Movable pledge is a limited real right established on a movable property, a right or receivable in order to secure a receivable which authorises the creditor to collect its receivable by converting the security subject into money if the debt is not paid.
While regulating the articles of movable pledge under Turkish Civil Code, not only movable property taken as a basis, but it is also regulated that a pledge right may be established on a right or a receivable.
What are the Applicable Regulations for Share Pledge of Joint Stock Company
Turkish Commercial Code numbered 6102 ("TCC") does not specifically regulate the pledge of shares in joint stock companies. Therefore, the general rules regarding the pledge regulated under Turkish Civil Code are also applicable to the pledge of shares of joint stock companies.
Article 954 of Turkish Civil Code regulates that pledges might be established on transferable receivables and rights. Pledges to be established on shares in joint stock companies are also considered as a pledge right established on a right.
Scope of Share Pledge in Joint Stock Companies?
The shareholders of a joint stock company have shareholding rights on the shares they hold in the company, and when a pledge is established on a share, this pledge will also be established on the shareholding rights. However, this situation is not applicable for some of the shareholding rights.
Informative rights (right to obtain information, right to inspect and audit) and protective shareholder rights (litigation rights, minority rights) that cannot be converted into cash are not subject of the pledge.
A pledge shall be deemed to have been established on the rights related to assets (profit share, right to participate in the liquidation share), which can be converted into cash among the shareholders' rights. These rights related to assets are only important during the encashment of the pledge.
- Effect of Share Pledge on Profit Share Right
Article 959/f.1 of the Turkish Civil Code introduces a regulation regarding the right to profit share, which is an asset right. According to this regulation, in the event that periodical income-generating receivables such as interest or profit share are pledged, unless otherwise agreed, only those receivables which are not yet due shall be covered by the pledge, and the pledge shall not cover overdue receivables. In this way, the main factor determining the pledge established on the dividend is not the moment of the establishment of the pledge, but the moment of the encashment of the pledge. Profit share rights that have become due before the time of encashment of the pledge shall not be part of the pledge. However, it is possible to agree otherwise in the pledge agreement, and the parties may include in the pledge the receivables that have become due prior to the encashment of the pledge.
- Effect of Share Pledge on Voting Rights
According to Article 960 of the Turkish Civil Code, the authority to represent pledged share certificates in the general assembly meeting of a joint stock company belongs to the shareholder, not the pledge creditor. However, it is accepted in the doctrine that this article is not mandatory and the pledged creditor may be authorised to represent the pledged share certificates in order to exercise its voting rights.
- Effect of Capital Increase on Pledged Shares
Pursuant to Article 461 of the TCC, shareholders have right to purchase the new established shares according to the ratio of their existing shares to share capital. It is debatable in the doctrine that who will exercise the priority right granted to the shareholders with this article in the case of pledged share certificates. In the doctrine, it is generally accepted that in the event of a pledge right on the shares, the shareholder, not the pledge creditor, is authorised to exercise the right to purchase new shares and it is not necessary for the shareholder to obtain the consent of the pledged creditor for this situation.
If the shareholder, on whose shares a pledge right has been established, participates in the capital increase and purchases new shares, the issue of whether the pledge right will extend to these shares is also controversial in the doctrine. The dominant opinion on this issue is that the pledge will not extend to the new shares. However, in this case, the pledge creditor, who will not want to be disadvantaged by the loss of value of the pledged old shares as a result of the capital increase, may agree in the pledge agreement that the new shares will be included in the scope of the pledge. In this agreement to be made, it will be necessary to clearly state in which order the new shares are included in the scope of the pledge.
How the Pledge Rights on Shares of Joint Stock Company are Established?
In joint stock companies, the right of pledge to be established on the shares differs according to whether the shares are attached to a share certificate or not and the type of share certificates.
- Uncertificated Shares:
Article 955/f.1 of the Turkish Civil Code stipulates that the pledge agreement must be made in writing for the pledge of receivables with or without a certificate, and the share certificate must be delivered for receivables subject to it, and Article 955/f.3 of the Turkish Civil Code stipulates that in the pledge of other rights, the form stipulated for the transfer of these rights must be complied with together with the written pledge agreement.
Since uncertificated shares are not a pledge of receivables, the pledge right to be established on these shares may be established by a written agreement as stated in Article 955/f.3 of the TCC. Written pledge agreement is a condition of validity, and unwritten pledge agreements are invalid.
The parties to the pledge agreement are the pledgor and the creditor. The pledgor may be the debtor of the debt to be secured or a third party. However, the creditor may only be the creditor of the receivable secured by the pledge. With the pledge agreement, the shareholder undertakes the obligation to establish a pledge in favour of the creditor on the shares he holds in the company.
The pledgor and the creditor are not obliged to notify the debtor when the agreement is concluded, but within the framework of Article 955/f.2 of the Turkish Civil Code, the parties may, if they wish, notify the debtor, who is a third party, that the receivable has been pledged.
- Certificated Shares
According to Article 484 of the TCC, share certificates may be bearer and registered and these share certificates are considered as negotiable instruments.
Article 956/f.1 of the Turkish Civil Code regulates the ways in which a pledge may be established on bearer share certificates. Pursuant to this article, the transfer of possession of bearer share certificates is sufficient for the transfer. A written pledge agreement is not required for bearer share certificates; the agreement of the declaration of will that the transfer of the share certificate is for the purpose of establishing a pledge is sufficient for the establishment of the agreement.
It is also possible to pledge bearer share certificates by pledge endorsement and transfer of possession. The pledged creditor may not re-transfer the share certificate with the pledge endorsement on it, and the good faith of the person who transfers the share certificate with the pledge endorsement cannot be protected.
When persons who are not the owners of bearer share certificates treat the pledge creditor as the owner of this share certificate and establish a pledge right on the share certificate, the good faith of the pledge creditor will be protected according to Article 990 of the Turkish Civil Code.
Article 956/f.2 of the Turkish Civil Code regulates the ways in which pledges may be established on registered share certificates. Pursuant to this provision, pledges may be established on registered share certificates in the following two ways:
- A written pledge agreement is concluded, and the share certificates are delivered
- Endorsement and delivery of the share certificate
According to Article 689 of the TCC, a pledge endorsement is made by writing the words "the price is collateral" or "the price is pledge" or any other record containing the pledge on the bill and the signature of the pledgor. The bearer of the share certificate containing these phrases may exercise all rights arising from the promissory note, and the endorsement to be made by the bearer shall only be deemed as a collection endorsement. The pledge creditor who is the holder of this bill cannot make an assignment or pledge endorsement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
