Pledge of Shares

Law Number 40 of 2007 on Limited Liability Company ("Company Law") only recognizes the classification of registered shares. However, Article 53 paragraph (1), (2) and (3) of Company Law states that, the Articles of Association may determine more than one classification of shares. If there is more than one classification of shares, then the Articles of Association determines one of them as common share. Common share is a share that gives a right to their owner as stated in Article 52 paragraph (1) of Company Law to:

 

1. Attend and cast votes in General Meeting of Shareholders;

2. Receive payment of dividends and the remainder of assets from liquidation;

3. Exercise other rights under this law.

 

According to Article 60 paragraph (1) of Company Law, shares are movable good, so that shares may be used as security of loan. Pledge of shares are regulated in Article 60 paragraph (2) and (3) of Company Law. Shares may be encumbered with a pledge or fiduciary security as long as the Articles of Association in a Company does not specify otherwise. It means, the provision gives the shareholder possibility to pledge the shares that he owned with a pledge or fiduciary. However, the Company’s Articles of Association also may prohibit fiduciary or pledge on shares.

After deed of pledge on shares and fiduciary deed have been signed, the pledge shall be recorded in Register of Shareholder and Special Register. This is intended so that the Company or other parties may know the status of the shares. Subsequently, the important matter that shall be considered by a pledgor is the provision of Article 60 paragraph (4) of the Company Law, “Voting rights on shares encumbered with a pledge or fiduciary security shall remain with the shareholder”. According to the explanation of the Article,  it is stated that the provision reaffirmed  that the legal principle does not allow the transfer of voting rights regardless of the ownership of shares. Whereas, other rights outside of voting rights may be agreed in accordance with the agreement among the shareholder and pledgee. Therefore, to avoid bad intention from the pledgee which misuses the rights that have been given as set out in Article 52 paragraph (1) of Company Law, the pledgor should be given the power of attorney, for and on behalf of pledgee in the shares pledge agreement, to perform the rights as referred in Article 52 paragraph (1) of Company Law, during the debt has not been paid in full.

 

 

Sofie Widyana P.

 

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