In Maritime Law, after the debt becomes due in a ship mortgage..

Entrance

Maritime trade is at the heart of international transportation activities, and ships are used both as the primary means of transport and as reliable collateral . The Turkish Commercial Code ("TCC") regulates ship mortgages, thus protecting the rights of creditors.

The most critical stage of a ship mortgage is when the debt becomes due. This is because maturity gives the mortgagee the right to have the ship sold through compulsory execution and to collect their debt primarily from the sale proceeds.

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The Concept of Maturity

1. Definition

Maturity means that a debt becomes due and payable. In other words, the debt has reached its due date, and the creditor has the right to demand payment.

2. Importance

• Enforcement proceedings cannot be initiated before the debt becomes due.
• When the debt becomes due, the mortgage creditor can exercise their strongest rights.
• This stage represents the actual activation of the mortgage's collateral function.

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Rights of a Mortgage Creditor After a Debt Becomes Due

1. Right to Sell Through Forced Execution

The most basic function of a mortgage is to grant the creditor the right to have the ship sold through forced execution when the debt becomes due.

• The request for sale is made by applying to the enforcement office.
• Ship sales are typically conducted through enforcement agencies specializing in maritime trade.

2. Priority Right to Collection

• The proceeds from the sale will first be collected from the mortgage holder.
• A ranking system is applied: The second-degree mortgage holder cannot proceed until the first-degree mortgage holder is satisfied.
• If the amount exceeds the debt, that portion is paid to the other creditors or the ship owner.

3. Rights over Assets Substituting for Ships

After maturity, the mortgage creditor acquires direct rights over the assets replacing the vessel

• Insurance compensation,
• Expropriation price,
• Rental income.

4. Rights Regarding Interest and Ancillary Claims

The scope of the mortgage is not limited to the principal amount only. After maturity:

• Late payment interest,
• Compensation,
• Collection costs are also collected within the scope of the mortgage.

5. Right to Apply Directly to the Insurer

If the insurance policy lists a creditor, the mortgage holder can directly contact the insurer after the debt becomes due and payable.

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Legal Basis

• Turkish Commercial Code Article 1013: The basic regulation regarding the establishment of ship mortgages.
• Turkish Civil Code Article 883: Regulates that insurance compensation falls within the scope of mortgages.
• Turkish Commercial Code Article 1016: Explains that ship mortgages also extend to assets replacing the ship.
• The provisions of the Enforcement and Bankruptcy Law regulate the sale of the ship through compulsory execution and the distribution of the proceeds.

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Rights After Maturity in Light of Supreme Court Decisions

• The 11th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2005/3650 E., 2006/4643 K., emphasized the right of the mortgage creditor to demand forced sale after the maturity of the debt.
• The 19th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2014/13263 E., 2015/7892 K., ruled that the insurance compensation falls under the scope of the mortgage and can be paid directly to the creditor after maturity.
• The 11th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2017/4358 E., 2019/2211 K., confirmed that interest and ancillary claims can also be collected within the scope of a mortgage.

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Its Importance in Practice

From the Creditor's Perspective

• The strongest safeguards come into play after the debt becomes due.
• The rights of forced sale and direct collection protect the creditor.

From the Debtor's (Ship Owner's) Perspective

• If the debt is not paid, the ship may be lost.
• However, the mortgage is terminated as soon as the debt is paid, and the owner is released from the restrictions on the vessel.

From the Perspective of Maritime Trade and Financing

• Banks use ship mortgages to secure the collection of loans they have extended.
• The effectiveness of post-maturity rights enhances the reliability of the credit market in maritime trade.

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Problems Encountered

• In forced sales, selling a ship below its true value can make it difficult for the creditor to be satisfied.
• Setting insurance compensation too low can prevent the claim from being collected.
• When there is more than one mortgage holder, disputes regarding the order of priority may arise.

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Proposed Solutions

1. Foreclosure sales should be conducted transparently and swiftly.
2. Insurance policies must include a clause specifying the secured creditor.
3. Transparency should be increased in the rating system, and ship registers should be kept in order.
4. In line with Supreme Court precedents, uniformity in practice should be ensured.

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Conclusion

In maritime law, a ship mortgage provides strong security for the creditor. However, the most critical function of the mortgage comes into effect after the debt becomes due

• Request for sale through forced execution,
• Priority right of collection,
• Rights to insurance compensation and expropriation price,
• Collection of interest and ancillary receivables,
• Applying directly to the insurer,

These are the most important rights granted to the mortgage creditor after the debt becomes due.

In conclusion, once a debt becomes due, the rights of the secured creditor constitute a crucial protection mechanism in maritime trade, ensuring financial security for both creditors and debtors.