HERE ARE TWO ALTERNATIVES EXECUTION OF PLEDGING OF SHARES

 In Legal Updates, Uncategorized

Before stepping on the practice of execution of pledge of shares, we should understand in advance the definition of lien and the stock itself.

According to Article 1150 of the Civil Code, Pledge is “a right that is acquired by a creditor against to moving goods, bodied and bodiless given to him by the debtor or any other person on his behalf to guarantee a debt, and which authorizes the creditor to obtain repayment of goods the precedence over other creditors with the exception of the costs to auction the item and the cost incurred to maintain it, the costs of which should come first.”

On the other hand, according to Article 60 paragraph (1) of Law No. 40/2007 on Limited Liability Company (Company Law), shares are moving objects and give rights as referred to Article 52 to the owner. “Because the shares are moving objects, the shares can be pawned. This is confirmed in Article 60 paragraph (2) that mentions “shares may be collateralized by liens or fiduciary as long as it’s not stated as other  in the articles of association.”

So, based on the article above, the shares can be pawned, but if the company’s articles of association specify otherwise, then the shares cannot be pawned.
Concerning the execution of pledging of shares, up to now there is no legislation which explains in detail. Therefore, the implementation of the pledge of shares is still governed by the Civil Code and the Company Law.

Keep in mind about the execution of the pledge of shares. When the debtor does injury appointment (default), it can be settled in two ways through parate executie or execution with the permission of judges.

Parate Executie

Parate Executie or Direct Execution is the authority to sell the goods on its own power to the object of collateral if the debtor does injury appointment without having to ask for fiat (approval) of the chairman of the court. So, Parate Executie can occur when a creditor sells certain items belonging to the debtor without having executorial title.
Parate Executie provides certainty and position of the creditor when the debtor does injury appointment, because as if the debtor has paid part or all of the treasures object for debt repayment later.
The provisions on Parate Executie against liens is set out in Article 1155 paragraph (1) of the Civil Code, which mentions: “If the parties have not been agreed, then the indebted is eligible if the debt or the pledgor do injury appointment after the time limit prescribed is exceeded, or if not specified a period of time, after delivering notification to pay, order to sell its pledge goods  in public according to local customs as well as applicable common terms, with the intent of obtaining repayment of the amount of receivables as well as the interest and sales cost.”

As mentioned above “When the parties have agreed otherwise …” It should be noted that the above  contains two contradictory interpretations, those are:

The first interpretation indicates that when the debtor does injury promises, the parties to the pledge agreement can specify that creditors entitled to order that the pledge is sold under the counter (private sale). That is, when the parties put in the agreement, the creditor can sell these shares in private / closed without going through a public auction.

The second interpretation explains that Parate Executie can be swept aside by other type of executionthrough an auction. It must not be processed in court, but should be sold by auction in the auction office, and should not be in private.

Execution of pledge of shares can be done privately as well as stated in an agreement, as happened in disputes of Pledge Execution of Adaro. This was confirmed in Supreme Court Decision Number. 1130 K / Pdt / 2010, which states that Parate Executie can be done in private because there was a Shares Pledge Agreement agreed upon earlier. Therefore, the creditor is entitled to sell all shares that have been pledged in private or ‘not public’ as a deal has been agreed.

Execution by Permission (fiat) of Judge
The legal basis for the execution through permits of judges is Article 1156 of the Civil Code, which mentions, “However, if the debt or the pledger do injury appointment, the creditor can demand in front of the judge so that the pledge goods are sold in the prescribed manner, stated by the judge, in order to pay off debts, interest and costs, or judge, upon the demand of the creditor, can grant that pledge goods will remain on the creditor for an amount to be determined in the decision by as much as debt,  interest and cost … “

So, if the debtor does injury appointment (defaults) the creditor must sue the debtor in a court and ask the judge to set a court judgment, either through auction or sold privately or purchased by creditors at a certain price (if requested by the creditor).

BP Lawyers can help you
We can assist you in providing the best solution to the problems or disputes related to contracts, settlement through the arbitration process and the general judiciary. You can contact us at:

Email: bpl@smartlegal.id
Phone: +62821-1234-1235

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