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AN EXCEPTION TO LEX COMMISSARIA RULE

Summary

According to the Lex Commissaria rule a provision in a pledge agreement which gives the right to become the title owner of the pledged assets and/or shares in case of default is void. Pledgee shall have a right to offset his receivables against the proceeds of the sale of the pledged assets

The Capital Markets Law No.6362, which entered into force on 30 December 2012 (“CML”), brought an exception to the Lex Commissaria Rule with respect to security agreements concerning capital markets instruments registered with the Central Registry Agency (Merkezi Kayıt Kuruluşu).

Changes

Lex Commissaria Rule is set forth in articles 873 and 949 of the Turkish Civil Code No 4721, which prohibit any provision in a pledge agreement allowing the pledgee to become title owner of the pledged immovable or movable assets.

Under Article 47 of the CML, parties to a pledge agreement have the right to decide that the ownership of the pledged assets shall be transferred to the pledgee in case of default. Unless there is an express provision in the pledge agreement which enables the pledgee to become the title owner of the pledged assets, the pledgee shall only have a right to cash in the pledge via sale of the assets.

If the receivable is to be collected from the pledged assets pursuant to the agreement or law or in case of default, the pledgee will not be subject to condition precedents such as sending notices, granting grace periods, obtaining an official permit/approval or sale the assets in an auction. The process will be as follows:

  • If the ownership is transferred to the pledgee, the pledgee may either (i) sell the pledged assets for a price not lower than their market price, if the shares are listed, and collect its receivable from the sale price or (ii) deduct the value of the pledged assets from its receivables.
  • If the ownership remains with the pledgor, the pledgee (i) sell the pledged assets for a price not lower than their market price, if the shares are listed, and collect its receivable from the sale price or (ii) acquire the ownership of the shares and deduct their value from its receivables.

  • Conclusion

    Article 47 of the CML is only an exception to the Lex Commissaria rule with respect to capital markets instruments for the purpose of compliance with the UNIDROIT Principles of International Commercial Contracts. Under the general principles of the civil law, Lex Commissaria rule is still applicable.

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