Pledges in Turkey: How to Secure Debts with Movable Assets and Receivables

Introduction

Securing debts is one of the most fundamental concerns in both commercial and civil law. Creditors seek legal mechanisms that minimize the risk of non-payment, while debtors aim to access financing without relinquishing full ownership of their assets. In Turkey, the law of pledges (security interests) plays a central role in balancing these competing interests.

Pledges over movable assets and receivables constitute a crucial part of Turkish secured transactions law. Unlike mortgages, which apply to immovable property, pledges provide security over movable property, rights, and claims. Over the last decade, Turkish pledge law has undergone significant reforms, particularly with the introduction of the Law No. 6750 on Pledge of Movable Assets in Commercial Transactions, which modernized the system and aligned it more closely with international standards.

This article provides a comprehensive and SEO-optimized legal analysis of pledges in Turkey, focusing specifically on how debts may be secured with movable assets and receivables. It examines the legal framework, types of pledges, creation and perfection requirements, priority rules, enforcement mechanisms, and practical considerations for creditors and debtors alike.

1. Concept and Legal Nature of Pledge under Turkish Law

1.1 Definition of Pledge

A pledge is a real security right granted to a creditor over a movable asset or a receivable to secure the performance of an obligation. If the secured debt is not fulfilled, the creditor has the right to satisfy its claim from the pledged asset with priority over unsecured creditors.

Under Turkish law, a pledge:

• Is an accessory right, dependent on the existence of a secured debt
• Confers priority and preference to the pledgee
• Follows the principle of numerus clausus of real rights
• Is enforceable erga omnes (against third parties)

1.2 Legal Sources Governing Pledges in Turkey

The primary legal sources regulating pledges in Turkey include:

• Turkish Civil Code (TCC) – Articles 939–972
• Turkish Code of Obligations (TCO)
• Law No. 6750 on Pledge of Movable Assets in Commercial Transactions
• Enforcement and Bankruptcy Law (EBL)
• Secondary regulations and communiqués

Each legal instrument governs different aspects of pledge relationships, depending on the nature of the asset and the parties involved.

2. Types of Pledges in Turkey

2.1 Possessory Pledge (Traditional Pledge)

The classical form of pledge under the Turkish Civil Code requires transfer of possession of the pledged movable asset to the creditor or a third party.

Key characteristics:

• Delivery of possession is mandatory
• Ownership remains with the pledgor
• Creditor must safeguard the asset
• Common for tangible movable property

This form is increasingly viewed as impractical for modern commerce due to its restrictive nature.

2.2 Non-Possessory Pledge under Law No. 6750

Law No. 6750 introduced a revolutionary non-possessory pledge system, allowing debtors to retain possession and use of the pledged asset.

Advantages:

• Supports business continuity
• Enhances access to credit
• Reduces transactional inefficiencies

This reform significantly expanded the scope of assets eligible for pledge.

2.3 Pledge of Receivables

A pledge may be established over existing or future receivables, including:

• Trade receivables
• Rental income
• Insurance claims
• Contractual payment rights

Receivables pledges play a vital role in commercial financing structures.

3. Pledge of Movable Assets in Commercial Transactions

3.1 Scope of Law No. 6750

Law No. 6750 applies primarily to commercial transactions involving:

• Merchants
• Craftsmen
• Farmers
• Producers’ organizations
• Financial institutions

The law aims to facilitate credit by broadening acceptable collateral types.

3.2 Movable Assets Eligible for Pledge

Under the law, a wide range of movable assets may be pledged, including:

• Machinery and equipment
• Vehicles
• Inventory and raw materials
• Intellectual property rights
• Commercial enterprise assets
• Agricultural products
• Licenses and permits (where transferable)

This expansive scope represents a significant departure from traditional pledge rules.

3.3 Establishment of a Pledge under Law No. 6750

To validly establish a pledge, the following are required:

1. Written pledge agreement
2. Registration with the Movable Pledge Registry
3. Identification of:
   
   • Secured obligation
   • Pledged asset
   • Maximum secured amount

No physical delivery of the asset is necessary.

4. Pledge of Receivables under Turkish Law

4.1 Legal Basis

Pledges over receivables are primarily governed by:

• Articles 954–961 of the Turkish Civil Code
• Turkish Code of Obligations provisions on assignment

Receivables are considered intangible movable property.

4.2 Creation of a Receivables Pledge

A pledge of receivables requires:

• A written agreement
• Clear identification of the receivable
• Notification to the debtor of the receivable (optional but recommended)

Unlike assignments, ownership of the receivable remains with the pledgor.

4.3 Pledge over Future Receivables

Turkish law allows pledges over future receivables, provided that:

• The legal relationship giving rise to the receivable is identifiable
• The receivable becomes determinable upon maturity

This flexibility is essential in project finance and supply chain financing.

5. Rights and Obligations of the Parties

5.1 Rights of the Pledgee (Creditor)

The pledgee enjoys several key rights, including:

• Priority over other creditors
• Right to follow the asset
• Right to enforcement upon default
• Right to interest and ancillary claims (if stipulated)

5.2 Obligations of the Pledgee

The creditor must:

• Act in good faith
• Preserve the pledged asset (if in possession)
• Avoid misuse or unjust enrichment

Breach of these duties may result in liability.

5.3 Rights and Obligations of the Pledgor (Debtor)

The pledgor:

• Retains ownership
• May use the asset unless otherwise agreed
• Must not impair the value of the pledge
• Must cooperate during enforcement

6. Priority and Ranking of Pledges

6.1 General Rule of Priority

Priority among competing pledges is determined by:

• Time of registration (for non-possessory pledges)
• Time of possession (for possessory pledges)

Earlier perfected pledges prevail over later ones.

6.2 Competing Security Interests

In case of multiple security interests:

• Registered pledges generally take precedence
• Statutory liens may override contractual pledges
• Good faith third-party acquisitions may affect priority

Understanding priority rules is critical for risk management.

7. Enforcement of Pledges in Turkey

7.1 Enforcement through Foreclosure

Upon default, the creditor may initiate enforcement proceedings under the Enforcement and Bankruptcy Law.

Methods include:

• Sale of pledged asset
• Transfer of ownership (under certain conditions)
• Collection of pledged receivables

7.2 Private Sale and Direct Ownership Transfer

Law No. 6750 allows:

• Private sale mechanisms
• Ownership transfer without court involvement (if agreed)

These options significantly accelerate enforcement.

7.3 Enforcement of Receivables Pledge

For pledged receivables, enforcement may involve:

• Direct collection from the debtor
• Judicial enforcement proceedings
• Set-off mechanisms

8. Termination and Release of Pledge

A pledge is terminated when:

• The secured debt is fully paid
• The pledge agreement expires
• The pledged asset is destroyed
• Enforcement results in satisfaction of the claim

Registration must be cancelled to fully release the pledge.

9. Pledges and Insolvency Proceedings

9.1 Effect of Bankruptcy on Pledges

In insolvency scenarios:

• Pledgees are secured creditors
• They enjoy priority over unsecured claims
• Enforcement may be subject to temporary stay

Pledges provide critical protection in bankruptcy contexts.

9.2 Concordat and Restructuring

During concordat proceedings:

• Pledge rights generally remain intact
• Enforcement may be temporarily suspended
• Restructuring plans may affect repayment schedules

10. Practical Considerations for Foreign Investors and Lenders

Foreign creditors frequently rely on pledges when financing Turkish entities.

Key considerations include:

• Proper registration
• Choice of governing law limitations
• Enforceability under Turkish mandatory rules
• Currency and valuation risks

Local legal counsel is essential for compliance.

11. Common Legal Risks and Mistakes

Frequent pitfalls include:

• Defective registration
• Vague asset descriptions
• Failure to update registry records
• Invalid pledges over non-transferable rights

These issues may render a pledge unenforceable.

12. Comparative Perspective and Modern Trends

Turkey’s pledge regime increasingly reflects international best practices, such as:

• Functional approach to secured transactions
• Registry-based perfection
• Expanded collateral categories

This evolution enhances Turkey’s attractiveness for commercial financing.

Conclusion

Pledges over movable assets and receivables form the backbone of secured lending in Turkey. Through a combination of traditional civil law principles and modern legislative reforms, Turkish law provides a flexible yet legally robust framework for securing debts.

The introduction of non-possessory pledges under Law No. 6750 has significantly improved access to credit, reduced transactional friction, and aligned Turkish secured transactions law with global standards. However, the effectiveness of a pledge depends heavily on proper legal structuring, accurate registration, and strict compliance with statutory requirements.

For creditors, pledges offer powerful protection against default and insolvency risks. For debtors, they provide access to financing without relinquishing operational control over assets. As commercial activity continues to expand, pledges will remain a central instrument in Turkish debt security law.