Non-Delivery Pledges Over Movables

ADMD Law Office
Petek Varol

a) Introduction

Law on Pledges over Movable Property in Commercial Transactions No. 6750 is published in the Official Gazette No. 29871 and dated October 28, 2016 and entered into force as of January 1, 2017. Law on Pledges over Movable Property in Commercial Transactions No. 6750 abolished the Commercial Enterprise Pledges Law No. 1447 and dated July 21, 1971 and introduced many new innovations to movable pledges. However, Commercial Enterprise Pledges Law No. 1447 will remain applicable for commercial enterprise pledges that are already established before 1 January 2017.

There are some similar implementations between immovable pledges (mortgages) in the Turkish Civil Code and non-delivery movable pledges in commercial transactions. The main purpose of this law could be stated as to increase the use of non-delivery movable pledge rights as assurance and facilitating the access to sources of financing for the Small Medium Enterprise’s (“SME”)

b) The Parties

Under the Commercial Enterprise Pledge Law, a commercial enterprise pledge agreement could only be executed between credit institutions or institutions engaged in credit sales and business enterprise owners. However, the Law on Pledges over Movables No. 6750, enables a pledge agreement to be executed between: (i) credit institutions and traders, craftsmen, farmers, producer organizations and self-employed individuals and legal entities, as well as between; (ii) tradespeople and/or craftsmen. The parties who are allowed to pledge movables without delivery are:

• Credit institutions and traders, craftsmen, farmers, producer unions and self-employed individuals and other legal entities.
• Tradespeople and/or craftsmen.

c) Scope

The Law on Pledges over Movables allows the pledgee to establish a pledge without the need to transfer possession of the asset to the pledge holder over any or all of the following movables assets:

• Receivables,
• Fruit providing trees,
• Intellectual and industrial property rights,
• Raw materials,
• Animals (livestock),
• All kinds of other income and/or revenue,
• Any licenses and permits which are not in the form of an administrative permit or registered elsewhere,
• Rental income,
• Tenancy rights,
• Machine and fixing, vehicles, equipment, tools, construction equipment, movable equipment of the enterprise such as all kinds of electronic devices including electronic communication devices,
• Consumable supplies,
• Stocks,
• Agricultural products,
• Tradenames and/or business names,
• Commercial enterprise or industrial enterprise,
• Commercial vehicle registrations and commercial vehicle operating lines,
• Commercial projects,
• Train carriages,
• Movable properties, rights and joint ownerships listed above which are in possession of third parties.

Right of pledge contains the components parts of the movable assets which are aforementioned. It is also possible to establish pledge rights on joined and mixed assets.

d) Required Form and Registration

According to Law No. 6750 the parties should have a contract for establishing the non-delivery movable pledges either in electronic or written form. If the contract is prepared on an electronic platform then the electronic signature shall be securely signed, if it is prepared in writing then the signatures shall be approved by a notary or the parties should sign the contract before the registry authority.

As also stipulated under the Commercial Enterprise Pledge Law, registration of the pledge agreement with the relevant trade registry is a validity requirement under the Law on Pledge over Movables. This registry is titled ‘Pledged Movable Registry’ (TARES). TARES establishes a right of pledge and effectiveness against third parties, determines priority rights amongst the pledgee and ensure public accessibility regarding information on pledges of movable assets.

According to this procedure, the degree system for immovable pledge (mortgages) will be subject to the non-delivery movable pledge as long as it is regulated in the contract. The preferential right will be determined according to the moment of establishment of the pledge however in case of stating degree then the degree system would be taken as basis. This aims to prevent disputes which may arise between creditors during the liquidation process.

A reform is also embraced with this new Law No. 6750. Accordingly, this legislation creates an exception to ‘Lex Commisoria’ (owning pledged asset ban) principle. This may be applied when the debt constituting pledge is not performed, therefore the debt is not paid for. The new Law allows a pledge right holder/owner (pledgee) to:

• Demand the transfer of the of the pledged movable asset to the pledgee,
• Demand the transfer of receivables to an asset management company,
• Utilize leasing or licensing rights over movables assets whose possession is not subject to transfer directly itself.

e) Sanctions

Finally the Law No. 6750 has introduced additional securities to the pledge holder. In case of any of the following events, the pledger may be penalized in favor of the pledge over with a judicial fine in an amount not exceeding half (50%) of the amount of the secured obligations upon complaint by pledge (right) holder/owner:

• Using the pledged property contrary according to this Law,
• Not transferring the title of the pledged property in case of non-payment of debt,
• Damaging or destroying the pledged property with the intention of causing damage to the pledgee,
• Not registering the transfer of the pledged property or receivable,
• Acting to mislead the registry.