A. Background:

The ability to establish pledges over the movable property of debtors or, as the case may be, of any other obligors providing security for such debtor, has always been possible under Turkish law.

Before the enactment of the new Movable Pledges Law (the “MP Law”), the Commercial Enterprise Pledge Law (abolished) (the “CEP Law”) provided an exemption from the requirement to deliver possession of the relevant movable asset in question, but it included certain practical setbacks (as further described below) which ultimately led to a significant decrease in the number of deals where the security package also included a commercial enterprise pledge over, inter alia, the debtor’s movables.

Below you will find a brief explanation of the MP Law and the ancillary applicable legislation, along with practical notes that may prove useful when dealing with similar scenarios in Turkey.

B. Points to Note:

a. Parties

Pledgee: The applicable legislation defines “Pledgee” as “…the creditor and its successors who have the right to use the powers ascribed to them under the MP Law and the general provisions, including without limitation the power to take ownership of the pledged asset, to assign its receivable to asset management companies operating under the Banking Law No. 5411 or any other third party at its discretion, who has the right to audit, value or liquidate the pledged asset in accordance with the general provisions…”

The pledgee might be a credit institution (kredi kurumu), a merchant (tacir) or an artisan (esnaf). “Credit institutions” are defined as “…banks and credit institutions operating on the basis of the Banking Law, financial institutions and public and private entities engaged in loan and suretyship activities on the basis of the Law on Financial Leasing, Factoring and Financing Companies…”

Pledgor: The pledgor is defined as “…the debtor or a third party establishing a pledge over its movable assets as a security for the performance of an existing or future obligation…”

The pledgor might be a merchant (tacir), artisan (esnaf), agricultural laborer (çiftçi), producer organization (üretici örgütü) or a freelancer (serbest meslek erbabı).

b. Scope of the Pledge:

Unlike the CEP Law, the Movable Pledges Law introduces the ability to establish pledges over individual assets, rather than over the commercial enterprise in its entirety. It is however again possible to establish the pledge over the entire commercial enterprise, provided that the individual assets are insufficient to cover the outstanding debts in an enforcement scenario.

Further, the Parties have the discretion to designate which assets shall be covered by the pledge, as opposed to the case with the abolished CEP Law, which required that certain assets/items (i.e. the trading name, enterprise name and the movable equipment in the relevant enterprise) shall not be left outside the scope of the pledge agreement.

c. Secured Obligations

Unlike the situation with the CEP, the definition of “Secured Obligations” under the relevant pledge agreement has the utmost importance in terms of the statutory fees and duties payable as a result of the parties entering into agreement thereto.

To elaborate, the applicable legislation provides an exemption for any statutory fees and duties payable (including without limitation, any stamp duty and other governmental fees, other than the notarial fees) if the security is established merely for the purposes of securing the “main” obligations of the pledger under the underlying debt relationship.

For a loan agreement, such “main” obligations would include the repayment of the principal loan and any interest amount due and payable. Therefore, the market standard “secured obligations” definition, which sets out in detail any and all obligations of the borrower thereunder, would very likely be considered by the public notaries as an enhancement of the main principle, and therefore such items, other than the principal amount and interest, should lead to fees and duties being attached pro rata to the monetary value of such obligations.

It is therefore advisable as a belt and braces approach to tailor the “secured definition” wording so that it refers to any “main and ancillary” obligations under the principal agreement, which should ideally cover any specific payment obligations other than the principal and interest repayable, rather than setting out each item in detail in order to prevent increased costs.

d. Effective Date:

The pledge agreement should be registered with the movables pledges registry (“TARES”) once duly executed by the parties thereto. The effective date of the pledge agreement would be the date on which it is approved by the relevant public notary and registered with TARES.

e. Formal requirements:

As mentioned above, the applicable legislation dictates that the pledge agreement is executed in writing by the parties, and that it be further approved by a public notary and registered with TARES for validity and enforceability purposes.

The CEP Law, on the other hand, required that the agreement itself be prepared ex officio by the public notary and be executed by the parties in order for it to then be submitted to the relevant trade registry for registration.

The MP Law also provides the parties with the ability to execute the pledge agreement by way of electronic signatures, provided the parties have secured electronic signatures, as dictated by the applicable Turkish legislation.

Currently, movable pledge agreements under the MP Law are the only type of agreements that can be executed via electronic means, since the applicable legislation on electronic signature clearly prohibits any security agreements, other than letters of guarantee, being executed via electronic means.

The existing system utilized for the purposes of establishing and registering pledges (i.e. TARES) operates on the basis of the MERSIS numbers of Turkish companies, whereby the details of the relevant pledgee or pledger entity are included in the underlying pledge documentation automatically.

In terms of foreign entities, such as foreign banks, the LEI (legal entity identifier) details may be included as an "optional" item in order for the due identification of the entity. The trading name, address and contact details of the foreign entity are mandatory fields that would need to be duly filled out.

f. Effects:

Bona fide third party protection:

The MP Law introduces a highly anticipated protection scheme for the pledgees, once the pledge agreement is duly registered with TARES.

By way of brief explanation, the scope of protection available under the CEP Law is limited to the trade registry zone (e.g. Istanbul) where the “commercial enterprise pledge” has been registered. Therefore, any bona fide third party in a registry zone other than the one at which the pledge agreement is registered would benefit from such bona fide status, and would be able to take ownership of the pledges asset, free of any security interest.

The MP Law, however, dictates that the security interest registered over the relevant asset will not be affected by any dealings of the pledgor with a third party, and such third party will not be able to benefit from a bona fide acquisition or any other sort of disposal of the pledged asset.


The system under the CEP Law dictated that the priority in which multiple security interests are established over the commercial enterprise would be determined on the basis of the time at which the relevant interest was registered. In other words, if there are competing security interests, then the interest which was registered with the trade registry at a prior date, would have priority over any security interests established subsequently.

Similar to the practice with respect to immovable pledges (i.e. mortgages), the MP Law further introduces a ranking system for the registration of multiple security interests, enabling the pledger to establish multiple pledges with different rankings, which have no significance with, regards the date of establishment.

However, the MP Law further dictates that, if there is no reference in the multiple relevant pledge agreements to the ranking of the security interests, the timing of registration will become relevant and the priority of these security interests will be determined accordingly.