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1. Introduction 1
2. Security Rights Over Immovable Property 1
General Description 2
The Creation of Hypothec 3
Costs and Timeframe 3
Enforcement of Hypothec 3
3. Security Rights Over Movable Property 3
3.1. Pledge 3
General Description 3
The Creation of Pledge 4
Costs and Timeframe 4
Enforcement of Pledge 4
3.2. Fiducia Security 4
General Description 4
The Creation of Fiducia Security 5
Costs and Timeframe 5
Enforcement of Fiducia Security 5
1. Introduction
The principle that all of a borrower's assets secure all of its obligations can be found
in Article 1131 of the Indonesian Civil Code ("Civil Code") which states that all of a
borrower's assets, whether movable or immovable, then existing or that will exist in
the future, secure all of its obligations under any agreements it enters into. This
general assets-over-liabilities coverage is an unsecured right which does not grant a
priority right to one creditor vis--vis other creditors.
A creditor can get a priority right through other types of security rights provided by a
borrower or a third party such as hak tanggungan, hypothec (hipotek), pledge (gadai),
fiducia security (jaminan fidusia) and security over warehouse receipt (hak jaminan
atas sistem resi gudang). Some of these security rights apply to immovable property
and the others apply to movable property.
2. Security Rights Over Immovable Property
2.1 Hak Tanggungan
General Description
Law No. 4 of 1996 on Hak Tanggungan ("Hak Tanggungan Law") defines a hak
tanggungan as a security right over a land right, which could include objects that are
inseparable from the land (such as buildings, plants, etc), for settlement of debt. This
security right grants a priority right to certain creditor(s) vis-a-vis other creditors.
The Creation of Hak Tanggungan
The steps to create a hak tanggungan are as follow:
(i) The grantor and the grantee of the hak tanggungan must execute a hak
tanggungan deed ("Deed") in Bahasa Indonesia before a Pejabat Pembuat
Akta Tanah ("PPAT" - land deed official).
(ii) The PPAT is obliged to register the Deed at Badan Pertanahan Nasional
("BPN" - land office) within seven working days from the signing of the Deed.
(iii) BPN registers the hak tanggungan in the hak tanggungan land book on the
seventh day after it receives a complete application. The hak tanggungan
comes into existence on the date the hak tanggungan is registered in the hak
tanggungan land book. On this date, the hak tanggungan is perfected and the
grantee becomes a priority creditor. As evidence of the registration of hak
tanggungan, BPN issues a certificate of hak tanggungan to the grantee.
If a plot of land is subject to more than one hak tanggungan, they are ranked in
accordance with their respective dates of registration. If more than one hak
tanggungan is registered on the same date, they shall be ranked in accordance with
the date written on their respective Deeds.
Costs and Timeframe
The cost for the granting of a hak tanggungan consists mainly of the fees payable to
the PPAT and BPN. This includes the fees for the preparation, execution and
registration of the Deed. The fees payable to PPAT are generally calculated on a
The first thing that a creditor should do when it wants to enforce its security right is to
serve the borrower with a clear and unequivocal letter of demand. The letter of
demand should: (i) state that the borrower is in default under the loan agreement, (ii)
identify the agreement under which the borrower is in default and (iii) demand the full
payment of the outstanding amount within a certain number of days ("Letter of
Demand"). The aforementioned step of serving a Letter of Demand applies to the
enforcement of all security rights and not just that of a hak tanggungan. If the
borrower does not comply with this letter, then the creditor may proceed with the
following steps to enforce its security right:
(i) The Hak Tanggungan Law stipulates that in the event of default of the
borrower, the creditor as the hak tanggungan grantee can sell the hak
tanggungan object through public auction in accordance to the procedure
provided for in the statutory regulations.
(ii) The Hak Tanggungan Law also stipulates that the hak tanggungan grantor
and the hak tanggungan grantee can agree on the sale of the hak tanggungan
object by way of a private sale (rather than through a public auction) if the
highest price could be achieved and it would be profitable for all parties
concerned. The private sale must follow the procedure provided for in the
statutory regulations.
Any promise to enforce a hak tanggungan in any other way is null and void.
2.2. Hypothec for Vessels
General Description
Law No. 17 of 2008 on Shipping defines hypothec over a vessel as a collateral right
over a vessel that is listed to secure certain loan payments and that gives priority
rights to certain creditors over other creditors. Given that definition, hypothec over a
vessel is one of the types of security rights, together with pledge, fiducia security,
security over warehouse receipts and hak tanggungan, that gives its holder priority
rights over other creditors.
The definition of vessels includes water vehicles of a certain shape or type that are
moved by wind power, mechanical power or other energy, pulled or tugged, including
vehicles with dynamic support power, submarine vehicles, and floating tools and fixed
floating buildings (such as oil rigs).
The costs for the granting of a hypothec consists mainly of the fees payable to the
notary and the Registration Official. This includes the fees for the preparation,
execution and registration of the deed of hypothec. The fees are generally calculated
based on the vessel size. This process will take between three days and one week.
Enforcement of Hypothec
A creditor should serve the borrower with a clear and unequivocal Letter of Demand
before enforcing its hypothec. If the borrower does not comply with this letter, then the
creditor may proceed with the following methods to enforce its hypothec:
(i) The hypothec grantee based on the grosse deed of hypothec may enforce the
hypothec through a public auction. This method is similar with the enforcement
of hak tanggungan, fiducia security and pledge.
(ii) If there is resistance from the hypothec grantor, the hypothec grantee may
apply to a court for a court order. The court order will be used to enforce the
hypothec.
3. Security Rights Over Movable Property
3.1. Pledge
General Description
The Civil Code defines a pledge as a right of a creditor ("Pledgee") to movable
property which is physically delivered into the possession of the Pledgee by a
borrower ("Pledgor"), which gives the Pledgee a priority right to the proceeds from
the sale of the goods vis-a-vis other creditors.
One important characteristic of a pledge is that the object may not be in the
possession of the Pledgor. The possession of the pledged good must be in the
Pledgee or a third party acting on behalf of the Pledgee (which can also be a security
The parties enter into a pledge agreement and the Pledgor delivers the pledged
goods to the Pledgee. There is no public registration although for the case of a pledge
over intangible property there is a requirement to notify the party against which the
pledge is to be enforced. The perfection of the pledge depends on the type of the
pledge objects i.e the perfection of pledge over intangible goods is done by way of
delivery and the perfection of pledge over intangible goods is done by way of
notification.
Costs and Timeframe
The costs for establishing a pledge would depend on whether or not the pledge
agreement is (i) drawn up privately, (ii) drawn up in notarial deed form in order to act
as evidence that the persons executing the agreement are the persons they claim to
be and that the contents of the agreement are as stated, (iii) legalized by a notary
public in order to evidence that the signatures are the signatures of the persons said
to be the signatories, or (iv) registered with a notary public in order to evidence that
the document already existed at the time of registration.
There is no statutory timetable in respect of the documentation and registration of a
pledge.
Enforcement of Pledge
In case of a default, the Pledgee has the right to enforce its rights as a secured
creditor. Prior to enforcing its rights, the Pledgee should serve the borrower with a
clear and unequivocal Letter of Demand . The Letter of Demand should be presented
to establish the borrower's failure to comply with the Pledgees demand.
In general, the Pledgee may enforce its right over the pledged object by way of public
auction and, unless the Pledgor and the Pledgee agree otherwise, by way of a private
sale. It is generally accepted that the Pledgee can sell the shares through private
sale, as long as the Pledgor has authorized the Pledgee to sell the shares.
Specifically for pledge of bank deposits, there are no statutory provisions on the
method of enforcement, however scholars believe that enforcement can be conducted
by means of set-off of the monies deposited in the account with the outstanding debt.
This means the enforcement of pledge of bank deposits should not follow the general
procedures of the enforcement of a pledge.
3.2. Fiducia Security
General Description
Fiducia security is regulated under Law No. 42 of 1999 on Fiducia Security ("Fiducia
Security Law"). A fiducia security is a security right securing the repayment of a
debt, over (i) tangible or intangible movable goods and (ii) immovable goods, which
exist now or will exist in the future which can be owned and transferred, registered or
unregistered, and which cannot be encumbered by a hak tanggungan or hypothec
("Fiducia Objects"). The Fiducia Objects, unless otherwise agreed by the parties,
A creditor should serve the borrower with a clear and unequivocal Letter of Demand
before enforcing its fiducia security rights. If the borrower does not comply with this
letter, then the creditor may proceed with the following methods to enforce its fiducia
security.
The Fiducia Security Law stipulates that in case of a default, the Fiducia Grantee may
enforce its right over the Fiducia Object by way of: (i) the executory title in the
certificate of fiducia security (ii) sale of the fiducia object by public auction and (iii)
private sale (rather than through public auction) if the highest price could be achieved
and it would be profitable for all the parties concerned. The private sale must follow
the procedure provided for in the statutory regulations.
3.3 Security Over Warehouse Receipts
General Description
Security over warehouse receipts is the newest type of security available in Indonesia.
Law No. 9 of 2006 on Warehouse Receipt System as amended by Law No. 9 of 2011
("Warehouse Receipt Law") defines a warehouse receipt as a document issued by a
Under the Warehouse Receipt Law, security over warehouse receipts is created as
follows:
(i) The creditor and the borrower enter into a loan agreement.
A creditor should serve the borrower with a clear and unequivocal Letter of Demand
before enforcing its security over warehouse receipts. If the borrower does not
comply with this letter, then the creditor may proceed with the enforcement of its
security rights.
The creditor (the security grantee) can sell the goods without first obtaining a court
order.
However it has to notify its intention to the owner of the warehouse receipt (the
security grantor), the warehouse manager and the Registration Center at the latest 3
days before the sale of the goods.
To enforce the security over a warehouse receipt, the creditor can sell the goods:
(i) in a public auction in accordance with the prevailing laws and regulations; or
General Description
A guarantee is an agreement in which a third party ("Guarantor") binds itself in favor
of a creditor, to fulfill the obligation of the borrower, if the borrower is in default. A
guarantee will only be valid if there is a valid principal agreement, i.e. a loan
agreement.
Under the Civil Code a Guarantor is not liable for anything more than the amount
owed by the borrower, but it may guarantee a part of the amount owed. If the
guarantee is more than the amount owed, the Guarantor will only be responsible for
the amount of the debt. One may give a guarantee without being so requested and
may even do so without the knowledge of the borrower. The Guarantor is not obliged
to repay the debts unless the assets of the borrower are used first to repay its debt,
though this provision could be, and often are waived by the Guarantor. A guarantee
does not create a priority security right. The claims of a creditor who holds a
guarantee will rank pari passu with the claims of all other unsecured and
unsubordinated creditors of the borrower.
The Creation of Guarantee
This type of assignment is a conditional assignment that will be effective upon the
occurrence of certain events that are stipulated in the Assignment agreement. One
important step following the execution of the Assignment agreement is to properly
notify (through a court bailiff) the obligor (the party who should fulfill the obligation to
pay) or to obtain an acknowledgment of the Assignment or the consent from the
obligor. This is done in order to bind the obligor to the Assignment. It is advisable to
notify the obligor properly or to obtain the acknowledgment or the consent of the
obligor as soon as possible. In practice, as soon as the Assignment agreement is
executed, the creditor should request the borrower either to properly notify the obligor
or to obtain an acknowledgment or consent as a requirement to draw down the loan.
Costs and Timeframe
A creditor should serve the borrower with a clear and unequivocal Letter of Demand
before enforcing its Assignment rights. If the borrower does not comply with this letter,
then the creditor may proceed with the enforcement. The assignee may enforce the
Assignment by pursuing the obligor to fulfill its obligation directly to the assignee
instead of to the assignor. This is based on a proper notice or acknowledgment or
consent from the obligor. Should the obligor refuse, the assignee may then submit a
civil claim against the obligor and/or the assignor.
Timur Sukirno
Senior Partner
Tel: +62 21 2960 8500
timur.sukirno@bakernet.com
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