AUTOMOTIVE AND MACHINERY

Securing Payment When Selling Machinery to Türkiye: Retention of Title, Pledges and Enforcement

For machinery sold from Europe to Türkiye, it is common practice for a significant part of the price to be paid after delivery, often in instalments. The seller usually feels secure during this period because of the security instruments it is used to at home. However, some instruments that operate almost automatically in Germany or Austria only provide protection in Türkiye if certain formal requirements are met. Where these requirements are not known, the seller may find itself an unsecured creditor at the very moment the buyer runs into payment difficulties.

Practice shows that the outcome of a collection case depends on which security was chosen when the contract was signed and whether it was validly created under Turkish law. The following sections outline the main security instruments that companies selling machinery to Turkish buyers should know and how they work.

Retention of title

An agreement that title remains with the seller until the price has been paid in full is also recognised under Turkish law. For it to be valid, however, the retention of title agreement must be executed in official form and registered in the special register kept at the notary's office at the buyer's domicile or registered seat. A clause that merely appears in the contract or in the general terms of sale does not, without registration, give the seller any protection in Türkiye based on ownership.

Where the machine is sold under a contract concluded abroad and then brought into Türkiye, the extent to which a retention of title created under foreign law has effect in Türkiye must be examined separately in each case; lasting protection often also requires the conditions of Turkish law to be met. It is therefore advisable to plan the registration to coincide with delivery and to secure the buyer's cooperation in the contract.

Movable pledge

Turkish law also allows a pledge to be created, without transfer of possession, over machinery and equipment used in a business, between parties having the capacities listed in the law. Created by registration in an electronic register, this pledge allows the machine to remain in use at the buyer's business while providing the seller or the financing institution with security according to its rank in the register. More flexible than retention of title, this structure may be preferred in particular where several machines or an entire production line are sold together.

The value of the pledge depends on correct registration and a clear description of the pledged asset. Missing or incorrect information on the serial number, model or location can lead to disputes at the realisation stage.

Bills of exchange, cheques and bank guarantees

Promissory notes and cheques are still widely used for instalment sales in Turkish commercial practice. Their importance lies in the fact that non-payment opens a special, expedited enforcement procedure for negotiable instruments. The instrument must, however, satisfy all formal requirements, and pre-printed forms prepared for foreign sellers frequently fail to do so.

Sellers seeking stronger protection turn to a bank guarantee or a letter of credit. As these instruments create additional costs for the buyer, they may meet resistance in negotiations; for high-value sales, however, they are the most direct way of shifting the payment risk to a bank.

When the buyer does not pay

When the buyer stops paying, enforcement proceedings are the main route for debt collection in Türkiye. In enforcement proceedings not based on a judgment, the debtor can halt the proceedings by filing an objection; the creditor may then, depending on the nature of its documents, apply to the enforcement court to have the objection lifted or bring an action for annulment of the objection. Since the successful creditor may also be awarded compensation for unjustified denial of the debt, unfounded objections come at a cost for the debtor. In proceedings based on negotiable instruments, the debtor's grounds for objection are narrower and the process is considerably faster.

Where collection of the claim is at risk, a precautionary attachment may also be sought; if the court is satisfied that the conditions are met, the debtor's assets can be secured before the case is decided. Where the retention of title has been properly registered, the seller may also demand the return of the machine; this route can be more effective than collection where the machine retains its value on the second-hand market.

When the buyer gets into financial difficulty

A buyer's application for concordat is the moment when the seller's security is put to the test. During the temporary and definitive moratorium granted in concordat proceedings, enforcement proceedings may as a rule not be initiated against the buyer and pending proceedings are stayed; although proceedings for secured claims are possible, the pledged asset may as a rule not be realised during this period. At this stage, a seller holding a validly created pledge or a registered retention of title is in a different position from unsecured creditors. A seller whose security has not been registered, by contrast, often receives only part of its claim, spread over a long schedule.

For this reason, at the first signs that the buyer's financial position is deteriorating, such as delayed payments or requests for extended payment terms, a prompt review of the available security and enforcement options is more effective than any step that can be taken after the concordat application.

Conclusion

Payment security when selling machinery to Türkiye is not established by a sentence in the contract but by fulfilling the registration and formal requirements of Turkish law. Registration of the retention of title with the notary, registration of a movable pledge where appropriate and the issuance of negotiable instruments in proper form determine the rights with which the seller can act when the buyer stops paying. General questions of corporate law and debt collection are addressed on the pages of the relevant practice areas.