Did the Bank Unilaterally Close Your Loan Account? Conditions and Limits of Account Closure for Merchants

A merchant who uses a bank loan for their business may unexpectedly learn that their loan account has been closed (kat edilmiş) by the bank. Although General Loan Agreements (GKS) grant banks fairly broad authority in this regard, the exercise of this authority is subject to certain procedural requirements and the good-faith principle. So under what conditions can a bank close a loan account, when does this transaction render the debt due and payable (muaccel), and what rights does the merchant have against this process?

Summary of the Situation

A situation frequently encountered in commercial loan relationships is as follows: a business using an instalment commercial loan becomes unable to make payments in line with the payment plan, or another event of default provided for in the agreement occurs (for example, deterioration of financial ratios, or default under another loan). Relying on the provisions of the GKS, the bank unilaterally closes the loan account and sends a formal notice (ihtarname) demanding payment of the entire debt. At this point, the merchant is compelled to question both whether this transaction was carried out in accordance with the proper procedure and when default interest will begin to accrue.

The Legal Issue

• What are the limits of the bank's authority to close a loan account?
• Does the closing of the account and the debtor's default occur at the same moment?
• By what procedure must the formal notice be sent, and what are the consequences if it is not served?

What Do the Court of Cassation and the Courts Say?

The form of formal notices between merchants is determined by the TTK. Under Article 18/3 of Turkish Commercial Code No. 6102 (TTK), formal notices between merchants intended to place the other party in default or to terminate the agreement must be made through a notary public, registered letter, telegram, or the registered electronic mail (KEP) system. An ordinary written notice sent without complying with this form may not produce the consequences of default.

Due-and-payable status and default arise at different moments. According to the Istanbul Regional Court of Appeal, 13th Civil Chamber (Case No. 2019/941, Decision No. 2021/328, 2021), closing the account renders the receivable due and payable (muaccel); however, for default to occur, the proper formal notice must be served and the period granted must expire. Being due and payable is, on its own, sufficient to initiate enforcement proceedings; but for the (generally high) default interest rate provided in the agreement to begin accruing, a formal notice is additionally required.

The authority to "close the account at any time" is deemed valid as between merchants. Some GKS provisions grant the bank the authority to close the account without stating any reason. In practice, courts accept that, under the "prudent merchant" obligation in TTK Article 18/2, the merchant signed such onerous terms knowingly, and this authority is deemed valid as between merchants.

However, this authority is not unlimited; the good-faith principle applies. An account-closing authority exercised without a concrete event of default may be assessed as an "abuse of right" and wrongful termination. Closing the account of a merchant who has been making regular payments "without stating any reason" may be found contrary to the good-faith principle (Turkish Civil Code (TMK), Article 2), and may additionally warrant moral damages due to damage to commercial reputation.

Delivery of notice to the address may be deemed sufficient. Under Article 68/b of the Enforcement and Bankruptcy Law (İİK), the account-closure notice for bank loans must be sent by notary public to the debtor's address specified in the agreement. Unless a change of address has been notified through a notary public, even a notice sent to the old address and returned undelivered may be deemed to have been duly served.

Continued acceptance of payments may render the closure ineffective. Where the bank continues to accept instalment payments after sending the account-closure notice, it may be accepted that the loan relationship has in fact continued, and that default only occurs as of the date enforcement proceedings are initiated.

Points to Watch

• Check whether the formal notice complies with the proper procedure. Whether a notice sent by a means other than notary public, registered letter, telegram, or KEP produces legal effect is debatable.
• Do not confuse being due and payable with default. Although closing the account renders the debt due and payable, a separate notice and time requirement applies for the high-rate default interest to begin accruing.
• Question the grounds for the closure. An account closure carried out without a concrete event of default provided for in the agreement may be challenged on the ground that it is contrary to the good-faith principle.
• Be aware of cross-default risks. A breach relating to financial covenants may, if provided for in the agreement, be deemed a default under all other loan relationships as well, and this may lead to the closure of all loans.
• Keep your address information up to date. Failure to notify a change of address to a notary public creates the risk that notices will be deemed validly served.

Conclusion: What Should You Do?

The broad account-closure authority contained in General Loan Agreements that banks conclude with merchants is not an absolute authority. For this authority to produce legal effect, the formal requirements under TTK Article 18/3 and İİK Article 68/b must be strictly complied with, and there must be no conduct contrary to the good-faith principle. When you learn that your loan account has been closed, you should first examine whether the formal notice was sent in accordance with the proper procedure, the contractual provision on which the closure is based, and whether your payments, if any, were accepted by the bank. Since this assessment will directly affect both your defense against enforcement proceedings and any potential compensation claim, we recommend obtaining support from a commercial law attorney.