The Law No. 6750 regarding Pledges on Movable Property for Commercial Transactions, abolishing the Commercial Enterprise Pledge Law No. 1447 (the “Current Law”) has been published in the Official Gazette dated 28 October 2016 and numbered 29871 (the “New Law”) and will enter into force on 1 January 2017.
The New Law introduces certain novelties for establishing pledges on movable property, especially in relation to the parties, scope and registry of the pledge, the competent authority to register the pledge records and the rights of the pledgor and the pledgee, bringing a whole new system to pledges on movable property.
One of the major changes introduced by the New Law is the establishment of a new registry office for recording all pledges on movable property (the “Registry”). Upon the entry into force of the New Law, pledges will be established before the Registry instead of the trade registry. Both individuals and legal persons (i.e. tradesmen and craftsmen) will also be allowed to establish pledges on movable property besides banks and financial institutions, which are currently the only parties able to establish pledges under the Current Law.
As per the New Law, the pledge agreement can be executed either electronically via secured electronic signature or in writing, in which case either the signatures should be approved by notary public or the agreement should be executed before a Registry official. Whereas currently the pledge amount must be indicated in the pledge agreement in Turkish Lira, the New Law has abolished this requirement, enabling pledges to be determined in other currencies in the pledge agreement.
Once the pledge is established, a notification will be made to other registries where the relevant movable and other encumbrances on the relevant movable is registered, such as the Trade Registry, Turkish Patent Institute and Motor Vehicles Registry.
In addition to the establishment of pledges on commercial titles, establishment names, trademarks, machinery and equipment, the New Law allows pledges to be established on any one or all of current or future receivables, licenses (by obtaining necessary approvals from the competent authorities if required), rental income, proceeds from current or future receivables, tenancy rights, commercial projects, products and animals.
Any provisions under the pledge agreement restricting a subsequent pledge degree on the relevant movable or the disposition of the pledged movable will be deemed to be invalid. However in return, the New Law requires pledgors to register any transfer of the pledged movable with the Registry so that the pledged movable is traceable by the pledgee. It should be noted that in the event that such transfer is not registered before the Registry, the pledgor will be fined an administrative fee not exceeding half of the debt amount.
The degree system for the establishment of pledges is set forth under the New Law similar to the degree system stipulated for mortgages, where the priority of the pledgee is determined accordingly. Additionally, if there is no degree indicated for multiple pledges, those pledges will be deemed to have been established on their registration date. Upon release of a pledge, the subsequent degree pledges on such movable may be moved into the degree of the released pledge.
The New Law also regulates the pledgee’s rights upon the occurrence of an event of default. Accordingly, a first degree pledgee may request, from the execution office, the transfer of ownership of the pledged property to itself. All other pledgees, including the first degree pledgee, will have the rights to transfer their receivables, as well as their pledge degree, to an asset management company and to use the leasing and licensing rights of the pledged property.
The New Law imposes a requirement on the pledgee to apply to the Registry within 3 business days upon the fulfilment of the payment obligation in order to release a pledge. If the pledgee fails to do so, the pledgor may also apply together with documentation evidencing the cessation of the pledgee’s receivable. It should be noted that if the pledgee does not apply within the prescribed time period, it will be fined an administrative fee at a rate of one-tenth of the debt amount.