Secured Creditors’ Rights in Turkish Insolvency Law

Insolvency is the moment when security interests are tested. A pledge or mortgage that looks strong in normal times can lose practical value if perfection is unclear, collateral cannot be identified, or priority is disputed. For that reason, understanding secured creditors’ rights in Turkish insolvency law is not just academic—it is fundamental for banks, investors, trade finance providers, and any party structuring credit risk in Turkey.

In broad terms, Turkish insolvency practice differentiates between:

• secured creditors (rehinli alacaklılar), whose claims are supported by collateral such as mortgages or pledges; and
• unsecured creditors, whose recovery depends on general asset pool distribution and statutory ranking.

Yet secured status is not automatic. It depends on a legally valid security interest, properly perfected and capable of being proven under insolvency scrutiny. This article explains the secured creditor’s position in Turkish insolvency contexts—especially enforcement, priority, and the practical strategy issues that determine recovery outcomes.

1. What Makes a Creditor “Secured” in Turkey?

A creditor is “secured” when it holds a legally recognized security interest—typically a pledge or mortgage—over specific collateral to secure a debt. But the secured position has three layers:

1. Validity: the security was established with correct form and authority.
2. Perfection (Third-Party Effect): the security is effective against third parties (often through registration or legally required publicity).
3. Priority: the secured creditor ranks ahead of others with respect to collateral proceeds, subject to legal exceptions.

If any layer fails, the creditor may be treated as unsecured (or partially unsecured) in insolvency negotiations.

2. The Core Privilege: Payment From Collateral Proceeds

The central right of a secured creditor is to be paid from the proceeds of the collateral’s realization (paraya çevirme). In practice, this means:

• collateral is identified,
• it is sold through enforcement mechanisms,
• sale proceeds are applied to the secured debt according to the applicable priority rules.

If collateral value is insufficient, the unpaid part of the secured debt may effectively become an unsecured exposure for the remainder (commercially, the creditor becomes “partly secured, partly unsecured”).

3. Priority: Why Ranking Is the Real Battle

Priority disputes are common in Turkish distress scenarios because multiple rights can compete. Priority can be affected by:

• earlier perfected pledges/mortgages,
• competing security interests in different registries,
• statutory privileged claims and procedural costs,
• ownership disputes (finance leasing, retention of title),
• unclear collateral descriptions that invite overlap challenges.

Practical point: A secured creditor’s recovery is rarely determined by the mere existence of a pledge. It is determined by the combination of (i) priority certainty and (ii) collateral value at the time of realization.

4. Enforcement Strategy in Insolvency: Rights vs. Process Reality

In insolvency, secured creditors often face a gap between formal rights and procedural reality. Even when enforcement is legally available, practical constraints can arise:

• timing delays,
• valuation disputes,
• debtor resistance and litigation,
• and restructuring frameworks that encourage negotiated solutions rather than immediate liquidation.

As a result, sophisticated secured creditors often treat insolvency not only as an enforcement moment but also as a negotiation and positioning moment.

5. Secured Creditors in Concordat (Koncordato)

Concordat is a court-supervised restructuring mechanism aimed at allowing the debtor to continue operations while negotiating a repayment plan. For secured creditors, concordat raises recurring issues:

• the extent to which enforcement is constrained by court measures,
• how collateral can be preserved while the business continues,
• how secured claims are reflected in the plan negotiations,
• and how proceeds or replacements are handled when collateral is dynamic (inventory/receivables).

In practice, secured creditors in concordat focus on:

• proving secured status with clean documentation,
• preventing collateral leakage,
• ensuring transparency for asset sales and proceeds,
• and using their secured position as leverage to improve plan terms.

6. Secured Creditors in Bankruptcy / Liquidation Contexts

In bankruptcy-type scenarios, secured creditors generally pursue recovery through collateral realization pathways. Key practical factors include:

6.1. Collateral Identification and Control

If collateral is not clearly identified, the debtor may claim assets are outside scope or belong to third parties. Machines may be leased, inventory may be held by warehouse operators, and receivables may be disputed.

6.2. Valuation and Sale Process

The sale process influences recovery more than legal theory. Specialized machinery may be heavily discounted; inventory may lose value quickly; real estate may retain value but take longer to monetize.

6.3. Evidence Strength

In distress, the creditor must show:

• the security agreement,
• perfection evidence (registry proof, consistent entries),
• collateral schedules and current status,
• corporate approvals and authority.

Weak evidence turns enforcement into litigation.

7. Practical Rights That Matter: Monitoring, Preservation, and Challenge Management

Secured creditors often rely on rights that support preservation:

• reporting and audit rights (contractual, and in some contexts practical through the process),
• restrictions on extraordinary asset sales,
• insurance verification and loss-payee arrangements,
• site inspections and asset verification.

When insolvency risk appears, early action is crucial. Delay allows collateral to deteriorate or disappear.

8. Common Disputes in Turkish Insolvency for Secured Creditors

1. Perfection disputes: whether registration/publicity was completed correctly.
2. Scope disputes: whether particular assets are within collateral definition.
3. Title disputes: whether the debtor owns the asset (leasing / retention of title).
4. Priority disputes: competing creditors and statutory exceptions.
5. Proceeds disputes: whether proceeds are ring-fenced or used as working capital.
6. Receivables disputes: set-off, debtor defenses, collectability shocks.

These disputes are predictable. The best defense is clean structuring before distress and disciplined documentation.

9. Strategy Checklist for Lenders and Investors

1. Confirm perfection evidence and registry consistency (treat as “litigation file”).
2. Map title ownership (separate leased assets and third-party goods).
3. Update collateral schedules (serial numbers, locations, inventory reports).
4. Build an enforcement plan early (buyers, valuation assumptions, timing).
5. In concordat, focus on leakage prevention and plan negotiation leverage.
6. Consider intercreditor dynamics if multiple secured lenders exist.
7. Model recovery realistically: collateral value is often lower in distress.

Conclusion

Secured creditors in Turkish insolvency law are generally privileged in that they can pursue repayment from collateral proceeds. But that privilege is only as strong as the creditor’s perfection, priority certainty, and collateral reality. Insolvency is not only an enforcement event—it is a stress test of documentation, monitoring discipline, and strategic negotiation. Lenders and investors who treat secured status as a complete system (validity + perfection + priority + preservation) achieve the best recoveries; those who treat it as a single registration step often face litigation and value loss.