Parallel Debt and Security Agent Concepts under Turkish Law


English law is commonly preferred by financial market participants due to well-established regulations and market practices in finance transactions such as project finance, syndicated loans, secured bond issuances. However, the legal system of our country which is a part of the continental European legal system, cannot find exact equivalents used by the English legal system, which leads to certain obstacles in Turkish practice. On the other hand, there are some alternative methods that can be adopted to make these mechanics enforceable in our legal system as well.

As an example, we can discuss the concept of security agent (Trust), which has no enforceability under Turkish law. In the case where the credit agreement is signed by more than one creditor, there is no such practice in our country’s legal system where the collaterals are transferred to the security agent and solely controlled by that security agent. The concept of parallel debt is introduced as an alternative to fill up this vacancy. The legal basis and implementation of parallel debt under Turkish law are explained below.

Why did parallel debt model is established?

In its essence, parallel debt refers to the acknowledgement by the debtor to the security agent (Trust) of an additional debt equal to the borrowed amount which grants an additional and independent right of claim to the security agent alongside the principal debt. It should be noted that parallel debt is tied to the amount of the principal debt and so, in order to avoid any double payment, parallel debt will decrease in line with the repayment of the principal debt or, conversely, increase by the same amount the principal debt is increased.

As mentioned, the security agent (Trust) is integrated into the contracts governed by English law in international finance transactions and accordingly finds its basis from English law principles. As per Turkish Law, collaterals are classified into two categories: primary collateral and ancillary collateral. In this respect, collaterals such as mortgages, suretyships, and share pledges are considered as ancillary collaterals, and hence, the collateral taker and the creditor must be the same person. In other words, it is not feasible under Turkish law to grant the ancillary collateral related to the principal debt to a Trust, i.e., a security agent, Trustee, who is not the creditor of the principal debt. For this reason, the parallel debt model has been adopted into Turkish which the debtor incurs a parallel debt independent from the principal debt against the security agent. Thus, the concept of parallel debt has been introduced to satisfy the afore-mentioned legal need.

The parallel debt model and its legal nature

It is necessary to focus on what an “abstract acknowledgment of debt” means to have a better understanding of parallel debt.

In each debt agreement, there is a legal relationship between the debtor and creditor which might be due to a receivable, donation, or even performance. If the debt arises from an agreement, the basis for the debt is evident from the nature of that agreement. If, however, a person does not indicate the legal basis for the debt under such an agreement, it means acknowledgment of the debt without specifying any basis. This is referred to as an “abstract acknowledgment of debt”.

The concept of “abstract acknowledgment of debt” is regulated under Article 18 of the Turkish Code of Obligations (“TCO”). According to the afore-mentioned article, “Debt acknowledgement is valid even if it does not include the reason for the debt.” As per TCO, acknowledgment of debt without specifying the legal ground is deemed valid, whereas it is still controversial whether the claim based on this acknowledgment shall be deemed invalid if there is not a valid ground behind it, or even if deemed valid, it would constitute an unjust enrichment.

On the other hand, the legal nature of the parallel debt is also controversial in the doctrine. It is predominantly accepted that parallel debt is an abstract acknowledgement of debt in terms of its legal nature. In other words, the collateral provider acknowledges its debt, equal to the amount of the principal debt, to the security agent and falls under the obligation to perform such debt independent of the legal ground of the debt.

According to a doctrinal view, the relationship established between the credit claim and the parallel debt relationship eliminates the abstract nature of the debt. In this respect, since the existence of parallel debt is tied to the underlying credit claim, it cannot be argued that there is an abstract debt acknowledgment. In contrast to this view, the opposing view contends that the claim arising from the parallel debt does not depend on the validity of the credit agreement itself; rather, it is solely linked to the amount specified in the credit agreement and payment of that debt. Therefore, this opposing view asserts that parallel debt constitutes an abstract acknowledgment of debt. The important thing within the framework of this view is the payment of the debt and it is not dependent on whether the credit agreement is valid or not, so the parallel debt is an abstract feature for the parties.

On the other hand, parties may agree that objections and defenses arising from the credit agreement could be raised against the creditor within the concept of parallel debt. In this situation it was discussed whether the parallel debt could be defined as an abstract acknowledgement of debt. However, it has been predominantly accepted that an agreement to be made within the scope of freedom of contract will not eliminate the abstract feature of the parallel debt. For the given reasons, the parallel debt is an abstract acknowledgement of debt as per the prevailing view abroad and this is adopted to Turkish law.

Parallel debt and pledge

Other discussions regarding parallel debt mainly revolve around the legal certainty and ancillary nature of the pledge right, which is the most common collateral associated with parallel debt, and whether the pledge right is infringed by the parallel debt model or not.

The ancillary principle requires that the establishment and existence of the pledge right are dependent on the principal claim, and the holder of the pledge right must be the same person as the owner of the claim secured by the pledge. Since the party holding the credit right deriving from the abstract acknowledgement of debt and the pledge right are both the security agent in case when the parallel debt is secured by a movable pledge or mortgage, the ancillary principle will be satisfied.

Since the pledge right secures the claim arising from the abstract debt, no rule is being abrogated, and the ancillary principle is still in effect. Therefore, it can be said that the ancillary principle is not violated.

The principle of certainty requires that both the pledged amount of the claim and the subject matter of the pledge be certain. In the parallel debt method, the claim secured by the pledge arises from a specific legal transaction, and the pledge established between the pledgor, and the security agent secures the claim (parallel debt) arising from this specific legal transaction. Therefore, the principle of certainty of pledge is preserved in the parallel debt model. On the other hand, the principle of priority in the pledge law is not circumvented and the interests of lower-ranking pledge creditors are not harmed in cases where parallel debt is applied. Therefore, the principle of priority of pledge is also preserved in parallel debt.

Ancillary collaterals such as pledges are established directly in favor of the creditor to secure the claim arising from the credit agreement and this is not preferred due to certain risks. Particularly, in agreements with more than one creditor, such as syndicated loans, if the creditor changes, secondary collaterals such as pledges are also terminated. At this point, the risk mentioned here is eliminated by holding all the collaterals such as pledges in a single hand before the security agent. Therefore, it can be said that the parallel debt structure provides notable convenience for syndication loans.


As per English law, all collateral can be held by a single security agent and can continue to exist when there is a change of the creditor. There is however no such concept in Turkish legal system. As mentioned above, the parallel debt model has emerged in order to adapt this concept in practice and in this model, the borrower who is also the collateral provider, agrees to be in a separate and independent debt to the security agent for as much as the principal debt. Thus, the security agent becomes both the creditor and the owner of the right of guarantee and the security agent mechanism becomes enforceable under Turkish law.