Collateral Type

Remark

Pledge

• Pledge is security over debtor’s moveable assets, both tangible (such as vehicles, inventories, etc.) and intangible (such as account receivables, IPR Rights, etc.).
• The pledge gives right the creditor for a physical possession over debtor’s assets and provides priority rights on the settlement of debt over other creditors.
• Pledge is governed under Chapter XX of the Second Book of ICC (Art. 1150 – Art. 1160 ICC).

Fiduciary Security

• Fiduciary security is non-possessory security over:

1. Movable assets, both tangible or intangible; and
2. Immoveable asset excepting land and buildings which remain governed by Law 4/1996.

• Fiduciary security provides priority to the holder over other creditors, even in bankruptcy or liquidation.
• Fiduciary security is governed under Law 42/1999.

Mortgage/Hak Tanggungan

• Mortgage is a security over land rights and the properties attached to the land as stipulated under Law No. 5 of 1960 on Basic Provisions of Agrarian Principles.
• Land titles that can be mortgaged are as follows: 1) Freehold title/Hak Milik; 2) Cultivation Rights Title/Hak Guna Usaha; 3) Building Rights Title/Hak Guna Bangunan; and 4) Right to Use over States Land/Hak Pakai atas Tanah Negara
• Mortgage is governed under Law 4/1996.

Hypothec

• Hypothec is a form of security over immoveable assets that is governed under Chapter XXI of the ICC.
• Upon the enactment of Law 4/1996, land and its attached properties are exempted for the hypothec security.
• The object that is recognized as hypothec security today is registered ships with a minimum gross tonnage of 20 metric tons.

Collateral Type

Remark

Pledge

• We note that the creditors/pledgee is entitled to sell the pledged objects through a public auction to settle the debt, including the interest and costs incurred from the proceeds of the sale. (Art. 1155 of ICC)
• Nevertheless, parties are prohibited from agreeing to transfer the pledged objects into the ownership of the pledgee. As such, the agreement will be null and void. (Art. 1154 of ICC)
• The implementation of public auction shall comply with the Regulation of the Director-General of State Assets No. 2/KN/2017 on Technical Guidelines for Auctions.

Fiduciary Security

• We note that the execution of fiduciary security can be done through the following:

1. Implementation of executorial title by the fiduciary guarantee;
2. Sale through public auction based on the sole authority of the fiduciary grantee (parate executie); and
3. Private sales if agreed by both parties. (Art. 29 of  Law 42/1999)

• Furthermore, please be advised that upon the decision of  Constitutional Court No. 18/PUU-XVII/2019, any executions based on executorial title requires a court stipulation whereby the event of default is not governed under the relevant agreement and the relevant debtor is disinclined to deliver the fiduciary object.

Mortgage/Hak Tanggungan

• We note that the Law 4/1996 stipulates the following execution measure for mortgage security:

1. Parate executive is an authority which granted under the Mortgage Law and allows a creditor to sell a mortgage object through a public auction without the need to first obtain approval from any parties.
2. Implementation of executorial titles which must be construed as an execution which involves the assistance of the head of the court; or
3. Private sales if agreed upon by both parties. (Art. 20 of Law 4/1996)

Hypothec

• The impediment of a hypothec would be followed by the issuance of a certificate stating the relevant executorial title.
• We further note that the enforcement of hypothec security can be done through:

1. Implementation of executorial titles as stated in the original copies of a hypothec and the recognition of debt, all of which have been drawn up in a notarial deed; or
2. If the execution cannot be conducted properly due to the debtor being hesitant to deliver the relevant security object, then any further action must be done based on the district court order. (Art. 224 HIR)