Recently, on January 1, 2017, the Law on Movable Pledge in Commercial Transactions (“Law”) entered into force and prevailed the Law on Commercial Enterprise Pledge Law dated, 1971 and numbered 1447 (“Annulled Law”).
As stated in its “purpose and scope section”, the Law provides for the use of right to pledge without the requirement of delivering a warranty; and expands the types of the movable assets that can be pledged; ascertains the public by availability of the pledged movables, (and finally, eases the access to the financing of them by way of furnishing new alternatives on the foreclosure of a
The foregoing availabilities have mainly been introduced for the Small and Medium Size Enterprises (“SMEs”), which act a vital role for the improvement of the social and economic environment in Turkey. SMEs in Turkey have been suffering in reaching the finance sources and meeting their financing needs with the bank lending. It was almost a requirement for the SMEs to pledge shares as security for the loans they have obtained. Because the security options were quite limited, i.e. a pledge could not be established on movable properties without delivering the physical possession of the same to the pledgee or it was not possible to establish a pledge on a single movable asset of the pledgor. The Law was introduced and was enacted in the right time for the SMEs that are in financial bottleneck.
What’s in the Scope
The scope of the Law involves the establishment of pledges on the transactions regarding the movable properties; the effect of such pledge right to third parties; the registry of the pledged movables (“Registry”); preference rights within the claimants; the rights and liabilities of the parties. On the other hand, the Law excludes from its scope the pledge agreements subject to financial agreements of the capital markets and derivative instruments; deposit pledges and the movables registered to any immovable/real estate registers for any reason.
Newly Introduced Online Feature: the Registry
It is a brand new improvement for the movables, that with the Law, an online registry system has also been introduced. With such Registry, the pledged movables falling under the scope of the Law can be registered, deregistered and amended according to the needs of the parties. The Registry is publicly available, and thus, binding for third parties.
In order to establish a pledge right on a movable, an agreement must be executed by and between the parties, the pledgor and the pledgee. According to the Law, that agreement should either be made (i) in writing or (ii) online by the parties putting their secured electronic signatures. In the event that the pledge agreement is not executed via the electronic signature, it must be executed before a Notary Public or the competent officer or the Registry. The parties to such pledge agreements can be, be it a legal and/or real person and local or foreigner, financial/credit institutions, merchants, craftsmen, producer organizations, farmers.
Essentials of the Agreement
The Law provides certain mandatory provisions, which need to be included in the pledge agreement. Pursuant to the Law, the parties to the pledge, the subject of the debt, its amount, the currency type and the maximum limit for the secured amount, the pledged asset; its distinctive features and finally who will pay the expenses arising from the registration applications with the Registry must explicitly be stated in the pledge agreement. The Law further mandates that registration of the pledge with the Registry is a prerequisite for establishing a pledge right on a movable asset.
Unlike the Annulled Law, where the pledge was able to be established only over the commercial title and trade name of enterprises, the machinery and vehicles allocated to that company and existed at the time of establishment of a pledge, and the intellectual property rights; the Law enables the establishment of a pledge right on various movable assets. Article 5 of the Law lists out the movable assets that can be subjected to a pledge. According to that article; the receivables, the perennial products and trees, raw materials, animals, any incomes and revenues, lease incomes, right of lease, stocks, agricultural products, commercial projects, carriages, any license and certificates not registered with any registry except for the ones for administrative allowances can be the subject of the movable pledge rights in addition to the ones, which were already introduced and made possible with the Annulled Law. Unlike the Annulled Law, it is also possible to establish a pledge on the movable assets to be acquired in the future by the enterprises together with the assets allocated to such enterprises and existed at the time of the registry of the pledge.
What can be Done, What can be Not
Besides having detailed guidance on how the pledges can be established, used and amended, the Law also sets forth many provisions on the legal rights and the liabilities of the parties over the pledged movable assets.
The Law requires that, in the event that the receivable is removed, the pledgee must apply to the Registry for the revocation of the pledged movable record from the Registry within three (3) business days following the date of the debt removal. The Law constitutes an administrative monetary fine against the pledgees, failing to comply with the required revocation application. Fine is one tenth of the amount of the debt amount secured with the pledge. There are also certain punitive provisions brought with the Law against the pledgors.
Considering the needs of the local economy, we believe that the newly introduced Law, will have a positive effect directly on the SMEs. It will give a relief to the enterprises and real persons who are in need of obtaining new financing restructuring of their existing financing.
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