Based on  Law No. 40 of 2007 on Limited Liability Companies, shares are movable objects that provide property rights to the owner that enables the shares to be pledged or collateralized with a pledge or fiduciary guarantee under the condition that it is not otherwise specified in the articles of association.

Article 60 paragraphs 2 and 3 of the law explains that the shares of the limited liability company can be pledged as collateral with a pawn or fiduciary guarantee, which is an accessory agreement of a debt and credit agreement under the condition that  the articles of association of a limited liability company do not prohibit its shares from being used as credit collateral,

Pledge of shares occurs due to the existence of a debt and credit relationship between the creditor and the debtor. To provide security for its obligations, the debtor can carry out a  pledge of shares to the lender (creditor) as outlined in the share pledge agreement. Thus, it can be said that the pledge of shares is a derivative of the parent agreement in the form of a debt and credit or loan agreement between the two parties.

The implementation of a pledge of share is based on an agreement made by both parties. However, before the implementation of a pledge of share, whether carried out directly or  underhand, the creditor must first give a warning letter (subpoena) to the debtor by informing him that his obligations are due. Therefore, this share pledge can be enforced if the debtor is declared negligent in fulfilling his obligations.

Article 1155 of the Civil Code explains that if the debtor or pledgor does not fulfill his obligations, after the expiration of the specified period, or after a warning for the fulfillment of the agreement in the event that there is no provision for a definite period, the creditor has the right to sell the pledged goods in public according to local customs and on terms that are generally applicable with the aim that the amount of debt along with interest and costs can be paid off with the proceeds of the sale.

Terms of Pledge of Shares

Before doing a pledge of shares, it is better if the pledgee and the pledgor make an agreement first. This agreement includes the mechanism of the pawn carried out openly or closed (underhand), the time period, and so on. In the case of shares that are pledged, they must be handed over by the shareholder to the pledging institution.

The terms that need to be considered in a pledge of shares include:
1. Terms of delivery of pledged goods or inbezitstelling
In a pledge of shares agreement, what is important is that the secured object must be released from the power of the pledgor and handed over to the pledge holder, this is called inbezitstelling.

For shares that are mortgaged and traded and listed on the stock exchange, the mortgaged shares are entrusted to a third party, namely a custodian institution (e.g. PT Kustodian Sentral Efek Indonesia). This is possible based on Article 1152 of the Civil Code, which allows to entrust the pledged object to a third party as long as it is agreed by the parties to the pledge.

The pledge of shares must be recorded in the share registry book and the special register book in accordance with Article 60 paragraph 3 of the law. The registration aims to enable other interested parties to know the status of the pledged shares.

As mentioned above, pledged shares do not cause a change in ownership. Voting rights and other rights arising from share ownership remain with the pledgor because they are the rights of the shareholder.

Thus, although the rights of shareholders other than voting rights as referred to in Article 52 paragraph 1 of the law are basically the rights of the shareholders, it is necessary to pay attention to the share pledge agreement between the shareholders and the collateral or pledge holder that regulates this matter.

If the pledge of shares or fiduciary security over shares has been registered in accordance with the provisions of laws and regulations, subsequently the pledge of shares or fiduciary security over shares must be recorded in the share registry book and special register book. This is intended so that the company or other interested parties can find out about the status of the shares.

2. Notification or Announcement
Article 1153 of the Civil Code stipulates that a lien on movable objects with a body, except for letters of appointment or letters of transfer, is placed with notice of the mortgaging to the person against whom the mortgaged right must be exercised. If the object of the pledge is shares, the notice is addressed to the company that issues the shares.

Implementation of Pledge of Shares

A pledge of shares can be implemented through public sale or private sale under the condition that it is agreed by the parties to the pledge of shares agreement. Public sale refers to shares that will be auctioned or pledged through the State Wealth and Auction Service Office (KPKNL). This method is used for shares of closed or non-public companies. As for public companies, sales are carried out through the Indonesia Stock Exchange (IDX) with the intermediation of brokers.

In addition to the above mechanism, the sale of shares through a pledge of shares can also be done through  privately through the mediation of the court. Article 1156 of the Civil Code enables the creditor to demand through the court that the pledged item be sold to pay off the debt along with interest and costs, according to the method to be determined by the judge, or that the judge allow the pledged item to remain with the creditor to cover an amount to be determined by the judge in a decision, up to the amount of the debt along with interest and costs.

If the request for execution of a pledge of share through a court intermediary is granted, the judge will have to make a decision to execute the pledged object by closed or direct sale. If the request for execution is submitted through KPKNL or auction hall, minutes of auction will be made. Minutes of auction refers to minutes of the auction made by the auction official which is an authentic deed and has evidentiary power as the basis for transferring property rights.


Author / Contributor:

 Hanna Kathia Septianti, S.H.

Senior Associate


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Phone    : +62-21 799 7973 / +62-21 799 7975