Turkey: Pledge Establishment Within The Scope Of Law On Pledges Over Movable Property In Commercial Transactions No. 6750

1 – Legislation

Law On Pledges Over Movable Property In Commercial Transactions No. 6750 ("Law") has been published in the Official Gazette dated 28 October 2016 and entered into force on 1 January 2017. The Commercial Enterprise Pledges Law has been abolished by the law aiming to widen the scope of movables subject to the pledge and the use of the movable pledge without transfer of possession as assurance,to facilitate access to financing by offering alternative ways of foreclosure of pledged property and assurance of publicity of the movable pledge.

A new practice has begun in the procedure of establishing a movable pledge with the. Registry named The Movable Trade Registry (TARES), which shall be kept by Notary, brought a concept which did not exist under the Turkish pledge laws.

A) In General

Pledge establishment over movable property in commercial transactions takes place in two stages. First, a pledge contract will be made between the parties(pledger and creditor) who request to pledged on movable property, after that, the contract will be processed to Pledged Movables Registry (TARES) by the notary office. The pledge will be established between the pledger and the creditor by following these steps.

Steps of the pledge establishment over movable property in commercial transactions are defined in Article 5 of the Regulation on the Establishment of the Pledge on Commercial Transactions and the Use of Rights After the Default as follows;

B) Pledge Agreement

1. Parties of The Pledge Agreement

Pledge agreement is defined as "In order to establish the pledge right, the contract signed between pledger and creditor" in Article 2 of Law On Pledges Over Movable Property In Commercial Transactions

As it is understood from the definition, there are two sides of the pledge agreement who are pledger and creditor. But, the meaning of pledger and creditor is not clarified. Article 10 of the Regulation on the Establishment of the Pledge on Commercial Transactions and the Use of Rights After the Default describes creditor and pledger. According to the article; creditor for the establishment of the pledge are credit institutions, merchants and tradesmen; and pledgers are merchants, tradesmen, farmers, producer organizations and self-employed professionals. On the other hand, there has also been a restriction on these listed subjects. According to the regulation in the third paragraph of the same article; pledge can only be established between ;

Also, in fourth paragraph, it is also ruled that it is not possible to establish a pledge agreement among persons other than these parties.

2. Form of Pledge Agreement

The matter of form of pledge agreement is regulated in Article 4 of the Law. According to this article; pledge agreement may arranged in electronic environment and in writing .In other words, the parties of the pledge relationship have freedom of choice about choosing one of these two methods.

If the parties choose to organize a pledge agreement in electronic form, this contract must be signed with an electronic signature in order to be registered in the Registry. If the parties choose to arrange it in writing, signatures should be notarized or parties should sign the agreement in the presence of the Trade Registry officer.

3. Assets Subject To The Pledge

The assets that may be subject to pledge agreement is regulated in Article 11 of Law The legislator specifies the assets that are subject to the pledge agreement as ; receivables, trees that yield perennial offspring , rights subject to intellectual and industrial property, raw materials, livestock, income and revenues of any kind, all kinds of licenses and warrants that are not subject to registration with another registry and which are not in the form of administrative permit documents, rental incomes, right of tenancy, movable  business facilities such as machinery and equipment, tools, construction equipment , any kind of electronic devices, including electronic communication devices, consumable materials, stocks, agricultural products, commercial names and/or company names ,commercial undertakings or tradesman undertakings, commercial plate and commercial lines, commercial projects, carriages and movable assets, rights and joint ownership rights that are counted in this paragraph, and which are in the possession of third parties under  third party's possession  right and joint ownership rights.

C. Registration of Pledge Agreement to the Registry Of Pledged Movables

As mentioned in Article 4 of Law, the right of pledge is executed by registration of the pledge agreement with the Registry. The Registry Of Pledged Movables which is regulated in Article 8 of Law, is a registry, established by Ministry Of Customs And Trade for the purpose of establishment of pledge right and to take effect for third parties and determination of the right of priority among the creditors , registration of the pledged movables and assignment of receivables. According to the Article 7 of Turkish Civil Code, Registry is a public registry. The functioning and assignment of the Registry of Pledged Movables are regulated in Regulation on Pledged Movables which has been published in the Official Gazette dated 31 December 2016 .

The main principle which is regulated in Article 21 of the Regulation on Pledged Movables, at the point of establishing the pledge by the registration of the pledge contract to The Registry of Pledged Movables is registration upon request. As it is clarified in third Paragraph of same article, registration is made upon the demand of the parties.

Under the article 22 of  the Regulation on Pledged Movables, by whom the registry of the pledge contract will be made is regulated as '' Those who have the title of creditor and the pledger according to the law or the representatives who have the authority to represent and bind the creditor or the pledger shall request registration or change together.'' As it is clearly understood from the wording of the Article, this application can only be made with the joint application of the  creitor and pledger.

CONCLUSION

Law On Pledges Over Movable Property In Commercial Transactions No. 6750 leads to many innovations in Turkish Law. First and foremost, the legislator has secured the establishment and validity of the pledge in electronic form, with a formal registry kept in a notary public. On the other hand, it has strengthened the credibility of the pledge process by giving publicity due to the fact that the Register is an official register.

In this respect, the movable pledge term, which plays an important role in preventing the financial losses of the persons in the commercial life, has been updated once again.

For all these reasons; we believe that the concept of pledge of movables which leads assurance and has penalty provisions for violation of these assurances, will be a frequently used method in the commercial life when the pledge process is started to be done with the notary and execution of that process is became practical and it brings with it many assurances and contains many criminal arrangements in contradiction to the security.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.