A non-possessory pledge requires a deed

Security rights are an important issue, especially in financing transactions. A company may, for example, guarantee the obligations of another company under a certain loan facility. There are several alternatives, one of which will be discussed here.

Under the laws of Aruba there are several kinds of pledges, in particular, the possessory and the non-possessory pledge. In the case of a possessory pledge, the physical control of the assets concerned will be transferred from the owner/borrower to the bank/lender.

In the case of a non-possessory pledge, regarding for example registered shares, the pledge is created by means of a deed, either a notarial deed or a registered private deed. The parties have to agree whether the rights attached to the shares, including the voting rights, shall be vested in the bank/lender in whole or in part, and whether or not conditionally.

In general, the assets of a borrower serve as security for all his creditors. If the borrower goes bankrupt, his creditors will all be treated equally; no favorable treatment is allowed. There are, however, certain exceptions. A creditor that has a right of pledge finds himself in a better position than an ordinary creditor. He retains the right to foreclose on a validly vested right of pledge as if the borrower has not been declared bankrupt.

Karel Frielink
Attorney (Lawyer) / Partner

(17 August 2010)


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