Legal opinion on the procedures for pledging of shares of a listed Public Limited Company

Mr. Z

Address….

Dear Sir/Madam,

RE:     Legal opinion on the procedures for pledging of shares of a listed Public Limited Company.

We refer to your letters no. ……………. dated July 11, 2007 and no. ……………. dated July 18, 2007, our letter no. ………………. dated July 17, 2007 and your conference with one of our colleagues on July 19, 2007 on the above subject.

In your conference with us, you have requested us to provide our legal opinion regarding the procedures for pledging of shares of a listed Public Limited Company, i.e., BANK 1 and COMPANY 1 in favour of BANK 2(“BANK 2”).

OUR OPINION:

Regulation 44 of the Depository (User) Regulations, 2003 states as follows:

“REGU. – 44: Pledge Facilities. – 1) A Depository or Depository Participant may provide pledge facilities to its customers.

2) A Depository or Depository Participant shall execute the pledge, upon receipt of the Pledge Request Form as specified in the Depository Bye – Laws, duly signed by the pledgor and the pledgee.

3) The Security under pledge shall remain in the name of the pledgor on the Depository Register.

4) The Security while under pledge may be transferred on the instruction of the pledgee in the manner as specified in the Bye-Laws.”

Therefore, an Account Holder/Pledgor may use the shares in his Depository Account as collateral against a loan without the need to rematerialise the securities by filling in the Pledge Request Form, in accordance with CDBL Bye Law 11.9.3 (provided the pledgee agrees to take collateral in this form).

The Pledgee/Lender must be a participant or an depository account holder. In the instant case, we understand that BANK 2 has depository account with its own broker house, namely, BANK 2 Foundation.

The Pledgor shall give instructions to his Depository Participant to pledge his shares to the Pledgee. The Pledgee must confirm acceptance of the pledge. The shares are then ‘frozen’ in the account of the Pledgor maintained with his Depository Participant and cannot be moved until instructions are received by the Depository Participant from the Pledgee.

Alternatively, a Link Account may be opened with BANK 2 Foundation by the Pledgor. Thereafter, the Pledgor shall give instruction to his Depository Participant to transfer his shares to the said Link Account with BANK 2 Foundation and give instruction to BANK 2 Foundation to pledge his shares in favour of BANK 2. The interest of BANK 2 shall be better protected through this procedure.

We understand that shares of Mr. X in question are presently pledged with BANK 3 (“BANK 3”). In such situation, BANK 3 must first release the shares from the pledge. Thereafter, Mr. X may pledge the said shares in favour of Arab Bangladesh Bank Limited as per the procedures stated hereinabove.

In case the arrangement is that, BANK 2 will disburse the loan amount directly to BANK 3 Limited as payment of the Borrower’s loan liability with BANK 3, there should be a tripartite agreement between BANK 3, Mr. X and BANK 2 to the effect that BANK 2 shall adjust the loan liability of Mr. X to BANK 3 and immediately upon receipt of the amount, the shares of Mr. X shall be released by BANK 3 so that the same can be pledged in favour of BANK 2.

Further, before disbursing any amount, a Pledge Request Form signed by Mr. Salam in favour of Arab Bangladesh Bank Limited should be obtained. The Bank may also obtain letter of undertaking from Mr. Salam to the effect that upon release of his shares from the pledge of BANK 3, he shall create pledge immediately in favour of BANK 2 through opening a link account with BANK 2 Foundation. The other usual charge documents including all securities as stated in the Sanction Letter should also be obtained from the Borrower.

If you have any further inquiries please do not hesitate to contact us.

Thanking you.

Yours Faithfully,

………………….

For: “The Lawyers & Jurists”

Disclaimer:

The information contains in this web-site is prepared for educational purpose. This site may be used by the students, faculties, independent learners and the learned advocates of all over the world. Researchers all over the world have the access to upload their writes up in this site. In consideration of the people’s participation in the Web Page, the individual, group, organization, business, spectator, or other, does hereby release and forever discharge the Lawyers & Jurists, and its officers, board, and employees, jointly and severally from any and all actions, causes of actions, claims and demands for, upon or by reason of any damage, loss or injury, which hereafter may be sustained by participating their work in the Web Page. This release extends and applies to, and also covers and includes, all unknown, unforeseen, unanticipated and unsuspected injuries, damages, loss and liability and the consequences thereof, as well as those now disclosed and known to exist.  The provisions of any state’s law providing substance that releases shall not extend to claims, demands, injuries, or damages which are known or unsuspected to exist at this time, to the person executing such release, are hereby expressly waived. However the Lawyers & Jurists makes no warranty expressed or implied or assumes any legal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product or process disclosed or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product process or service by trade name, trade mark, manufacturer or otherwise, does not necessarily constitute or imply its endorsement, recommendation or favouring by the Lawyers & Jurists. The views and opinions of the authors expressed in the Web site do not necessarily state or reflect those of the Lawyers & Jurists. Above all, if there is any complaint drop by any independent user to the admin for any contents of this site, the Lawyers & Jurists would remove this immediately from its site.