The law introducing a new regime on movable asset pledge has been accepted by the parliament on 20 October 2016 to be effective as of 1 January 2017 ("Commercial Movable Pledge Law").
Commercial Movable Pledge Law is abolishing the existing security regime on the machinery and equipment known as Commercial Enterprise Pledge which was the only security option enabling establishment of pledge over a movable asset without delivering such asset to the pledgee. Commercial Movable Pledge Law also sets forth a publicly registered pledge regime for movables with advantages on the foreclosure process as further explained below.
Broad definition of movable assets
Pursuant to the Commercial Movable Pledge Law, the scope of movable assets which can be pledged include (amongst others) existing and future receivables, revenues and dividends, asset related revenues (including future assets), rental proceeds, IP rights, trade name, licenses (other than administrative approvals and those are required to be registered with a specific registry such as motor vehicles), machinery, equipment, stock, IT hardware, agricultural products, livestock, raw materials, license plate and train wagons. Such assets can be pledged individually or as a bundle, whether owned in full or in part, and whether they are in the possession of the owner of the asset or not. Additionally, the scope covers contingent movable assets as future assets and receivables.
Central registration system is being introduced
A central register for the pledge of movable assets (other those registered with other registries) is going to be established ("Pledged Movable Registry").
Although the central registration system is being familiarly used for establishment of mortgage over real estates, it did not have application for movables. By introducing this system and the Pledged Movable Registry, Commercial Movable Pledge Law intends to protect the rights of a pledgee against third parties by keeping a publicly available record rather than obligating delivery of the pledged asset to the pledgee - which has been the current requirement under applicable laws. Considering that it is neither favourable nor preferable by the pledgee or the pledgor, to transfer the physical possession of its asset, preserving pledgee's rights against third parties with a publicly available registry caters a better security structure.
New Enforcement Regime
The pledgor of a first degree pledge would have the option to request the ownership rights of the pledged asset given that the subordinated pledgees are secured. This eliminates the restriction on obtaining the ownership rights of the pledged asset upon default - known as 'Lex Commissoria Rule'. Further to this exception, pledgee would also have the option to hire an asset management company for his security receivables. It is difficult to foresee how this regime would work since it has not been tested with any type of security before.
Mandatory minimum standards for the pledge agreement
As a validity and perfection requirement, pledged movable assets should be recorded with the Pledged Movable Registry upon execution of the pledge agreement which has to be executed before a public notary or the Pledged Movable Registry.
Commercial Movable Pledge Law also lists the requirements to be able to become a party to such pledge; i.e. (i) Turkish financial institutions and (ii) any merchant (including foreign) that operate through a commercial enterprise.
The mandatory provisions of the pledge agreements are also enumerated under the Commercial Movable Pledge Law and include (amongst others) the loan amount and/or the secured amount, maximum pledge amount.
Secondary regulations are expected for the establishment of the movable pledge.
We hope you find this brief legal alert informative.
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