TÜRKIYE Law and Practice Contributed by: Serkan Gül, Nazım Kurt and Türkay Avanaş, Hergüner Bilgen Üçer Attorney Partnership
3.8 Lenders’ Liability Under Environmental Laws Under the applicable law, polluters must bear all expenses for the prevention, removal and cleaning up of pollution. The applicable law requires that – where environmental pollution is a possibility – par - ties must take the necessary measures in order to prevent pollution, and, if pollution occurs, they must take the required actions in order to stop the pollution or decrease the effects of the pollution. The same law explicitly states that polluters have strict liability with respect to environmental pollution. Therefore, lenders holding or enforcing security over real estate should not be liable under environmental laws, as any pollu - tion to the real estate is regarded as being caused by the borrower. 3.9 Effects of a Borrower Becoming Insolvent In principle, securities established in favour of a lend - er do not become void by a borrower’s insolvency. However, securities guarantee the creditors’ position in such cases. Declaration of Bankruptcy In the event of a borrower’s insolvency, creditors can ask a court to declare the bankruptcy of the borrower. Bankruptcy results in the total liquidation of the bank - rupt entity’s assets and the satisfaction, pro rata, of its creditors. An important exception to this rule is mortgagees as their receivables are guaranteed by a specific security, so the bankruptcy rules require that they be repaid first, in full, before other unsecured creditors. Composition of Debts On the other hand, when borrowers become insolvent, they can seek bankruptcy protection in the form of composition of debts. Under this mechanism, debtors reach an agreement with their creditors regarding the extent of the deduction to be made in outstanding debts and the deferment of payments. Mortgagees are given exceptional rights under the composition of debts mechanism as well. Even under the compo - sition regime, mortgagees may initiate proceedings for the sale of mortgaged assets to have their debts repaid but may not realise the eventual sale of the secured asset while the protection is in place.
shares, and such financial assistance transactions will be deemed null and void. This provision does not apply to (i) transactions conducted for the purpose of the activity of financial institutions and (ii) securities, advance payments and loans granted to employees of the target company or its parent company in order that they may acquire the shares of the company. When granting upstream security or guarantees for a parent company, it may be difficult for board members to specify a convincing reasonable cause for the sub - sidiary to enter into such an arrangement to the ben - efit of its holding company or other group companies. 3.6 Formalities When a Borrower Is in Default Under Turkish law, the creditor beneficiary of a mort - gage must initiate an execution proceeding to liqui - date the mortgage. Depending on the workload of the execution offices and courts, and on whether the borrower challenges the proceedings, these proceed - ings can take from six months to three years. Priority between claimants is listed as an obligatory rule of the applicable law. By law, a creditor beneficiary of a mortgage has priority over other creditors with respect to mortgaged property. An accelerated foreclosure procedure exists for prin - cipal amount mortgages and mortgages granted in favour of banks and financial institutions. 3.7 Subordinating Existing Debt to Newly Created Debt In principle, the order of priority between creditors is regulated under the applicable law, and contrac - tual subordination is not expressly regulated under the law. According to Court of Appeals precedents, execution and bankruptcy rules relate to public policy and cannot be changed contractually. Accordingly, a subordination agreement is not enforceable against an execution office. However, parties may freely under - take to pay the respective amounts to other recipients upon collecting receivables. In summary, a subordina - tion arrangement may create a contractual obligation on the part of the parties but will not have a preventa - tive effect during any enforcement proceedings to be initiated before execution offices.
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