Turkey: Certain Amendments Projected For The Code On Pledges Of Movables In Commercial Transactions

Introduction

The "Draft Law on Amendment to Certain Laws for the Improvement of the Investment Environment" has been prepared by the General Directorate of Laws and Decisions of the Turkish Republic Prime Ministry, and has been presented to the Turkish Grand National Assembly through a Directorate dated 30.1.2018. In the aforementioned Law, there are several amendments regarding the Code on Pledges of Movables in Commercial Transactions numbered 6750 (Code numbered 6750) – which has been heavily criticized because of its content. In this study, the important portions of these amendments shall be briefly examined.

Movable Assets that may be Subject to the Right of Pledge

Under Article 5 of the Code numbered 6750, a right of pledge may be established on the below-mentioned movable assets:

  1. Receivables
  2. Trees that yield perennial offspring
  3. Rights subject to industrial and intellectual property
  4. Raw materials
  5. Livestock
  6. Acquisitions and revenues of any kind
  7. Any type of licenses and warrants that are not subject to registration with another registry, and which do not have the characteristics of administrative warrant
  8. Rental incomes
  9. Tenancy right
  10. Movable business facilities, such as machinery and equipment, tools, work machines, any kind of electronic devices, including electronic communication devices
  11. Consumable materials
  12. Stocks
  13. Agricultural products
  14. Commercial names and/or company names
  15. Commercial undertakings or tradesmen undertakings
  16. Commercial plates and commercial lines
  17. Commercial projects
  18. Carriages
  19. Movable assets, right and joint ownership rights that are counted in this paragraph, and which are in the possession of third parties

It is accepted that the legislator has acted according to the principle of numerous clauses while counting the rights subject to pledges; in other words, only the above-mentioned assets are subject to pledges under Code numbered 6750.1 Surely, it is possible to establish rights of pledge on the asset values that do not fall within the afore-mentioned regulation, under Turkish Civil Code, and other special laws.

As to the Draft Law, a new subparagraph has been added to the afore-mentioned clause, and the statement "any similar kind of movable assets" is given place in the subparagraph. It is without doubt that the statement of any similar kind of assets is an extremely ambigious statement, which should be given a separate description. In the event that the draft law passes into law, the concept of "similar" shall be the subject of discussion. On the other hand, it is beyond dispute that the principle of "numerous clauses" has been rendered invalid.

Scope of the Pledge

Under the Article with the side heading "Merger and Mixing" of the Code numbered 6750, (i) a right of pledge can be established on movable assets that merge and mix. (ii) In the event movable mixes or mergers with other movables, so as to become integral parts of those movables, the right of pledge is deemed to be established on the entirety of that movable asset. (iii) Right of pledge continues on the merged or mixed movable property on the proportion of the value of the movable at the moment of the merger to the value of the final product. (iv) In the event immovable assets merge or mix with each other, creditors shall own joint ownership of the right of pledge in the ratio of the value of their own movables at the moment of the mix or the merger.

The afore-mentioned provision shall have an entirely different meaning in the event the draft law enters into force. Indeed, even the side heading of the provision has been changed. The provision that is projected to be entered into force with the side heading "Scope of the Pledge" is as follows:

"(1) Future legal yields, such as interest, insurance and natural products and substitutes of the products shall directly enter into the scope of the pledge together with the movable asset.

(2) Good faith of the third person who does not know, or is not obliged to know, that a movable which is pledged is protected."

As is seen in the provision regarding the states of mergers and mixes, they are not present in other articles that are projected to be amended either, and have been completely removed from the code2. Most likely, the solutions regarding these issues have been referred to the Regulations in the Civil Code and, instead, the above-Regulations have been given place in the Draft Law. Especially the Regulation in the second paragraph may spark considerable debate. In the event this provision enters into force, a third party's acquisition of right on the pledged goods shall be protected; in other words, it appears that the state of security of the pledged creditor arising from its state of being a registered pledge right-owner shall end. This can trigger an entirely contradictory result from the purpose of expanding the implementation of the movable pledge without delivery; thus, expanding the merchants' opportunity of procuring credit, which is the main purpose of Code numbered 6750.

Proceeding

Article 14 of Law numbered 6750 with the side heading, "Post-Default Rights," are currently as follows:

"(1) In the event that the debts under this Code are not discharged within time, a creditor has the following recourse:

  1. If he is a first-degree creditor, he can request the transfer of the property of the pledged movable under Article 24 of the Enforcement and Bankruptcy Law dated 9/6/1932 and numbered 2004 from the enforcement office. In this instance, the enforcement office shall notify the Registry of this transfer. In the event the value of the pledged movable that is determined according to the second paragraph of Article 13 of the Law exceeds the total receivables of the first-degree creditors, the first-degree creditor and the pledger are severally liable for the distinction between and towards the other creditors.
  2. He can transfer his receivable to the asset management companies that act according to Law numbered 5411. In this case, asset management companies shall own the pledged degree of the creditor. Right of privilege shall be determined according to Article 11 of this Law.
  3. He can use rental rights and license rights over the assets that are not subject to transfer of possession."

New subparagraph has been added to the above-mentioned Article. According to this Regulation "proceeding under the general provisions is possible." Therefore, in the proceedings found under the Code on Pledges of Movables in Commercial Transactions numbered 6750, collecting the receivables by selling the goods under the Bankruptcy and Enforcement Law are made possible.

Conclusion

In the event that the above-mentioned Draft Law provisions become law, the possibility of new arguments shall be given regarding the Code on Pledges of Movables in Commercial Transactions numbered 6750, under which several discussions have already been held.

Footnotes

[1] G. Antalya /F. Acar, Ticari İşlemlerde Taşınır Rehni (6750 Sayılı Ticari İşlemlerde Taşınır Rehni Kanunu Çerçevesinde İlk Tespitler), Aristo Yayınevi, İstanbul 2017, p. 67.

[2] In parallel with this, Paragraph 3 of the Article 11 that regulates the provision stating that "Pledge rights that are established on the assets that are merged or mixed have the same privilege with the state of the asset before the merger or the mix. In the event the assets are of the same degree, the moment of registry shall be taken into consideration," has also been abolished.

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.

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