Significant Changes Which Are Accepted According To “Law on Pledges on Movable Property in Commercial Transactions” 15 May 2017
It has been decided to make Law on Pledge on Movable Property in Commercial Transactions come into force on 01.01.2017 (”the Law”) which is accepted on 20.10.2016 and published in the Official Gazette dated 28.10.2016 and numbered 29871, by abrogating the Law on Commercial Enterprise Pledge ("LCEP") numbered 1447 on 01.01.2017. Within this scope, significant changes have been accepted by adopting the Law.
One of the most significant amendments accepted under the scope of the Law is the regulation with regard to the parties of the commercial enterprise pledge agreement. As it is known, under LCEP, the parties that could concluded a commercial enterprise pledge agreement are counted, and it is accepted that others than the counted ones shall not conclude commercial enterprise pledge agreement. According to that “Commercial enterprise pledge agreements can be executed by and between the credit institutions having legal entity, cooperatives and credit sale institutions having real or legal entity the real persons or legal entities owning the commercial enterprise subject to pledge.” (LCEP Art. 2)
However, pursuant to change accepted under the Law, it has been indicated that, a commercial enterprise pledge agreement can be executed “between credit institutions and merchants, tradesmen, farmers, producer organization, real and legal persons who are self-employed professionals or between merchants and / or tradesmen.” (the Law Art. 3). Additionally, it has been accepted that a commercial enterprise pledge agreement can be electronically prepared and pledge agreements which are prepared written or electronically will also become valid upon the registration to the registry (the Law Art. 4).
Another change accepted within the scope of the Law is related to the scope of the commercial enterprise pledge. According to LCEP provisions, it is regulated that commercial enterprise pledge can include “trade name and commercial title; the machinery, equipment, tools and transportation vehicles that are allocated to the operation of the commercial enterprise as of the date of registration of the pledge and intellectual property rights such as licenses, trademarks, models, drawings, etc.” (LCEP Art. 3).
However, according to the provisions of the Law; commercial enterprise pledge can be established on “receivables; trees yielding perennial products; intellectual and industrial property rights; raw materials; animal; all types of income and revenues; all types of licenses and permits which are not considered as an administrative approval and not registered to another registry; rental income; right of tenancy; vehicles, equipment, tools, construction equipment, movable equipment of enterprise such as all kinds of electronic devices including electronic communication devices; consumables; stocks; agricultural product; trade name and / or commercial name; commercial enterprise or tradesman enterprise; commercial plate and commercial line; commercial project; carriage" (the Law Art. 5).
If the debtor does not fulfill its obligation on paying the debt, the way which the creditor can follow is commencing an execution proceeding on foreclosure of pledged property under LCEP (LCEP Art. 14). However, the Law has adopted a major change regarding this issue. Firstly, the degree system regarding commercial enterprise pledge has been accepted under the Law. According to Article 10 of the Law; the guarantee that pledge provides is limited to the amount and degree of pledge which are stated in the registry. Pledge can be established on second or subsequent degrees on condition that amount of previous degree are stated in registry. The right of passing the degree of the released pledge can be entitled to creditors of subsequent degree pledge. Preferred creditor is determined by the moment of establishment of the pledge, if more than one pledge right is established without stating the degree on the same movable asset. If the degree is stated, the degree order is taken as basis.
Within this direction, the procedures that can be followed have also been revised in case debtors do not pay the debts and an exception has been also accepted for lex commissoria prohibition. Pursuant to Article 14 of the Law; the first degree creditor can request execution office to transfer of the ownership of the pledged movable, he can assign the claim to asset management companies established and existing under Law No. 5411 or he can exercise his leasing and license rights on assets which are not the subject of transfer of the possession. If the debt cannot be collected despite the mentioned possible ways, the creditor may also commence an execution proceeding in accordance with general provisions.
Significant changes have also been accepted regarding to the penalization of actions against the Law. As is known; Article 12 of LCEP regulates that; “In the event that the pledgor, without the consent of the pledgee, transfers its commercial enterprise or changes the assets that form part of the pledge or assigns or grants any kind of encumbrance over the same or destroys the same and if as a result of such actions the pledgee cannot collect its receivables completely or partially, the pledgor shall be punished, depending on the amount of the loss suffered by the pledgee, with imprisonment of 1-5 years and a monetary fine not less than 100 days, upon complaint of the pledgee.”
However, under the Law, it is regulated by revoking the provision on punishment restricting freedom that “in case of using the pledged property against this Law; not transferring the property of the pledged asset if debt is not paid; ruining or destroying the pledged asset with the intention of making creditor suffer a loss; not registering the transfer of pledged asset or transfer of claim to the registry; doing an action which is intended to mislead the registry; upon the complaint of the pledgee, a punitive fine which shall not be more than the half of guaranteed debt amount is imposed”. Additionally, claim for the related loss which is caused by the debtor’s actions is reserved.
It is regulated that the Law shall enter into force on 01.01.2017 and according to temporary Article 1 of the Law, it is stated that "the Law shall not be applied to the pending cases and proceedings at the date when the Law comes into force, and the related legislation provisions on the pledge rights which have been established on the commercial or tradesman entities before the date of entering into force of this Law shall be applied”.
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