Author: Prof. Dr. H. Ercüment Erdem
Share pledges in joint stock companies are not specially regulated under the Turkish Commercial Code ("TCC"). Therefore, the provisions of the Turkish Civil Code that regulate the general rule regarding pledges, shall apply. Under Turkish Civil Code Article 954, transferable receivables and other rights may be subject to pledge. The pledge established on a share in joint stock companies is a "pledge right established on the right." A pledge is established on shareholding rights. A pledge on receivables and rights is subject to the principles of movable pledges. (Turkish Civil Code Article 954/2).
Establishment of the Right of Pledge on a Share
In General. The right of pledge on the share of a joint stock company is established by the act of disposal after the promissory transaction.
A promissory transaction is the pledge contract (Turkish Civil Code Article 955/1, 3). The subject of the pledge contract is the undertaking of the debt to establish a pledge on behalf of the creditor on the share of a joint stock company owned by a person. It results in the obligation of performing the act of disposal. The parties to the pledge contract are the pledger and creditor. The pledger may be the debtor of the receivable that is secured, or a third party. On the other hand, the creditor may only be the owner of the secured receivable, in accordance with the accessory nature of the right of pledge.
An act of disposal shall be conducted after the conclusion of the pledge contract. An act of disposal depends on whether or not the share is certified (Turkish Civil Code Article 955/1, 3) and the type of the share certificate (Turkish Civil Code Article 956). Although these two legal actions appear as a single action when performed at the same time, two different successive actions ensue.
Another condition of establishment of a pledge is that the pledger has the power of disposition.
Uncertified Shares. It is sufficient to conclude a pledge contract for the establishment of the pledge right on an uncertified share (Turkish Civil Code 955/3). The pledge contract referred to here is an act of disposal, as opposed to a pledge contract, which is a promissory transaction. The written format is a condition of validity of the pledge contract that is an act of disposal.
Dematerialized shares are also qualified as uncertified shares. Security contracts regarding capital market instruments are regulated under Article 47 of the Capital Markets Law ("CML"). Accordingly, security contracts covering the capital market instruments monitored by the Central Registry Agency ("CRA") are drawn up in writing. The contract of security mentioned in the Article is also qualified as an act of disposal. The pledge is established by concluding the security contract. The notification of the pledge right established on the registered share to the CRA is important in terms of asserting the right of pledge against third parties. As a matter of fact, when the rights on a capital market instrument pursuant to Article 13/5 of the CML is asserted against third parties, the notification date to the CRA is taken as the basis.
Certified Shares. In the event the shares of the joint stock company are connected to a certificate, they may also be subject to a pledge. Shares issued by a joint stock company are qualified as negotiable instruments.
However, the issuance of a share certificate in terms of a right to partnership, and obligations related to partnership, is explanatory, not constructive, as it is in commercial bills. Under Article 484/1 of the Turkish Commercial Code, joint stock companies may issue bearer share certificates or registered share certificates. For shares that are not paid in full, bearer share certificates cannot be issued.
The right of a pledge under Turkish Civil Code Article 956 depends on different principles according to whether the certificate is a bearer share certificate or a registered share certificate.
