The Law on Pledges of Movable Property in Commercial Transactions numbered 6750 (the “Law”) has been enacted by the Grand National Assembly of Turkey on 20 October 2016 and published in the Official Gazette dated 28 October 2016.
The Law will come into force on 1 January 2017. The date of establishment of the registry for pledges of movable property (the “Registry”) still remains ambiguous, but the changes noted in our article dated 24 October 2016 have been fully enacted, subject to the following amendments which were made to the provisions of the Draft Law.
Creditors’ Rights and Priority of Pledges
Lower ranking pledges may be established over a certain asset, but to do so, the amount with which the higher ranking pledge will be limited must be stated during registration of the lower ranking pledge.
Furthermore, if one of a number of separate pledges established over the same asset is cancelled, the creditor of the lower ranking pledge may only step into the place of the creditor of the higher ranking pledge which ceases to exist if the former is explicitly provided with this right as per an agreement. Unless this agreement is a pledge agreement, its validity will depend on its registration with the Registry. Creditors of lower ranking pledges will not be paid until all claims of creditors of higher ranking pledges are satisfied.
Alternate Routes to Foreclosure
If the obligations stipulated under the Law are not performed in a timely manner, creditors will be entitled to request from the execution offices to transfer the pledged asset in their own names. But if the value of the pledged asset is more than the total claims of the creditor of the first ranking pledge, the said creditor and the pledgor will be jointly liable for the amount of difference between the value of the asset and this creditor’s claims toward the other creditors of lower ranking pledges.
Protection of Pledged Assets
If possessors of pledged assets engage themselves in acts which lead to depreciation of the pledged assets, creditors will be able to apply to the court requesting for prohibition of the same from carrying out these acts. In this case, the court may allow creditors to take the measures which are needed to preserve the value of the assets. Alternatively, where a delay to obtain a court order would cause damages, creditors may take such measures themselves without a court order too.
Cancellation of the Pledge
If the pledgee does not apply to the Registry for cancellation of the pledge within three business days as of the date on which its receivable ceases to exist, it will be levied an administrative monetary fine. If the pledgee does not make such a cancellation application within the set time period, the debtor who can provide evidence as to the fact that it has paid up its debt may apply to the Registry itself for cancellation of the pledge.
The Law will be applicable to those court cases and execution proceedings which are commenced after its date of enforcement, i.e. 1 January 2017.
* This client alert should be read together with our article dated 24 October 2016 and titled “Reforms to the Law on Pledges of Movable Property: Business Enterprises in Turkey Expected to Enjoy Easier Access to Finance Sources”.