RE: Legal Opinion for financing against pledge of share certificates.
Account: Mr. X and Mr. Y.
We refer to your letter no. …………. dated 25 September 2006 on the above subject.
From your letter it appears that Mr. X and Mr. Y (“the Intending Borrowers”), both sons of late Mr. X and late Mrs. A, are willing to enter into a buy back agreement with Bank 1 (“the Bank”) against pledge of share certificates of Bank 2 (“the Shares”) in the name of their late parents. Apart from the sons, late Mr. X and late Mrs. A also left 2 daughters as their legal heirs. The legal heirs have filed a succession case at the joint district judge court, Dhaka but the case has not been settled yet.
In these circumstances, you have requested our legal opinion in respect of the Bank’s position to extend any credit facilities in the form of a buy back arrangement favouring the Intending Borrowers against pledge of their portion of total share certificates of Bank 2, to be inherited as per Muslim Inheritance law. You have inquired if the Bank may extend such facilities, in the interim till final disposition of the succession case, by way of appropriate written undertaking by the borrowers to convey title to the Bank, as legal heirs of the intended securities.
Lien on shares can only be created by the owner of the shares. The owner is the one whose name appears in the register of Members of the particular Company against the shares offered as security. In this instance, the name of the heirs of late Mr. X have not yet been entered in the register of Members of Bank 2.
We are of the opinion that unless the succession case filed by the legal heirs is settled and succession certificates in favour of the Intended Borrowers are issued, the Bank can not take pledge of their portion of total share certificates of Bank 2, to be inherited as per Muslim Inheritance law as security for any credit facilities in the form of a buy back arrangement favouring the Intended Borrowers. Without the succession certificates the Intended Borrowers cannot have the transmission of shares completed and have their names entered in the register of Members of Bank and as such they cannot be issued with a certification of transfer by the registrar of Bank Extending credit facilities to them against share certificates of BANK in the name of their late parents will not protect the interest of the Bank.
Even if the heirs give undertaking, the Bank should wait until the succession certificate is issued. Until then the undertaking will have no real value.
In these circumstances our Legal Opinion is that the Bank should wait until the Intended Borrowers are issued with the succession certificate and the shares are transmitted to the heirs of late Mr. X before taking the shares as security against extending any credit facilities in their favour.
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”