Movable property pledges are regulated under the Turkish Civil Law No. 4721 ("TCL"). The general rule is movable property pledges can only be established by delivery of the property. However, Article 940/2 of the TCL permits establishing pledges without delivering the movable property if the pledge is registered before competent registry.

Merchants, including small and medium sized enterprises ("SME") have been obtaining sources in order to fund their commercial activities by pledging their commercial enterprises pursuant to the Law on Commercial Enterprise Pledges No. 1447 ("Law No. 1447"). Nevertheless, the Law on Movable Property Pledges in Commercial Actions No. 6750 ("MPP Law") is published in the Official Gazette on October 28, 2016 and will be in force as of January 1, 2017. The MPP Law will repeal the Law No. 1447 pursuant to Article 17 of the MPP Law.

a) Reasoning

The SMEs have difficulties to provide funding for their commercial enterprises and this situation causes severe disadvantages for the SME whilst competing with dominant companies. To that end, the MPP Law aims to obviate these severe disadvantages, therefore the SME will contribute to the development of the country. According to the first article of the MPP Law, the foregoing target will be achieved by popularizing the use of movable property pledges, extending the scope of movable properties that are subject to this law, providing publicity of the pledges and presenting alternative ways for foreclosing of the pledges.

b) Scope

The MPP Law's scope is stipulated under paragraph 2 of Article 1. According to the said article, the Law regulates the establishment of the movable properly pledges, effect of the pledge to third parties, Movable Property Pledges Registry, determination of superiorities of the pledgees, obligations and rights of the parties and third parties, exercising of the pledges and determination of the procedure related to pledges. Thus, the law covers a large scope of movable property pledges but under any circumstance Turkish Civil Law, being the general law, will be applicable where there is not a regulating provision in the MPP Law.

Article 5 details and limits the scope by listing specifically the movable properties including receivables, intellectual property rights, any kinds of revenues, rental incomes, tenancy rights, any kinds of movable store equipment, commercial name and/or company name. And also legislator enabled the parties to establish the pledge over commercial enterprise either with its commercial name and company name or separately, which is a different regulation from previous ones. Also, the MPP Law allows establishing a pledge over contingent receivables of the commercial enterprise.

c) Establishment of the Pledge

A pledge over movable properties is merely established by registering the pledge before Movable Property Pledges Registry. The pledge agreement can be issued in writing or electronically provided that the agreement is signed with an electronic signature. In order for the pledge agreement to register before Movable Property Pledges Registry, the signatures of the parties must be notarized or the agreement must be signed before the Registry.

d) Default

In case of the default of the pledger, pledgee will have the following rights: (i) to request the transfer of the property right of the movable property, (ii) to assign its receivable to an asset management company, (iii) to use the rental or license right of the property and (iv) to file execution proceeding for foreclosure of the pledge.

e) Administrative Actions

Pledger or assignee of the pledged property may be imposed to administrative fine up to half of the debt that is secured by the pledge on complaint of the pledgees whose entire or part of the receivable could not be collected, if:

  1. they use the pledged property in a way that conflicts with this law,
  2. the pledged property is not transferred to the pledgee in case of non-payment of the debt,
  3. the pledged property is removed or damaged on purpose to violate pledgee's rights,
  4. the property right of the pledge property is not transferred to the pledgee and this transfer is not registered before the Registry,
  5. they do acts to mislead the Registry.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in December 2016. A link to the full Legal Insight Quarterly may be found here.

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.