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This article analyses the pledge of commercial enterprises regulated under the Turkish Commercial Code ("TCC") pursuant to the Law on Movable Pledge in Commercial Transactions ("TITRK").

Definition of Commercial Enterprise

The concept of commercial enterprise is regulated in Article 11 of the Turkish Commercial Code. In general terms, a commercial enterprise is an enterprise in which activities are carried out continuously and independently with the aim of generating income at a level exceeding the limit stipulated for a tradesperson enterprise. The limit between a commercial enterprise and a tradesperson enterprise is determined by the Presidential Decree.

Right of Pledge in Commercial Enterprise

The right of pledge is a right granted as security for a receivable and authorises the right holder creditor to obtain its receivable in priority by converting the pledged thing or right into money if the debt in question is not fulfilled. According to Article 11/3 of the TCC, commercial enterprises may be subject to legal transactions as a whole. Apart from this, there is no special regulation on commercial enterprise pledge in the Turkish Commercial Code.

Pledges on commercial enterprises was first regulated by the Commercial Enterprise Pledge Law No. 1447. Subsequently, with the entry into force of the Law on Movable Pledge in Commercial Transactions on 1/1/2017, the aforementioned Law No. 1447 was repealed. According to Article 18 of the TITRK and Article 42 of the Pledge Regulation, it is also stated that the provisions of the Turkish Civil Code No. 4721 regarding immovable pledge shall apply in cases where there is not any provision in the relevant law and regulation.

Regulations Pursuant to the Law on Movable Pledge in Commercial Transactions

The TITRK regulates the establishment of the right of pledge in transactions involving movable assets and its registration in the Pledged Movable Registry in order to be effective against third parties, the determination of priority rights, the exercise of the right of pledge and other procedures and principles regarding pledged transactions.

Some examples of movable assets on which a pledge right may be established have been listed in Article 5 of the TITRK, and commercial enterprises are included in these movable assets. According to the TITRK, in order to establish a pledge right on a commercial enterprise, a pledge agreement shall be signed between the pledgor, and the creditor and this agreement shall be registered with the Registry. Pledge agreements may be concluded between credit institutions and merchants, tradesperson, farmers, producer organizations, self-employed real persons and legal entities or between merchants and/or tradesperson.

Pledge Agreement

The right of pledge is established by registering the pledge agreement, which is drawn up electronically and signed with an e-signature, or which is drawn up in writing and signed, with the Registry. In order for the written pledge agreement to be registered in the Registry, the signatures of the parties must be notarized or the agreement must be signed in the presence of the Registry official.

Pursuant to Article 4 of the TITRK, the elements that must be included in the pledge agreement are specified in detail. Accordingly, in the agreements to be made for commercial enterprise pledge shall include the following matters, provided that it is not in violation with the TITRK;

  • Trade name of the commercial enterprise, MERSIS number, name, surname and signature of the representative authorized to represent and bind,
  • The subject matter of the contractual obligation, the amount of the obligation, the amount for which the pledge constitutes security if the amount of the obligation is not certain, the type of money to be paid and the maximum amount of the pledge.
  • Serial number, brand, year of production, chassis number, document serial number, GTIP or PRODTR industrial product code, if any, indicating the asset subject to pledge and the distinctive features of this asset.
  • It shall be specified who will bear the expenses arising from the registration of the pledge right to the Registry.

The TITRK also stipulates that the pledged movable asset is subject to sub-pledge or post-pledge, and the records restricting the pledgor's power of disposition on the pledged movable asset are considered invalid.

Scope of the Pledge Right

According to the TITRK, a pledge right may be established over the entire commercial enterprise, or a certain group of movable assets of an enterprise may be pledged as a whole. In the first case, all assets allocated to the activity of the enterprise at the time of the establishment of the pledge shall be considered pledged, while in the second case, all assets included in the pledged group shall be considered pledged. The right of pledge on the movable asset also covers the integral part of that asset; however, the parties must separately agree on the inclusion of the attachments of the movable asset within the scope of the pledge.

The pledge may be established on the current or future movable assets and/or returns of the enterprises. All future legal returns of the movable asset such as interest, insurance, natural products and substitute goods are directly covered by the pledge together with the movable asset.

If other laws stipulate that the assets to be pledged shall be registered in a certain registry due to their nature, this pledge shall be notified to the relevant registries. In this regard, the commercial enterprise pledge shall also be notified to the trade registry.

Pledged Movables Registry

With the TITRK, the Pledged Movable Property Registry was introduced in order to establish the right of pledge and to enforce the right of pledge against third parties, to determine the right of priority among the pledged creditors, and to register the transfer of the pledged movable property and the transfer of the receivables. In addition, the pledgor is obliged to register the transfer of the pledged movable asset and the transfer of the receivable with the Registry. Both the Turkish Civil Code No. 4721 and the TITRK regulate the degree of the pledge placed on the commercial enterprise and how to determine the order of priority.

The pledge creditor shall apply for the cancellation of the pledge from the Registry within thirty business days, if the pledge is subject to foreign law, and within fifteen business days, if the pledge is subject to Turkish law, from the date of termination of the receivable. Otherwise, upon the complaint of the pledgor or the debtor, the relevant Ministry will impose an administrative fine on the pledgee at the rate of one tenth of the amount of the secured debt. In such a case, the debtor who pays the debt and documents the debt will be able to request the cancellation of the pledge from the Registry.

Rights and Obligations of the Parties to the Pledge Agreement

The possessor of the pledged movable is obliged to take the necessary measures to protect the value of the movable. In case of violation of this obligation, the creditor may apply to the court and request authorization to take the necessary measures. Persons whose rights are damaged may demand compensation for the expenses incurred for the measures from those who caused the damage.

Sanctions

Within the scope of the proper implementation and protection of the pledge right, the TITRK introduced certain obligations for the pledgor and the transferee of the pledged movable. Pursuant to Article 16 of the TITRK, the judicial fines to be imposed upon the complaint of the creditors in case of non-compliance with the mentioned obligations are specified. Accordingly, the pledgor or the transferee of the pledged movable shall be subject to a judicial fine not exceeding half of the amount of the secured debt upon the complaint of the pledge creditors who cannot fully or partially collect their receivables in the following circumstances:

  • Using the pledged asset in violation of this Law,
  • Not transferring the ownership of the pledged asset in case of failure to pay the debt,
  • Destroying or destroying the pledged asset with the intent to harm the creditor,
  • Failing to register the transfer of the pledged movable asset and the transfer of the receivable to the Registry,
  • Acting to mislead the registry,

According to the TITRK, a person who engages in the business of lending money by pledging a movable property will be punished according to Article 241 of the Turkish Criminal Code No. 5237, which regulates the crime of loan sharking. According to the relevant article, a person who lends money to another person for the purpose of gaining profit shall be sentenced to imprisonment from two years to six years and a judicial fine from five hundred days to five thousand days.

In Conclusion

Commercial enterprise pledge is considered as a movable pledge and can be established by executing a pledge agreement between the pledgor and the creditor and registering this agreement in the Pledged Movable Property Registry. The procedure and principles of commercial enterprise pledge and the rights and obligations of the parties are regulated in detail in the TITRK.

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.