Turkey has brought a new law on Pledges on Movable Property in Commercial Transactions (published in the Official Gazette dated October 28, 2016 and numbered 29871) ("Law"). The Law will enter into force starting from January 1, 2017. The Law has abrogated the almost semi-centennial Law No. 1447 on Commercial Enterprise Pledge (published in the Official Gazette dated July 28, 1971 and dated 13909) ("LCEP") and will be giving a specific framework in respect to the pledges on movable property. The brief information on the Law will be provided below through a number of WH questions.
The Law is facilitated in order to provide ease in financing of the commercial transactions and expected to provide a boost particularly for the SMEs in face of a hardships encountered in investment, debt and project financing.
LCEP, an outdated law which has had synchronization issues with more recently issued Turkish laws, was solely providing a framework and possibilities for a "commercial enterprise pledge" (pledging of the whole of the enterprise) rather than providing a complete framework on movable pledges with a possibility to pledge a variety of movable assets. Accordingly with the Law, pledges on movable property are to be provided a more solid regulation with better prospects of applicability and transparency.
Per Article 4 of the Law, a pledge agreement (establishing a pledge on movable property) may be executed between those below:
- (1) real persons and/or legal entities who are traders, craftsmen, agromanufacturer organizations, farmers or self-employed and (2) financial institutions (which include banks, financial leasing and factoring companies within its scope of definition); and
- In between (1) traders (naturally including any and all kinds of companies) and/or (2) craftsmen.
The pledges on movable properties will be registered in an independent Pledged Movable Property Register ("PMPR"), which will be established on an online environment. LCEP was facilitating its "commercial enterprise pledges" through trade or craftsmen registries. The Law's system, which will be operated through PMPR, is expected to bring ease of transaction, more transparency and visibility, as well as further variety and options to the pledges on movable property.
LCEP foresaw pledging of whole commercial enterprise, whereas the Law provides for the possibility of establishing pledges on various types of movable property without necessity to hand-over such property or to establish a pledge on the whole of a commercial enterprise. Article 5 of the Law sets forth that a pledge may be established on movable properties such as (including but not limited to) whole commercial enterprises, receivables, earnings, stocks, commercial projects, intellectual property rights, raw materials, machinery and equipment, agricultural products, trade names, consumables, etc.
Pursuant to Article 4 of the Law, a pledge on movable property would be established through registration of the pledge agreement in the PMPR. Pledge agreement shall either be in writing (before the notary or PMPR officer) or drawn in electronical environment (with secure e-signature). There will be certain content requirements for the pledge agreements for their proper registration in the PMPR. The guarantee provided by the pledge is to be limited with the pledge amount and degree registered in the PMPR records.
Last but not least as an encouraging provision under Article 19 of the Law, there is an exemption from taxes, charges and duties for drawing of the pledge agreement as well as the transactions made before the PMPR.
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.