Information on the Law on Movable Pledge in Commercial Transactions

This information note has been prepared regarding the Law on Movable Pledge in Commercial Transactions No. 6750 dated 20/10/2016.

When the text of the Law is analysed, it is seen that a new instrument has been created within the scope of financing opportunities for SMEs, as clearly stated in its preamble. Indeed, it is observed that the Law in question has moved away from the movable pledge practice previously regulated under the Turkish Civil Code (TCC) and introduced new opportunities by diversifying the assets that may be subject to movable pledge.

In order to fully implement the Law, the regulations to be issued by the Ministry of Customs and Trade, which are stated in the Law, must enter into force. It is observed that many articles of the Law refer to the regulations to be issued on the newly regulated issues.

Nevertheless, the innovations introduced in the Law are quite remarkable. On the one hand, new concepts and practices regarding movable pledges have been introduced to facilitate access to finance, while on the other hand, it is observed that the current system of the TCC has been moved away from.

1. GENERAL OVERVIEW OF THE LAW

The Law was introduced to overcome the difficulties in providing collateral to small and medium-sized enterprises, farmers and tradesmen in accessing financing. These firms have a competitive disadvantage compared to large firms in order to obtain loans. This is because the assets owned by these firms are not immovables, but rather movables. Credit institutions such as banks are reluctant to take movables as collateral due to the difficulties in the legislation.

In the past, movable pledge was regulated by the Turkish Civil Code and partially by the Commercial Enterprise Pledge Law and the related Registry Regulation. In the system of the TCC, the rule for the establishment of a movable pledge is the delivery of the movable to the pledgee. However, in this case, it is not possible for the pledgor to benefit from the products and income of the movable. For this reason, this type of pledge was not used much in practice -except for exceptional vehicle and animal pledges that are not established by delivery- due to its lack of practical benefits. For this reason, with the regulations introduced, it is now possible to establish pledge collateral on the movables of the customers without the need to take delivery of the movables.

In the former practice, especially in the Law on Commercial Enterprise Pledge, a pledge is established on the entire commercial enterprise, and what falls within the scope of this pledge was limited by the Law. The commercial enterprise and all elements within its scope such as title, trademark, machinery, equipment, licences were subject to pledge as a whole. This situation could cause the commercial enterprise owner to experience difficulties while producing, earning money and exercising his rights on the pledged enterprise. Since this pledge was subject to strict formal requirements, the process of monetisation of the pledge was subject to a long procedure. Moreover, the pledge was only publicised in the relevant registry. Again, it was only possible to make this pledge with the credit institutions listed in the Law. Otherwise, the establishment of a commercial enterprise pledge could not be considered valid. This Law was repealed as of 01.01.2017 with the Law No. 6750 on Movable Pledge in Commercial Transactions.

The main innovations include the establishment of a movable pledge registry, ensuring the publicity and follow-up of pledges through this registry, the ability to pledge the pledged movable independently from the trade name and the name of the enterprise, and alternative ways to convert the pledge into cash.

• ANALYSIS OF THE LAW AND THE NEW PROVISIONS:

A. Article 1 of the Law sets out the purpose and scope of the Law:

The purpose of the said Law is clearly stated in the Law. In this context, it has been prepared in order to popularise, expand and publicise the non-deliverable movable pledge in terms of ease of access to financing and to provide alternative ways to the foreclosure of the pledge.

When the Law is analysed, it is seen that the movable pledge system envisaged in the Turkish Civil Code has been moved away from, a new registry system called the Movable Pledge Registry has been envisaged, and especially the owners and possessors of pledged goods are provided with collateral facilities in a possible credit relationship.

Article 1 of the Law regulates the scope quite broadly. Accordingly, the Law stipulates that it “shall apply to pledged transactions established to constitute security for a debt and the subject matter of which are movable assets listed in this Law“.

However, in the subparagraph of the same article, it is stated that this Law shall not apply in the following cases.

1. Pledge agreements and pledge agreements that are subject to financial contracts related to capital market instruments and derivative instruments
2. Deposit pledge
3. It shall not apply to movables registered in the land registry for any reason.

In addition, it is also regulated in the continuation of Article 1 that immovables registered in the land registry for any reason are not covered by this Law.

While determining the scope of the Law in line with Article 1, Article 5 regulating “movable assets over which a pledge right may be established” should also be taken into consideration. Indeed, Article 5 of the Law lists the movable assets on which a pledge right may be established in a limited manner.

Likewise, Article 8, which regulates the “Pledged Movable Registry”, stipulates that “the provisions regarding movable pledges that are required to be registered in a registry pursuant to other laws are reserved. No pledge can be established over these movable assets by registering them in the registry within the scope of this Law”.

Within the framework of the above explanations, although Article 1 of the Law makes a broad provision stating that this Law shall apply to all kinds of contracts “established to constitute an obligation”, the restriction on movable goods in Article 5 and the restrictive regulation on the registry in Article 8 should be considered together when determining the scope of the Law.

B. Article 2 regulates the definitions of the phrases and terms used in the Law:

The said article contains definitions of the concepts that will be encountered in the implementation of this Law. It is useful to briefly mention the definitions.

a) Credit institution;

“Banks and financial institutions operating pursuant to the Banking Law No. 5411, financial institutions operating pursuant to the Financial Leasing, Factoring and Financing Companies Law No. 6361 dated 21/11/2012, and public or private institutions and organisations providing loans and guarantees”. When we look at this definition, it is seen that the list of credit institutions has been increased and now the owner of the immovable property who concludes a contract with these institutions will be able to establish a pledge on immovable property as collateral in favour of these institutions.

Future movable asset

According to the Law, “The assets specified in paragraph 1 of Article 5 of this Law,which do not exist or are not in the possession of the pledgor at the time the pledge agreement is concluded, are defined as future movable assets. .( [1])

As seen here, a person may pledge animals, movables, rights and receivables that he/she does not yet own, in the presence of the conditions listed in the Law. We believe that this issue may lead to legal uncertainties. It is legally possible to establish a pledge for rights and receivables that will arise in the future, but in accordance with the principle of certainty in the pledge, this right, receivable or movable that will arise in the future must be individually determined, that is, it must be concretised with all its characteristics or be of a determinable nature.

Moreover, many concepts expressed in Article 5 of the Law are not clearly and uniformly defined. For example;

• The concept of “wagon” in subparagraph (o) of Paragraph 1 of the Article is not defined, and the pledge of the wagon separately from the whole to which it belongs may lead to legal confusion. If there is a pledge on the whole to which the wagon belongs, there may be two pledge creditors having the right of pledge on the same thing.
• Likewise, it is unclear what is meant by “tenancy right” in subparagraph (ğ) of paragraph 1 of Article 5 of the Law. This is because the tenancy right can only become legally and to some extent strong if it is annotated to the title deed. According to the provisions of the Turkish Civil Code, the pledge right to be established over this right can only be as effective as the right it is the subject of. In other words, the right of pledge is one of the limited real rights and has the power to be asserted against everyone, but the right of tenancy can only be asserted against the addressee. Therefore, the effect of the pledge right on this right will also be limited.
• Again, “commercial project, commercial licence plate and commercial line” are not defined in subparagraphs (m) and (n) of paragraph 1 of Article 5 of the Law. However, transferable rights may be subject to pledge. If the transfer of a commercial project is prohibited, its pledge will become controversial. Again, if commercial lines can be regulated and changed by administrative authorities on the grounds of public order or public security, it may be an issue as to how the right of the creditor of the pledge established on it will be protected.
• It may also be possible to establish a pledge on the “Stocks” referred to in subparagraph (i) of paragraph 1 of Article 5 of the Law. Inventories are defined in the Law as “raw materials, semi-finished or finished goods that are in the possession of the pledgor for the purpose of selling, using or renting”. However, care should be taken when establishing a pledge on inventories, and it should be examined whether the pledgor has a commitment to keep inventories in the contracts signed with third parties or whether there is a right of imprisonment on the inventories. On the other hand, when a pledge is established on the stocks, the stocks should be concretised (with measures such as warehouse numbers, determination of the quantity, etc.) and should not be subject to sale. Otherwise, there may be a risk of confusion of stocks. Again, since the pledge will terminate if the pledged goods are destroyed, the right of pledge may terminate if the stocks are destroyed. The same explanations apply to raw materials.

b) Movable asset;

Under the Law Movable asset“refers to the assets specified in the first paragraph of Article 5 of this Law” scope of movables“receivables, trees yielding perennial crops, intellectual and industrial property rights, raw materials, animals, all kinds of earnings and revenues, all kinds of licences and licences that are not foreseen to be registered in another registry and are not in the nature of administrative permits, rental income, tenancy rights, machinery and equipment, vehicles, equipment, tools, work machines, movable business installations such as all kinds of electronic devices including electronic communication devices, consumables, stocks, agricultural products, trade name and/or business name, commercial enterprise or tradesman enterprise, commercial plate and commercial line, commercial project, wagon, movable assets, rights and shared property rights in the possession of third parties from those listed in this paragraph“.

In fact, all rights, receivables and movables are already included in the pledge of movable property within the system of the Turkish Civil Code; however, the commercial project, commercial licence plate and commercial lines and wagons are noteworthy here.

In addition, as in the case of mortgages, the right of pledge has been introduced for the rights and receivables in the possession of third parties. It is possible to pledge for the debt of another person. Here, the fact that the movable, right or receivable is in the possession of the third party, rather than in his/her possession, is deemed sufficient for the establishment of the pledge. The establishment of a movable pledge in favour of another person without delivery is also repeated in Article 5, Paragraph 9.

c) Pledge right;

The Law defines the right of pledge as “the type of movable asset, the status of the pledgor or the pledged creditor, the nature of the debt secured by the pledge or a limited real right in rem established on a movable asset without the need for the transfer of possession, including the right of the transferee in the transfer of the receivable in order to secure the payment or performance of a debt , regardless of whether the parties call it a pledge right”.

This definition differs from the pledge provisions in the Turkish Civil Code in terms of the “principle of subordination”. A pledge is dependent on the right or receivable that constitutes its subject matter. The only exception to this is the lapse of time for the right or receivable. Only in this case, even if the right and receivable expire, the right of pledge continues. However, it is observed that this definition creates a different type of collateral other than pledge. In this case, the right of pledge will continue as a guarantee against banks and credit institutions, even if the debtor asserts defences and objections related to the receivable and debt, and even if the debt is cancelled. Although this practice will be clarified by case law, it is seen that a new type of collateral independent from the pledge has been introduced. This is in favour of credit institutions. However, we believe that our Court of Cassation will not apply this provision by way of interpretation against persons such as tradesmen, craftsmen and farmers who are in a weak position against credit institutions. It is observed that the principle of subordination of the pledge right has been sacrificed and abandoned for the purpose of obtaining financing.

Again, the principle of establishment of pledge on movable property upon delivery, which was a fundamental principle of pledge on movable property, has been abandoned. From now on, pledges may be established on movables, rights and receivables without delivery. The main rule is reversed.

d) Registry;

According to the Law, the registry is defined as the central and public Pledged Movable Property Registry established or commissioned by the Ministry, where all transactions and operations such as registration, cancellation and amendment regarding the pledges to be established within the scope of this Law on movable assets other than those that are required to be registered in their own special registry in accordance with the legislation are carried out and presented electronically.

The important points in this definition are as follows:

i. It is expected that a regulation on the registry will be published. This is repeated in Article 8.

ii.Pledges with a special register: Such as animal pledges, mining pledges, ship mortgages and aircraft mortgages. The provisions of special laws are also reserved. Pledges on movables, rights and receivables other than those that are required to be registered in these special registries shall be registered in the registry to be established subject to this Law. This point is repeated in paragraph 3 of Article 8.

However, Article 5 of the Law includes animals among movables, and it is observed that the legislation governing animal pledges has not been repealed by this Law. It is not understood whether this is negligence or forgetfulness. On the other hand, animal pledge was a pledge that could be established without delivery in the former regulation. The only difference was that it could be concluded between credit institutions and co-operative members (Art. 940 TCC).Currently, the parties to the pledge agreement have been expanded.

iii. The registry shall be created electronically and shall be public.

C. Article 3 of the Law lists the parties to the pledge agreement to be established:

Accordingly, “the pledge agreement is concluded between credit institutions (including factoring companies) and merchants, tradesmen, farmers, producer organisations(in the Law, it refers to agricultural cooperatives and unions established by producers and breeders based on the relevant Laws), self-employed real and legal persons and between merchants and/or tradesmen “. In fact, with this definition, it is seen that the parties in the Turkish Civil Code and the Commercial Enterprise Pledge Law are combined. The word “or” in subparagraph b) of the Article also means that the pledge may be concluded between merchants, between tradesmen or between merchants and tradesmen. Farmers, producer organisations, self-employed real persons and legal entities can only do business with credit institutions.

D. Establishment of the right of pledge is regulated in Article 4:

Accordingly, the pledge right shall be established upon the registration of the pledge agreement with the registry. In other words, a constitutive registration system with “agreement+registration” has been introduced. This regulation is appropriate since the delivery of movables has been abandoned. In this case, the mere execution of the agreement will not be sufficient and the pledge right will be deemed not to have been established and the pledge right will not arise. Registration is mandatory. Here, it is not clear whether the contract will continue to be valid only between the parties if it is not registered. In our opinion, unless the agreement is also registered, it will not be valid even between the parties and the pledge right will be deemed not to have arisen.

The pledge agreement may be drawn up electronically or in writing. Since the system has not yet been established, the electronic form of the pledge agreement will be concretised in the future. If it is preferred to be drawn up electronically, the agreement must be approved with a secure electronic signature in order for the pledge agreement to be registered with the Registry.

Even if it is preferred to be in writing, in this case, the signatures of the parties must be notarised or the agreement must be signed in the presence of the Registry official in order for the pledge agreement to be registered in the Registry.

Other procedures and principles regarding the establishment of the right of pledge shall be regulated by a regulation issued by the Ministry.

The following matters must be included in the pledge agreement to be issued (mandatory elements):

• Parties to the pledge agreement;
• If it is a commercial enterprise, trade name, MERSIS number, name, surname and signature of the representative authorised to represent and bind,
• Republic of Turkey identification number, name, surname and signature of the real person or tradesman,
• If he/she is a farmer, Republic of Turkey ID number, name, surname and signature and Farmer Registration System number,
• If it is a producer organisation, the producer organisation document number and the name, surname and signature of the representative authorised to represent and bind.
• The subject of the debt, the amount of the debt, if the amount of the debt is not certain, the amount for which the pledge constitutes security, the type of money to be paid and the maximum amount of the pledge: These matters are important. Since a pledge on movable property can also be established in foreign currency, this situation differs from a mortgage.
• The asset subject to the pledge and its distinctive features such as serial number, brand, year of production, chassis number, document serial number, GTIP or PRODTR industrial product code, if any: These matters are not specified in terms of future or existing rights and receivables. In pledges, the principle that the rights, receivables and movables subject to pledge must be certain is essential. This principle is stated in this subparagraph mostly in terms of tangible movables, and this article should be interpreted broadly and should be applied in the concretisation of other abstract rights and receivables. For example; in terms of the right of tenancy that will arise in the future, it must be specified as the right of tenancy that will arise on the independent section numbered 7 on the 3rd floor of the masonry building, which is a 1700 square metre workplace on parcel x, plot y, block z.

4. Pursuant to the Article, any sub- or post-pledge of the pledged movable asset and any records restricting the pledgor’s power of disposition over the pledged movable asset are invalid. This is justified since the pledge does not restrict the owner’s power of disposition. This is in line with the following articles of the Turkish Civil Code and is not an innovation:

“After pledge: ARTICLE 941.- The owner of the pledged movable may establish an after pledge on it. For this purpose, the pledged creditor must be notified in writing that the pledged movable property will be delivered to the subsequent creditor when the receivable is paid.

Sub-Pledge ARTICLE 942.- The creditor may pledge the pledged movable to another person only with the consent of the pledgor.”

The purpose of this regulation is to allow the establishment of a second pledge on movables pledged to banks or other credit institutions and to prevent this from being prevented by contractual provisions.

4. Pursuant to the article, “the costs arising from the registration of the pledge right to the Registry shall be specified in the pledge agreement”, this issue shall be resolved within the freedom of contract. However, it is indisputable that banks and other credit institutions will charge this to the pledging tradesmen etc.

E. The movable assets over which a pledge right may be established are specified in Article 5 of the agreement (Subject of the Pledge).

This issue has been mentioned above. In order to avoid repetition, the above-mentioned movable assets will not be emphasised here.

When the said article is analysed, the most important point is the limited (limited) enumeration of movable assets. Within the framework of this limited counting principle, it is seen that this Law shall not apply to movables that are not included in Article 5 of the Law.

The most striking asset among the movable assets regulated under this Article is the commercial enterprise or tradesman enterprise. Pursuant to this article, it is possible to establish a pledge over the entire commercial enterprise or tradesman enterprise. In this case, all assets allocated to the activity of the enterprise at the time of the establishment of the pledge shall be deemed to be pledged as a rule. If the pledge of these assets is required by other laws to be registered in a registry, this pledge shall be notified to the relevant registries. Notification, not registration, is regulated here, and the purpose is to ensure the connection between the registries. In fact, if a pledge is established on a movable asset that is required to be registered in another registry, a commercial enterprise or a tradesman enterprise, it will be sufficient to notify the relevant registry instead of registration. If it is pledged alone, it shall be required to be registered in the registry to which it belongs, not in this registry.

If a pledge right has already been established on these assets pursuant to other Laws, the pledge established and notified under this Law shall take the next place.

Commercial enterprise and artisan enterprise pledges shall also be notified to the trade or artisan registry. Here, too, it is important to pay attention to the establishment of links with other registers.

A similar point is repeated in Paragraph 8 of Article 5. In this paragraph, “Pledges that are required to be registered in special registries pursuant to the legislation shall be notified to the Registry. The procedures and principles regarding this shall be determined by a regulation issued by the Ministry.”

Under Article 5, if the other movable assets in the first paragraph meet the debt, a pledge cannot be established over the entire enterprise. Here, it is regulated that a pledge may only be established up to the amount of the need and a pledge may not be established beyond the need. The aim is to provide collateral to the owner of the commercial enterprise and to enable him to earn money and pay his debt by operating his business freely in order to pay this collateral.

Pursuant to Article 5, a pledge right may also be established on the future movable assets of an enterprise. In other words, a pledge agreement may be concluded for movables, rights and receivables that are not yet in the possession of the pledgor. However, the power of disposition over the pledged future movable assets may only be exercised after these assets become the property of the pledgor. In this case, we believe that it will not be considered as an attractive collateral for credit institutions.

The pledge can be established on the returns of existing or future movable assets of the enterprises. This may provide an advantage for credit institutions in terms of current returns. However, in the event that the returns are the revenues that ensure the survival of the enterprise and considering the freedom in the use of the power of disposition on this, the application of this will be clarified in the future. In addition, these benefits should be individuated and made tangible when establishing a pledge.

According to Article 5, Paragraph 6 of the Law, the right of pledge may be established on one or more of the assets specified in the first paragraph of this Article. Here, the owner is free. Although there was a certain amount of freedom in the Commercial Enterprise Law in the past, currently, the initiative lies with the owner or the owner who will grant the pledge. The pledgor is completely free to choose the movables, rights and receivables to be pledged.

Article 5 also states that existing or future receivables arising from any type of contract may be subject to pledge and sets two limits:

• Law on the Procedure for Collection of Public Receivables dated 21/7/1953 and numbered 6183 and dated 31/5/2006
• 5510 numbered Social Security and General Health Insurance Law provisions are reserved.

No pledge right can be established on existing or future receivables arising from these Laws.

However, the receivables subject to pledge must be transferable and their transfer must not be prohibited. Pursuant to Article 183 of the Code of Obligations, “Unless prevented by law, contract or the nature of the business, the creditor may assign his receivables to a third party without seeking the consent of the debtor.” Therefore, it is not possible to pledge existing or future receivables arising from all types of contracts under the Turkish Code of Obligations. If the assignment of receivables is prohibited by the parties or the law, the pledge is no longer possible. How the contradiction here will be clarified will become apparent in practice.

Article 5 of the Law rightly and correctly states that “The pledge of licences and permits that are subject to an approval pursuant to their own legislation is possible upon obtaining this approval.” Thus, if the pledgor’s authority to dispose of the pledged thing is not complete, the pledge will be established in a healthy way by obtaining this approval from the relevant authority.

Article 5 of the Law stipulates that “Third parties may establish a non-deliverable movable pledge in favour of the debtor within the scope of this Law.” As in the case of mortgages, the possibility of establishing a pledge in favour of another person, i.e. on its own movable property, rights and receivables for the debt of another person, is regulated.

F. Pursuant to Article 6 of the Law titled “integral part and attachment”, the pledge right on a movable asset also covers the integral part of that asset.

This regulation is partially parallel to the TMK system. In principle, pursuant to Art. 862 and Art. 947 of the TCC, both integral parts and attachments are included in the pledge.

However, according to the text of the article, the parties may separately agree to include the existing or subsequently added attachments of the movable asset within the scope of the pledge. In this case, it should be written in the contract that the add-ons should be included.

G. Pursuant to Article 7 of the Law titled “Merger and merger”, it is stated that a pledge right may be established on the merged or merged movable assets.

In the event that a movable is mixed or merged with another movable in such a way that it becomes an integral part thereof, the pledge right shall be deemed to have been established on the entire movable asset.

• The right of pledge on the merged or mixed movable asset shall continue in proportion to the value of each merged movable asset at the time of merger to the value of the combined product.
• In the event of a merger or mixture of movable assets, the creditors shall have a shared pledge on the new asset in proportion to the value of their movables at the time of the merger or mixture.

These regulations are quite technical, and although it is rare to encounter such an issue in practice, details can be entered in case of problems.

H. Pledged Movable Property Registry is regulated under Article 8.

Accordingly, a pledge right can only be established by registration in the registry and will only be effective against third parties upon such registration. If only a pledge agreement is concluded and not registered in the registry, then the validity of this agreement cannot be asserted against third parties.

Again, the determination of the priority right among the pledged creditors and the registration of the transfer of the pledged movable asset and receivables shall be carried out through the registry.

The Pledged Movable Property Registry shall be public. The Ministry is authorised to inspect the activities of the Registry at any time and to take necessary measures. The Registry is obliged to comply with the measures taken and instructions given by the Ministry.

As stated before, the provisions regarding movable pledges that are required to be registered in a registry pursuant to other laws are reserved, and pledges cannot be established on these movable assets through registration in the Registry within the scope of this Law. The exception to this is the establishment of a pledge on the entire commercial enterprise or tradesman enterprise specified in paragraph 2 of Article 5. In this case, it is sufficient to notify the special registries of the assets falling within the scope of this entity.

8. In paragraph 4 of the Article, it is stated that the procedures and principles regarding the establishment and functioning of the Registry and the sharing of the data of the movable registries kept in accordance with other laws with this Registry shall be determined by the regulation issued by the Ministry, and that the implementation principles regarding the Registry shall be regulated by the regulation to be published.

Article 9 of the Law regulates the enforcement of the pledge right against third parties.

Accordingly, the pledge right shall become effective against third parties upon the registration of the pledge agreement in the Registry. Movable pledges that are required to be registered in a registry pursuant to other laws shall continue to be enforceable against third parties.

In other words, the existence of the pledge and the rights arising from the pledge cannot be asserted against third parties unless the pledge agreement is registered in the registry. Of course, the only exception to this is the proof that the third parties know and are in a position to know the existence of the pledge agreement. However, this can only be concretised by case law.

J. Article 10 of the Law regulates the degree system.

In fact, the TMK system (TMK. Art. 948) does not have a degree system for movables, but an order system. Accordingly, if there is more than one pledge right on the same movable, the creditors shall be paid according to the order of the pledge rights and the order of the pledge right shall be determined according to the date of establishment. However, Article 10 introduces a degree system for movables within the scope of this Law, as is the case for immovables. In other words, movable pledges are likened to mortgages.

Accordingly, the security provided by the pledge is limited to the “amount and degree of pledge” specified in the registration. In other words, the pledgor may grant the pledged creditor a pledge right in the second degree, even if the first degree is empty, and leave the first degree empty. In this case, the pledgor may grant a pledge of the 1st degree to a person at a later date, and in this case, even if it is at a later date, the right of the pledged creditor of the 1st degree on the movable asset subject to the pledge takes precedence over the pledged creditor of the 2nd degree.

Pursuant to the same article, the pledge may also be established in the second or subsequent degree, provided that the amount of the pledge preceding it is specified in the registration. In other words, the pledgor has the right to keep the first rank empty. However, in this case, it is required to specify its amount. Therefore, it should be examined whether the first degrees are kept empty in movable pledges and, if so, whether the amount exceeds the value of the movable asset.

Article 10 refers to Articles 871 to 876 of the Turkish Civil Code, which regulate the degree system in immovable pledges, and states that the provisions not contrary to this Code shall be applied by analogy.

According to these provisions, the following principles, which are valid for immovable pledges, are important and shall also apply to movable pledges, unless contrary:

• The cancellation of one of the pledge rights established on the same immovable property in different ranks does not entitle the pledged creditor in the next rank to move to the vacant rank.
• A new pledge right may be established instead of the cancelled pledge right.
• The validity of the agreements granting the subsequent pledged creditors the right to pass to the vacant rank depends on their official execution; their effect in rem depends on their annotation in the land registry. (This is specially regulated in the last paragraph of Article 10)
• If there is no pledge preceding a pledge right established in subsequent ranks, or if the debtor has not disposed of a previous pledge deed, or if the pledged claim in the previous rank is less than the amount specified in the registration for that rank, the sale price shall be distributed to the subsequent creditors according to their ranks without taking into account the vacant rank.
• If the debt is not paid, the creditor has the right to obtain its receivable from the sale price of the pledged immovable. The contractual provision stipulating that the ownership of the pledged immovable shall pass to the creditor in case of non-payment of the debt is invalid. If more than one immovable is pledged for the same receivable, the request for foreclosure of the pledge shall be made for all of the immovables. However, the enforcement office shall only realise as many of them as necessary.
• The sale price of the pledged immovable shall be distributed among the creditors according to their ranks. Among the creditors in the same order, the sale price shall be distributed in proportion to their receivables.
• The security provided by the immovable property pledge to the creditor includes the following: The principal amount, the expenses of the proceedings and default interest, the three-year interest due until the date of the opening of the bankruptcy or the date of the request for the foreclosure of the pledge, and the interest starting from the last due date (the previously determined interest rate cannot be increased to the detriment of subsequent creditors) and the security of compulsory expenses.
• If the creditor has incurred compulsory expenses for the protection of the pledged immovable property, and in particular has paid the insurance premiums owed by the owner, the receivables arising therefrom shall benefit from the security just like the pledged receivable, without the need for registration.

10. Pursuant to the last paragraph of the Article, “the pledged creditors ranked next in the pledge agreement may be granted the right to pass to the vacant degree.Inthe event that this right is granted by an agreement other than the pledge agreement, the validity of the agreement is subject to its registration in the Registry“, and the right to pass the vacant degree (TMK. Art. 871/3), which is essentially valid for immovables, has been regulated specifically for movable pledges this time.

Article 11 of the Law regulates the right of priority.

Accordingly, if more than one pledge right is established on the same movable asset without specifying the order of degrees, the priority right of the creditors shall be determined according to the moment of the establishment of the pledge. In case the order of degrees is specified, the order of degrees shall be taken as basis. Thus, a mixed system is introduced. In the absence of a degree, the principle will be the principle of order according to the date of establishment, but if a degree is specified, the degree system will be taken as basis.

The Article continues as follows; “In the event that subsequent pledge creditors are given the right to move to the vacant rank, no payment shall be made to the next pledge creditor until the pledge creditor in the first rank receives his/her receivable in full.”, and a principle that is already known and applied is repeated.

Article 11 also attempts to provide a solution to the technical issue of the order in the event of merger and amalgamation. Accordingly, the pledge rights on the merged or mixed assets have the same priority as the status of the asset before the merger or mixture. If the merged or mixed assets have the same degree, the moment of registration is taken into account.

Pursuant to Article 11, unless a separate pledge has been established over the proceeds, the priority right over the proceeds of the pledged movable asset shall be the same as the priority right of the original pledged asset.

L. Article 12 of the Law regulates the rights and obligations of the parties to the pledge agreement and the responsibilities of the possessor.

Accordingly, the rights and obligations of the parties shall be determined in the contract, provided that they are not contrary to this Law.

Since the pledged movable will be destroyed if the pledged movable is destroyed, whoever holds the pledged movable must use it carefully and cautiously. Otherwise, the pledged creditor is entitled to apply to the judge. Accordingly, the possessor is obliged to take the necessary measures to protect the value of the pledged movable. If the possessor engages in behaviour that reduces the value of the pledged movable, the pledged creditor may request the judge to prohibit such behaviour. The creditor may be authorised by the judge to take the necessary measures, or in cases where there is a danger of delay, the creditor may take the necessary measures on its own without such authorisation.

Pursuant to this Article, the pledge creditor is also entitled to inspect the pledged movable property in the possession of the pledgor or a third party.

Pursuant to this Article, those whose rights have been damaged may request compensation for the expenses incurred for the said measure from those who caused the damage, and the pledgor is obliged to compensate the damages arising from the disposals that reduce the value of the pledged movable assets to the detriment of the pledge creditor.

Pursuant to this Article, if the pledgor transfers the pledged movable asset or pledged receivable, the pledgor is obliged to register the transfer with the Registry. In our opinion, unless this registration is made, the transfer cannot be claimed against third parties and the pledged creditor.

M. Pursuant to Article 13 titled “Value Determination”, prior to the establishment of the pledge right, the parties may have a value determination made in order to determine the value of the movable subject to the pledge in accordance with the procedure set forth in the Article.

Accordingly, this procedure may be applied both prior to the establishment of the pledge right and in the exercise of the rights after the merger, commingling or default of the pledged movable. In this procedure, it is allowed to benefit from the expertise service and upon the finalisation of the value determination, the criterion of being valid for 2 years has been adopted and it is prohibited to request a new value determination until this 2-year period has passed.

This procedure is regulated as follows: Upon application of the creditor by the civil court of peace at the pledgor’s place of residence The value of the movable shall be determined within three (3) days by real or legal persons providing expertise services . This valuation can be challenged.

In case of objection to this valuation, by the court A new valuation shall be made within three (3) days. Upon objection, the real or legal persons providing expertise services shall make a value determination within three days. In this regulation, it is not clear whether the court will request this valuation from the same persons or from different expertise persons. This issue will be clarified in practice. The adequacy of the 3-day deadlines is, in our opinion, questionable.

The value determination made upon objection is now final and cannot be objected again. Unless two (2) years have elapsed from the date of this determination, a new value determination cannot be requested. The report on the valuation shall be notified to the pledgor and the pledge creditors.

Pursuant to this Article, the ceiling fee for the expertise services to be provided under this Law shall be determined by the Ministry by taking the opinion of the relevant institutions. In addition, the qualifications to be sought in real and legal persons providing expertise services and other issues regarding these persons to be authorised will be determined by a regulation issued by the Ministry. A regulation on these issues is also expected, and the details will be shaped by secondary regulations.

N. Post-default rights are regulated under Article 14.

Accordingly, in the event that the debts under this Law are not fulfilled in due time, the creditor may resort to the following remedies:

a) The first degree creditor may request the transfer of the ownership of the pledged movable from the enforcement office pursuant to Article 24 of the Enforcement and Bankruptcy Law. In this case, the execution office shall notify this transfer to the Registry. This regulation is contrary to Article 949 of the TCC, which prohibits the transfer of ownership and states that “The contractual provision stipulating the transfer of the ownership of the pledged movable to the creditor in case of non-payment of the debt is invalid.” ([2])

In the event that the value of the pledged movable, determined pursuant to the second paragraph of Article 13 of the Law, is more than the total receivable of the first degree creditor, the first degree creditor and the pledgor shall be jointly and severally liable for the difference against the creditors of other degrees. This is an appropriate provision that should be regulated naturally.

b) The pledged creditor may transfer its receivables due to default to asset management companies operating in accordance with the Banking Law No. 5411. In this case, asset management companies shall have the pledge order of the creditor. The right of priority shall be determined according to Article 11 of the Law.

c) In the case of assets that are not subject to the transfer of possession, the pledgee may exercise the right of lease and licence. What is meant here is that if there is a movable asset whose ownership cannot be transferred, the pledged creditor will be able to use the right of lease and licence instead, since the pledged creditor cannot acquire ownership. How this will work in practice will be clarified in the future.

According to this article, if the receivable cannot be collected by the above-mentioned means, the follow-up shall be carried out within the framework of general provisions. In this regard, the provisions of the TMK and the EBL shall be applicable.

Again, other procedures and principles regarding this article will be regulated by a regulation issued by the Ministry, and when the regulation is issued, there may be gaps and uncertainties in practice if it contains contradictions to the TMK and this Law.

O. Pursuant to Article 15 on the termination of the claim, the pledge creditor shall apply for the cancellation of the pledge registration from the Registry within three business days from the date of termination of the claim.

The Ministry shall impose an administrative fine of one tenth (1/10) of the secured debt amount on the pledge creditor who fails to fulfil this obligation. This is not an appropriate arrangement and it is considered that the 3-day period is short.

Pursuant to this article, in the event that existing and future secured obligations, including contingent obligations, are fulfilled through payment or other methods, the pledge right shall be cancelled from the Registry upon the request of the pledge creditor.

Pursuant to this Article, if the pledge creditor fails to apply to the Registry for the cancellation of the pledge within the time limit following the termination of the receivable, the debtor who has paid the debt and documented it may request the cancellation of the pledge from the Registry.

The sanctions are regulated in Article 16 of the Law and are as follows:

The pledgor or the transferee of the movable as pledged;

• Use of the pledged asset in contravention of this Law,
• Failure to transfer the ownership of the pledged asset in case of non-payment of the debt,
• Destroying or destroying the pledged asset with the intention to harm the creditor,
• Failure to register the transfer of the pledged movable asset and the transfer of the receivable to the Registry,
• Acts aimed at misleading the registry,

In such cases, upon the complaint of the pledge creditors who cannot collect their receivables in whole or in part, a judicial fine not exceeding half of the secured debt amount shall be imposed. This is an appropriate arrangement.

Pursuant to this article, without prejudice to the provisions of the relevant Law, a person who continuously engages in the business of lending money by pledging a movable shall be punished in accordance with Article 241 of the Turkish Criminal Code dated 26/9/2004 and numbered 5237. This prohibits lending against pledge.

P. Pursuant to Article 17 of this Law, the Commercial Enterprise Pledge Law is repealed as of the effective date of this Law.

Q. Pursuant to Article 18 of the Law, in cases where there is no provision in this Law, the provisions of the TMK regarding movable pledge shall apply.

According to this article, it is concluded that this Law, as a special law, shall take precedence over the TMK in cases of conflict with the TMK.

R. Article 19 of the Law titled “Exemptions” stipulates that the execution of the pledge agreement and the transactions established in the registry are exempt from taxes, duties, fees and valuable paper fees. It is considered that a parallel regulation should be made to the Notary Public Law in this respect. It is thought that the stamp tax is also meant by the valuable paper cost.

S. According to the provisional Article 1 titled Transitional Provisions, this Law shall not be applied retroactively to the cases and proceedings pending on the date of entry into force.

The provisions of the relevant legislation shall continue to apply to the pledge rights established on commercial enterprises or tradesmen enterprises before the effective date of this Law.

T. This Law will enter into force on 01 January 2017. There is no mention of when the regulations will enter into force.

The regulations made within the framework of the Law on Movable Pledge in Commercial Transactions No. 6750 dated 20/10/2016 have been mentioned above in general terms. As can be seen in the aforementioned article evaluations, it is seen that there are many innovations introduced in the said Law, as well as many gaps in the innovations introduced. It is seen that these gaps will be filled by the regulations to be issued by the relevant Ministry, the methods to be adopted within the scope of implementation and ultimately by judicial decisions.

([1]) Article 5 of the Law Although Article 5 of the Law will be discussed later, the Law defines movable assets as “receivables, trees yielding perennial crops, intellectual and industrial property rights, raw materials, livestock, all kinds of earnings and revenues, all kinds of licences and licences that are not foreseen to be registered in another registry and that do not constitute administrative permits, rental income, tenancy rights, machinery and equipment, vehicles, equipment, tools, business machines, movable business installations such as all kinds of electronic devices including electronic communication devices, consumables, stocks, agricultural products, trade name and / or business name, commercial enterprise or tradesman enterprise, commercial plate and commercial line, commercial project, wagon, movable assets, rights and shared property rights in the possession of third parties from those listed in this paragraph”. These are also included in the definition of movable.

([2]) At this point, it should be noted that the relevant articles of the existing TMK may be amended by taking into consideration the needs that will arise within the framework of the regulation and practice. In the same way, such contradictions can be overcome by means of the interpretation of the general law by means of Article 18 of the Law.