This article examines the assets eligible for pledge, the creation, registration and enforcement of pledges under Law No. 6750 on Pledge over Movable Assets in Commercial Transactions, with a comparison to the repealed Law No. 1447.
1. Introduction
Pledges over movable assets in commercial transactions are governed, unlike the general regime of movable pledges, by a special statute: Law No. 6750 on Pledge over Movable Assets in Commercial Transactions. The Law was published in the Official Gazette on 28 October 2016 and repealed the Commercial Enterprise Pledge Law No. 1447. Significant differences exist between the pledge right regulated under this Law and the movable pledge regulated under the Turkish Civil Code.
2. Assets Eligible for Pledge under Law No. 6750
The assets over which a pledge may be created, and the scope of the pledge once created, are set out in Law No. 6750. Pursuant to Article 5 of the Law, a pledge may be created over receivables, perennial crop-bearing trees, rights subject to intellectual and industrial property, raw materials, animals, all kinds of earnings and revenues, licences and permits not required to be recorded in another registry and not constituting an administrative authorisation, rental income, tenancy rights, movable business installations such as machinery and equipment, vehicles, tools, work machines and all kinds of electronic devices including electronic communication devices, consumables, stocks, agricultural products, trade names and/or business names, commercial enterprises or tradesman’s enterprises, commercial plates and commercial lines, commercial projects, wagons, movable assets in the possession of third parties, rights and co-ownership shares in the foregoing. However, the same article provides that where the other movable assets listed in the first paragraph are sufficient to cover the debt, a pledge may not be created over the entirety of the commercial enterprise or tradesman’s enterprise. The purpose of this rule is to protect the commercial enterprise and to prevent its withdrawal from the market.1
3. Scope of the Pledge Right under Law No. 6750
Under the second paragraph of Article 5, where the pledge is created over the entirety of a commercial or tradesman’s enterprise, every asset allocated to the operation of that enterprise at the time the pledge is created is deemed pledged. Under the same paragraph, where a specific group of movable assets of an enterprise is pledged as a whole, all assets belonging to that group are deemed pledged.2 The status of accessories and integral parts is regulated in Article 6 of the Law. According to this provision, a pledge created over a movable asset also covers its integral parts, while accessories may be included in the scope of the pledge if the parties to the pledge agreement so agree.3 The general provision governing the scope is Article 7. Under this provision, all future legal proceeds of the movable asset, such as interest and insurance, as well as natural products and substitute goods, fall directly within the scope of the pledge together with the movable asset. The second paragraph of the same article provides that where a production process is pledged together with the movable assets used in it, the pledge is deemed automatically created, at the same rate and rank, over the receivables arising during and as a result of the production process; the procedures and principles are left to secondary regulation. The final paragraph protects the good faith of a third party who does not know, and is not required to know, that the movable asset is pledged.4
4. Form Requirements for the Creation of the Pledge
The creation of a pledge over movable assets in commercial transactions first requires a pledge agreement. Article 4 of the Law sets out qualified form requirements for this agreement. The pledge agreement may be executed electronically or in writing. A pledge agreement executed electronically must be approved with a secure electronic signature, while a written pledge agreement must either be certified by a notary public or signed in the presence of an official of the Pledged Movables Registry.5
5. Registration with the Pledged Movables Registry
Once the pledge agreement has been executed in accordance with Law No. 6750, it must be registered with the Pledged Movables Registry. Pursuant to Articles 4, 8 and 9 of the Law, the creation of the pledge right and its effectiveness against third parties depend on this registration. Provisions concerning movable pledges that are subject to mandatory registration in special registries under other laws are, however, reserved.6
6. Delivery of the Pledged Asset, Enforcement of the Pledge, the Lex Commissoria Prohibition and Their Exceptions under Law No. 6750
The fundamental principle of Turkish law regarding movable pledges is that, pursuant to Article 946 of the Turkish Civil Code, the pledged asset is converted into cash to satisfy the unpaid portion of the claim. Article 949 of the Civil Code renders invalid any contractual provision stipulating that ownership of the pledged movable passes to the creditor upon default; this is known as the lex commissoria prohibition. Furthermore, under Article 939 of the Civil Code, the creation of a movable pledge in principle requires delivery of the pledged asset to the creditor.7 Law No. 6750 introduced significant exceptions to these principles. First, Article 1 of the Law permits the creation of a non-possessory pledge over movable assets.8 As regards enforcement, under Article 14(1)(a) of the Law, a first-ranking creditor is entitled to request the transfer of ownership of the pledged movable from the enforcement office. This is an entitlement to be requested from the enforcement office, not an arrangement to be agreed with the debtor.9
7. Comparison with the Former Legislation
Article 5 of Law No. 6750 expanded the scope of the pledge right compared to Article 3 of the repealed Law No. 1447. While Article 14 of Law No. 6750 introduced an exception to the lex commissoria prohibition, that prohibition applied without exception under the regime of Law No. 1447. In addition, Article 4 of Law No. 6750 made it possible to execute the pledge agreement electronically, whereas under Article 4 of Law No. 1447 the pledge agreement could only be executed before a notary public.
8. Conclusion
With Law No. 6750 on Pledge over Movable Assets in Commercial Transactions, the taking of security over commercial assets has been modernised, the scope of the commercial movable pledge has been expanded and its creation has been facilitated. Nevertheless, it remains essential that pledge agreements are prepared in compliance with the form requirements of the Law and that registration with the Registry is duly completed. For further information on pledges over movable assets in commercial transactions and the related legal procedures, please contact us at info@guzeloglu.legal.
Footnotes
1. Law No. 6750 on Pledge over Movable Assets in Commercial Transactions, Official Gazette dated 28.10.2016, Art. 5.
2. Law No. 6750, Art. 5.
3. Law No. 6750, Art. 6.
4. Law No. 6750, Art. 7.
5. Law No. 6750, Art. 4.
6. Law No. 6750, Arts. 4, 8, 9.
7. Turkish Civil Code No. 4721, Official Gazette dated 08.12.2001, Arts. 939, 946, 949.
8. Law No. 6750, Art. 1.
9. Law No. 6750, Art. 14.