt, present, future or contingent, by registering a mortgage over a real property with the records of the relevant Title Deed Register where the real property subject to mortgage is registered. The perfection of a mortgage requires a mortgage agreement to be entered into between the mortgagor and mortgagee at the Title Deed Register and thereafter, registration of the mortgage with the same. In principle, the amount of the mortgage is required to be registered in Turkish Lira (Article 851/I of the Turkish Civil Code), however, according to Article 851/II of the Turkish Civil Code, in the event the mortgage is to be registered as a security for a foreign currency cash loan to be obtained by a borrower resident in the Republic of Turkiye from a credit institution conducting business within the Republic of Turkiye or abroad, the amount of the mortgage can be registered in foreign currency, which should be the same currency as the loan. According to Article 851/I of the Turkish Civil Code, a mortgage securing an existing or future debt, the amount of which is indefinite, can be registered as a maximum amount mortgage, and in such case, the amount of the mortgage should be agreed upon by the mortgagor and mortgagee and written in the mortgage agreement. According to Article 862 of the Turkish Civil Code, mortgage registered over a real property constitutes an encumbrance over the real property subject to mortgage, yields, rents, and all buildings thereon including the integral and additional parts. In the event that additional construction is made after the registration of the mortgage, the later

6 constructed buildings will automatically and without any amendment to the mortgage agreement or re-registration with the Title Deed Register, become subject to the mortgage. However, the moveable assets in the real property, other than the ones registered with the declarations column in the records of the Title Deed Registry as an accessory, shall not subject to mortgage. According to Article 875 of the Turkish Civil Code, a mortgage over real property shall secure the following: (a) the principal amount of the debt; (b) default interest and legal charges; (c) contractual interest; and (d) expenses, including but not limited to the insurance premium payments made by the mortgagee for the protection of the real property subject to mortgage. Mortgage is recorded with the special mortgage column on the relevant page of the Title Deed Register where the records of the real property subject to mortgage are kept. The name, trade name of the mortgagee, the amount of the mortgage, the degree of the mortgage are all shown in such column. Whether or not the mortgagee is entitled to benefit from the free degree system should also be indicated in the aforesaid records. Upon the execution of the mortgage agreement by and between the mortgagor and the mortgagee before the Title Deed Register, 0,75% of the mortgage amount shall be paid as stamp tax (ceiling) and 0,36% of the mortgage amount shall be paid as Title Deed charge. According to last paragraph of Article 851 of the Turkish Civil Code, while calculating the Turkish Lira equivalent of the mortgage amount in foreign currency, foreign currency purchase rates of the Turkish Central Bank effective on the date of such calculation shall be applied. (k) Receivables (credit rights under contracts or invoices); In the case of an assignment of receivables by way of security, it is customarily the case that the assignor would, during the period when there is no event of default, continue to retain its rights to receive the receivables it assigned for security and under the occurrence of an event of default, these receivables would be directed to the assignee or to its order. Accordingly, in these cases the parties to this arrangement would benefit from a structure where there will not be an outright assignment whereby the assignor would continue to have access to the cash flow related to those assigned receivables in the absence of any default. It is also best practice to give a written notification of the assignment to the debtor to prevent any adverse consequences. Accordingly, when the debtor receives a written notification of the assignment from either the assignor or the assignee, the debtor will be then required to pay its debt to the assignee and will not be released from its debt if it makes the payment to the assignor. There would also be an added advantage in serving a notification and requesting an acknowledgment of no prior ranking assignments or counterclaims from the debtor of the relevant receivable which would assure the assignee that the receivable so assigned is not previously assigned or is subject to counterclaims.

7 According to Article 954 of the Turkish Civil Code, present and future revenues and/or receivables of a debtor may also be pledged by entering into a written pledge agreement between the pledgor and pledgee. Such a pledge agreement is not required to be registered with any register or authority however the debtor(s) of the revenues and/or receivables is required to be notified of the pledge. However, notification to the debtors is not a condition in respect to the perfection of the pledgor or assignment of a receivable but rather a condition for payment of each debtor to the pledgee. Although notification of the debtor is not required for the perfection of the pledge, we would recommend that the pledge agreement include a provision obliging the pledgor to notify its debtor(s) of the pledge and to request an acknowledgment of no prior ranking assignments or counterclaims from such debtor(s). Thus, pledgor s debtor cannot raise good faith claim for the payments made directly to the pledgor after the receipt of the said pledge notice. (l) Rights under Contracts (excluding Receivables); While it is possible to assign the right to receive receivables under contracts, rights under a contract cannot be assigned independently of the obligations thereunder. Accordingly, there is no other available security over rights under contracts under Turkish law. (m) Shares (in book-entry and certificate form and other securities); A pledge over the shares of a company can only be established by entering into a written pledge agreement and in order to ensure the legal validity and enforceability of the pledge over the shares physical possession of the pledged shares are required to be delivered to the pledgee. Save as the further provisions in the articles of association of the company whose shares are subject to pledge, the said company should pass a board of directors resolution for the register of such pledge with the share book of the company, so that no one can claim good faith while conducting any transaction regarding the pledged shares. According to the Turkish Civil Code and the Turkish Commercial Code (Law No.6762) (published in the Official Gazette dated July 09, 1956, No.9353) (the Turkish Commercial Code or TCC ), the voting rights of the shares pledged in favour the pledgee are required to be exercised by the legal title owner, in other words by the pledgor not the pledgee. Lex Commissaira Provision prohibits inserting any provision in the pledge agreement enabling the pledgee to become title owner of the pledged shares in case of default. However, the pledge provides the right to the pledgee to cash-in the pledge and off-set the proceeds against its receivables. Therefore, upon the occurrence of an event of default, the pledgee shall have the right to apply to the execution office to initiate the foreclosure proceedings in order cash in the pledge and the shares subject to pledge shall be sold via execution proceedings as set forth in the Turkish Execution and Bankruptcy Code and the pledgee shall be satisfied from the proceeds of such sale. The above-mentioned provisions regarding the foreclosure proceeding through the Execution Office is not a mandatory provision of Turkish law and the pledge over the

8 shares may be foreclosed by the pledgee privately without requiring a judicial proceeding. (n) Vessels; According to Article 23 of Execution and Bankruptcy Code ships s which are not registered with the relevant registry office are considered as movable properties, whereas the ships already registered are considered as immovable property. Article 875 of TCC provides that a mortgage can be granted as a security on ships. As a requirement arising from Article 841 of TCC, the ships shall be registered with the relevant ship registry office subject to the port of commission. As per Article 876 of TCC, the owner and the creditor shall agree upon the establishment of a mortgage over the relevant ship in a written form before the public notary. Following such execution, registration with the relevant ship registry is required. Such registry are opened to public therefore, anyone can verify the records at such registry. (o) Vehicles; In order to place a pledge over a moveable, it is legally required that such pledge is registered with a private registry, pursuant to Article 940/II of Turkish Civil Code, in order to perfect the pledge over the said moveable. After such registry process, physical possession of such moveable is not required to be transferred to the pledgee. A vehicle pledge benefits from this provision of the Turkish Civil Code and accordingly all vehicle pledges must be registered with the Traffic Registry. In case of any default under the pledge or the underlying credit arrangement between the parties, the pledgee should apply to the relevant Execution Office for the enforcement of the pledge in order to be able to recover its receivables. Due to Lex Commissaria Prohibition under Turkish law any kind of provision with respect to the transfer of title of a moveable in case of default is null and void and the pledgee is therefore only entitled to proceeds of the sale of the vehicles conducted by the Execution Office. (p) Business as an ongoing concern. Pledge over a business as an ongoing concern does not exist under the laws of the Republic of Türkiye. 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? The foreclosures require judicial proceedings before a commercial court in the case of a mortgage and commercial enterprise pledge and such foreclosures cannot be done privately. The foreclosure procedure for mortgages is explained in detail above under item 2 (a). As for the foreclosure regarding the commercial enterprise pledge, Lex Commissaria Prohibition is also applicable to commercial enterprise pledges and as a result, any kind of provision regarding the transfer of the title of any of the assets that

9 are a part of the pledge is null and void. If the pledgor does not pay its debts when due, the pledged assets shall be sold and the pledgee shall receive its receivables from the sale proceeds. According to Article 17 of the Commercial Enterprise Law (Law No.1447) (published in the Official Gazette dated July 28, 1971, No.13909), the provisions of the Execution and Bankruptcy Code related to foreclosure procedures shall apply. As for share pledge, Lex Commissaria Provision (as mentioned above) prohibits inserting any provision in the pledge agreement enabling the pledgee to become title owner of the pledged shares in case of default. However, the pledge provides the right to the pledgee to cash-in the pledge and off-set the proceeds against its receivables. Therefore, upon the occurrence of an event of default, the pledgee shall have the right to apply to the execution office to initiate the foreclosure proceedings in order cash in the pledge and the shares subject to pledge shall be sold via execution proceedings as set forth in the Turkish Execution and Bankruptcy Code and the pledgee shall be satisfied from the proceeds of such sale. The above-mentioned provisions regarding the foreclosure proceeding through the Execution Office is not a mandatory provision of Turkish law and if expressly agreed in writing between the pledgor and pledgee, the pledge over the shares may be foreclosed by the pledgee privately without requiring a judicial proceeding. In practice, such procedures usually take a period of approximately 6 months to a year barring no objections at various stages, in which case the enforcement procedures may take approximately 2-3 years. Under Turkish law, in terms of enforcement, the Mortgagee is required to initiate the following judicial foreclosure proceedings in order to cash-in the Mortgage: (a) (b) The Mortgagee will apply to the relevant Execution Office for calling the Mortgage and to cash-in the same; The Execution Office will serve a payment order to the Mortgagor and require the Mortgagor to pay the amount of the debt, together with default interest and legal charges thereon, within 15 days from the date of receipt of the payment order or to object to the contents of the payment order within 7 days from the date of receipt of the payment order; In the event no objection is made by the Mortgagor within 7 days and the debt, together with the default interest and legal charges thereon is not paid within 30 days, the Execution Office will appoint experts to evaluate the market value of the Property. In the event the contents of the payment order are objected to by the Mortgagor, the Mortgagee is required to file a lawsuit against the Mortgagor and claim an annulment of the objection from the courts. In the event the Mortgagee s claim is awarded by the courts, the Execution Office will be able to appoint experts to evaluate the market value of the Property. The judgement of the courts is appealable by the Mortgagor in the event the award is in favour of the Mortgagee, however, the proceedings at the Court of Appeal shall not suspend those of the Execution Office but it will suspend the sale of the Property at a public auction. In other

10 words, the Property can be sold at a public auction after the judgement of the court is approved by the Court of Appeal; (c) (d) (e) The Execution Office, after receiving the experts report evaluating the market value of the Property, will serve it to the Mortgagor who will then have the right to object to the evaluation report within 7 days before the relevant court, and the court will determine the market value of the Property through experts to be appointed by the judge. The judgement of the court for determining the market value of the Property is also appealable and an appeal will suspend the sale of the Property at public auction; After completion of all the above mentioned foreclosure proceedings, the Execution Office will decide upon the dates of public auction for the sale of the Property subject to mortgage, which will be two separate auction dates. In the first auction, at least 60% of the market value as determined by the experts is required to be offered and if such an offer is not provided, at least 40% of the market value is required to be offered in the second auction. In the event sufficient offers are obtained by the Execution Office, the Property will be sold to the highest bidder and such bidder will be required to pay the amount of its bid in cash to the Execution Office and the Mortgagee will receive its receivables from such proceeds. The costs of the foreclosure proceedings and the legal costs made during that term shall be paid from the sale proceeds and the outstanding amount shall be paid to the Mortgagee. The legal costs includes lawyer's fees payable in accordance with the most recent tariff in force as published in the Official Gazette of the Republic of Turkiye; The Mortgagee has the right to bid and purchase the property subject to mortgage. In such case the Mortgagee has the right to off-set its receivables from the bidding price. If the receivables of the Mortgagee is equal to or more than 20% of the market value of the property, then the Mortgagee shall not pay the deposit money/letter of guarantee of 20% of the market value of the Property that the other third party bidders are required to pay before entering into the bid. In case the bidder purchases the Property at the end of the foreclosure proceedings it will be free to sell the same to the third parties; The above mentioned foreclosure proceedings will take approximately 6-7 months, in the case of no objections from the Mortgagor and 2 years or so, in the case of objections or appeals at each step. 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders?

11 It is possible to have a security agent or a security trustee holding the security on behalf of a pool of lenders under Turkish law. However, if a security trustee is used, then such security trustee cannot be a Turkish entity due to the fact that such concept is not recognised under Turkish law. On the other hand, a non-turkish entity can be appointed as a security trustee since according to Article 8 of the International Procedure Law, the trust concept would be recognised if any such capacity exists in the country of incorporation of the security trustee. Accordingly, under Turkish law it is possible to appoint a security trustee incorporated abroad provided that country of its incorporation recognises the concept of trust. In any event, it is quite customary and enforceable as a matter of Turkish law for an agent (e.g. a security agent) to hold the security on behalf of a number of lenders. 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? Pursuant to Article 278 of the Execution and Bankruptcy Code, transactions that are made for no consideration (including donations) within the two-year period preceding the relevant attachment or the date of insolvency or bankruptcy may be challenged. Whilst such provision does not provide an exhaustive list for these acts, it specifies certain transactions that would be deemed to be "donations". Such transactions are: (i) transactions in return for a consideration where the counterparty is the spouse, child (including those adopted) or parent or a third-degree relative (including relatives by marriage) of the insolvent party; (ii) transactions for a consideration the value of which received by the insolvent party is significantly less than the actual value of the consideration/asset it gives under the same transaction; or (iii) agreements in favour of the insolvent party or a third party where revenues or other interests are allocated to the beneficiary for a life-time period. According to the provisions of Article 279 of the Execution and Bankruptcy Code, the following arrangements would be voidable if such arrangements are made within one year before the declaration of the bankruptcy or insolvency of the insolvent party or the enforcement proceeding against the same: (i) the creation by the insolvent party of a pledge over its assets to secure an existing debt (where the insolvent party had not previously promised to execute such pledge or mortgage), (ii) any payments made by the insolvent party other than with money or other ordinary payment methods (such as through delivery of its motor vehicle), (iii) prepayment of debts that are not yet due, or (iv) registrations with title deed registers for the purpose of strengthening personal rights related to the real estate in question. This category of cancellation rights requires that the party entering into the cancellable transaction should be in a position of not being able to pay its debts as at the time of execution of the transaction and furthermore the other contracting party should also be aware of such insolvency situation. Under Article 279 of the Bankruptcy and Execution Code, the court would not declare any such arrangements void if third parties that benefit from such arrangements prove that they were not aware of the financial condition of the insolvent party. In addition, as per Article 280 of the Execution and Bankruptcy Code, any disposal made by the insolvent party acting intentionally against the interests of its creditors may be subject to challenge provided that (i) the relevant transaction is concluded at the time

12 when such party s assets are not sufficient to cover his debts, (ii) the insolvent party acts in bad faith towards its other creditors, and (iii) the other contracting party is aware of, or based upon the circumstances, should have been aware of (a) the insolvency and financial condition and (b) the bad faith of the insolvent party. In cases where (i) the counterparty of any such transaction is the spouse, child (including those adopted) or parent or a third-degree relative (including relatives by marriage) of the insolvent party or (ii) the counterparty is transferred the entire commercial enterprise or a substantial part of the same or is in charge of such enterprise, then any such counterparty would be deemed to be aware of the insolvency of the insolvent party unless it proves otherwise (in the case of (ii), by way of proving that it has notified in writing of the challenging party of such acquisition or otherwise made due announcements no later than three months prior to the acquisition). Any challenge to a transaction on the basis of this Article 280 must be made within five years after the date of such disposals through an attachment or bankruptcy proceeding. As for preference rights, please be advised that the bankruptcy administration is responsible for the utmost protection of the creditor s rights. In this respect, it is responsible for prevention of any potential transaction that can be conducted by the debtor which may be hazardous to the interests of the creditors. For all transactions that may be of hazardous nature for the creditors, the bankruptcy administration is entitled to file an objection with the relevant Execution Court within seven days of the occurrence of the event in concern. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? Please be advised that whilst the subordination as a contractual undertaking would be valid, Turkish law does not recognize subordination of debts in the event of the insolvency of a Turkish company bar for special circumstances regulated by law such as transactions where banks are borrowers of quasi-capital loans of subordinated nature which are subject to strict compliance rules. Accordingly, in the event of the insolvency/bankruptcy of the Turkish company, subordination will not be upheld by the liquidators and as a result, the claims of the subordinated creditors will rank pari passu with the claims of all unsecured creditors. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.) A security agent can assign (not transfer by way of novation) the relevant security agreement to another entity which will result in the new entity becoming the security agent provided that the relevant security document allows such an assignment. An assignment, unlike novation, would result in accessory rights also being assigned such as the security and as such it is generally preferred in Türkiye. In case of a mortgage agreement, the assignment may also be registered with the relevant title deed registry, however, such a registration is not a validity condition. Also, it would be easier in an enforcement scenario to have the new entity on the relevant security document and, therefore, it would be preferable to amend the relevant security document as well to show the change of the security holder.

13 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? Having on top of a security another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor does not exist under the laws of the Republic of Türkiye. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? It would depend on the nature of the agreement and the scope of the step-in rights, however, this would generally work other than in specific cases such as concession contracts for change of the parties of these may necessitate a re-tender process.