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Indonesia

Security Rights under


Indonesian Law
Table of Contents

1. Introduction 1
2. Security Rights Over Immovable Property 1

2.1 Hak Tanggungan 1


General Description 1
The Creation of Hak Tanggungan 1

Costs and Timeframe 1


Enforcement of Hak Tanggungan 2
2.2. Hypothec for Vessels 2

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

3.3 Security Over Warehouse Receipts 5


General Description 5
The Creation of Security Over Warehouse Receipt 6
Costs and Timeframe 6
The Enforcement of Security Over Warehouse Receipt 6

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4. Guarantee 7
General Description 7

The Creation of Guarantee 7


Costs and Timeframe 7
Enforcement of Guarantee 7

5. Assignment for Security Purposes 8


General Description 8
The Creation of Assignment for Security Purposes 8

Costs and Timeframe 8


Enforcement of Assignment for Security Purposes 8

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SECURITY RIGHTS UNDER INDONESIAN LAW

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

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percentage basis of the hak tanggungan value. Generally the PPAT fees can be
negotiated.
The BPN fee is calculated based on the hak tanggungan value. The cost ranges from
Rp50,000 for a hak tanggungan with a hak tanggungan value of less than
Rp250,000,000 to a maximum of Rp50,000,000 for a hak tanggungan with a hak
tanggungan value of more than Rp1,000,000,000,000.
The whole registration process of the hak tanggungan until the issuance of the
certificate of hak tanggungan normally takes 1 month.
Enforcement of Hak Tanggungan

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).

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The Creation of Hypothec
Only vessels registered in Indonesia are considered as Indonesian vessels and
therefore if they are encumbered it should be done in accordance with Indonesian
law.
If the vessels concerned are registered offshore, then they should be encumbered in
accordance with the laws of their country of registration or must be re-registered first
with Indonesian flags and registered in the List of Indonesian Vessels (Daftar Kapal
Indonesia) ("List"). However, there are certain requirements for the registration of
vessels such as the size and the ownership status of the vessels.
Hypothec over a vessel is conducted with a deed of hypothec in Bahasa Indonesia
prepared by a Vessel Registration and Listing of Transfers of Ownership Official
(Pejabat Pendaftar dan Pencatat Balik Nama Kapal) ("Registration Official") at the
relevant Director General of Sea Transportation office where the vessel is registered,
and listed in the List. The effective date of the encumbrance is the time the hypothec
is registered in the Master List of Vessels Register (Daftar Induk Pendaftaran Kapal).
A vessel can be encumbered by more than one hypothec and they are ranked in
accordance with their respective dates and numbers written on their respective deeds
of hyphotec.
Costs and Timeframe

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

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agent). Therefore, the right of the Pledgee will terminate if the object is no longer in
the possession of the Pledgee or the third party acting on behalf of the Pledgee,
except if it is lost or stolen from them. As intangible movable property, shares,
deposits, bank accounts and securities can also be pledged.
The Creation of Pledge

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,

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also includes (i) the products resulting from, and (ii) insurance claims of, the Fiducia
Objects.
Unlike a pledge, Fiducia Objects remain in the possession of the grantor of the fiducia
security ("Fiducia Grantor"). This security right will grant the secured party ("Fiducia
Grantee") a priority right over other creditors.

The Creation of Fiducia Security


To establish fiducia security, the Fiducia Grantor and Fiducia Grantee will execute the
fiducia agreement in Bahasa Indonesia and in a notarial deed form.
The Fiducia Grantee (through a notary) registers the fiducia security at the
Registration Office through an online registration system. The Registration Office will
record the fiducia security in the Registration Book of Fiducia on the same day as the
online registration statement is submitted. The fiducia security is established on the
date it is recorded in the Registration Book of Fiducia. The registration is done based
on the name of the borrower and does not list the fiducia objects.
Costs and Timeframe
The notary costs to make the deed of fiducia security are calculated based on the
fiducia security value. The cost ranges from Rp50,000 for a deed of fiducia security
with a security value of less than Rp50,000,000 to a maximum of Rp7,500,000 for a
deed of fiducia security with a security value of more than Rp10,000,000,000. The
costs of registration of fiducia security with the Registration Office are also calculated
based on the fiducia security value. The cost ranges from Rp50,000 for fiducia
security with a security value of less than Rp50,000,000 to a maximum of
Rp12,800,000 for fiducia security with a security value of more than
Rp1,000,000,000,000.
There is no statutory timetable for the registration of fiducia security. The Fiducia
Security Law only stipulates that the Registration Office must register the fiducia
security in the Registration Book of Fiducia on the same day as the Fiducia
Registration Office accepts the registration application.
Enforcement of Fiducia Security

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

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warehouse manager evidencing the ownership of goods (any movable goods that can
be stored for some time and are generally traded) stored in the warehouse. The
warehouse receipt is a certificate of title and therefore is transferable and can provide
security. This security grants a priority right to a certain creditor vis--vis other
creditors. The warehouse receipt can only be encumbered with one security right. The
security also includes any insurance claim. However due to the lack of implementing
regulation, security over warehouse receipts is rarely used in the market.
The Creation of Security Over Warehouse Receipt

Under the Warehouse Receipt Law, security over warehouse receipts is created as
follows:
(i) The creditor and the borrower enter into a loan agreement.

(ii) The parties enter into the deed of security agreement.


(iii) The creditor notifies the Registration Center (currently under PT Kliring
Berjangka Indonesia (Persero)) and the warehouse manager that the
warehouse receipt has been encumbered with a security to secure the loan.
(iv) After receiving the complete security notification documents, the Registration
Center will: (a) record the security over warehouse receipt in the Registry Book
of Security (Buku Daftar Pembebanan Hak Jaminan) and (b) issue
confirmation on the notification of the security encumbrance over the
warehouse receipt. The Registration Center will give or email a written
confirmation to the security grantee, the security grantor and the warehouse
manager at the latest the day after the notification.
(v) The security grantee will hold the warehouse security receipt and therefore it
can not be double encumbered.
Costs and Timeframe
The cost for establishing the security over warehouse receipt is mainly of the fees
payable to the notary and the Registration Centre. This includes the fees for the
preparation, execution and notification of the deed of security agreement. There is no
statutory timetable for the notification of the security over warehouse receipt.
The Enforcement of Security Over Warehouse Receipt

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

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(ii) in a private sale if this method will yield the best price that will benefit both
parties.
The creditor can apply the sale proceeds to the loan after making deductions for the
sale and management costs.
4. Guarantee

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

A guarantee comes into existence if it mutually agreed by the parties. There is no


specific requirement that the agreement has to be in writing.
Costs and Timeframe

The costs of establishing a guarantee depend on whether or not the guarantee


agreement is (i) drawn up privately, (ii) drawn up in notarial deed form in order to
evidence that the persons executing the agreement are the persons they claim to be
and that the content of the agreement is 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 creation of
guarantee.
Enforcement of Guarantee
A creditor should serve the borrower with a clear and unequivocal Letter of Demand
before enforcing its guarantee. If the borrower does not comply with this letter, then
the creditor may proceed with the enforcement of its guarantee. Enforcement of a
guarantee is basically similar with enforcement of a valid contract. If there is
resistance from the Guarantor, the creditor may file a suit with the court having
jurisdiction over the guarantor's domicile or another court agreed by the parties in the
guarantee agreement.

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5. Assignment for Security Purposes
General Description

Assignment for security purposes ("Assignment") is similar to a fiducia security in


nearly all respects, the only difference being that it is typically used for rights under
contracts other than receivable(s) . The fact that the object is an intangible movable
asset means any transfer of ownership must be done by an assignment. Assignment
for security purposes does not create a priority right but as a contractual arrangement
the Assignment is only enforceable against the counterparty.
The Creation of Assignment for Security Purposes

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

The costs of establishing an Assignment will depend on whether or not the


Assignment agreement will be drawn up privately, drawn up in a notarial deed form,
legalized by a notary public or registered with a notary public. There is no statutory
timeframe with respect to documentation of an Assignment. There is no requirement
for the agreement to be drawn up in notarial deed form.
Enforcement of Assignment for Security Purposes

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.

For further information please contact:

Timur Sukirno
Senior Partner
Tel: +62 21 2960 8500
timur.sukirno@bakernet.com

Indri Pramitaswari Guritno


Senior Partner
Tel: +62 21 2960 8686
Indri.P.Guritno@bakernet.com

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www.hhp.co.id

Hadiputranto, Hadinoto & Partners


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