By virtue of Article 47 of the new Capital Markets Law, Turkish legal markets have welcomed the possibility of using a private sale to enforce a security in case of a default by either an offset mechanism against the debts and/or obligations of a debtor or the sale of capital markets instruments (i.e., pledged shares) on the stock exchange.
Prior to the new Capital Markets Law, enforcing a security by means of a private sale, other than through foreclosure proceedings before a court, was questionable. A private sale was accepted in Turkish legal doctrine only in concept and was considered within the context of an up-front contractual agreement between the collateral provider and taker whereby the collateral taker is given the right in a relevant security agreement to enforce its right in the collateral and cause it to be sold privately. Due to the contractual nature of such an agreement, this method fell outside the scope of bankruptcy law.
According to Article 47, security agreements, the subject of which is a capital markets instrument (e.g., shares of a publicly held company), must be made in written form. The ownership of the instrument remains with the pledgor unless it is explicitly stated in the relevant security agreement that the ownership/title of the instrument is being transferred to the possession of the pledgee. In case of an event of default or any other contractual or legal enforcement event, the pledgee is entitled to enforce its security interest through the private sale of the capital markets instrument, and may reimburse the sale proceeds received in excess of the value of the obligation, if any, to the debtor. In addition, Article 47 provides a set-off mechanism for the pledgee that enables the pledgee to take ownership of the capital markets instrument in satisfaction of the debtor's obligations. In case of a security agreement where the title of the collateral has not been transferred to the collateral taker, the collateral taker may request title to the capital markets instrument upon an event of default or any other legal or contractual enforcement event in addition to its right to a private sale.
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