Opinion on securing loan by taking lien or transfer of shares of Company 1

Mr. Z


Dear Sir,

Re: Opinion on securing loan by taking lien or transfer of shares of Company 1.

Please refer to your letter dated 31.10.2007 and subsequent correspondence dated 14.11.2007 on the above subject.

From perusal of your letter and the provided documents/papers it appears that, Company 2 (“COMPANY 2”) has offered lease finance of Tk. 3,00,00,000 (Taka three crores)only (“the Loan”) to Company 1 (“the Borrower”).

The Loan will be secured by inter alia lien of membership shares of Company 3 Of Company 4 (COMPANY 4) and R.R securities Ltd. Of Company 5 (COMPANY 5) (The Exchange). However it is apparent from the Memorandum and Article of Association of both of the stock exchanges that they have first and paramount lien on their shares.

In such situation, the matters have been referred to us with following query with request to advise on the same. We have perused the query referred to us.

Our opinion is as follows:

Query 1:  Can we secure the Loan by taking lien of the shares of COMPANY 4 & COMPANY 5 of R.R Securities Ltd. subject to the aforesaid restrictions of COMPANY 4 & COMPANY 5?

COMPANY 4 vide their letter no COMPANY 4/2007/59/7 has informed COMPANY 2 that, there is no bar in creating lien/pledge of the membership certificate and the council of COMPANY 4 at its meeting on 28th January 1998 has approved such lien /pledge.

It appears from the Memorandum and Articles of Association of by COMPANY 4 and COMPANY 5 that:

  • COMPANY 4 and COMPANY 5 have first and paramount lien upon the shares registered in the name of each member and upon the proceeds of sale thereof for his debts, liabilities and engagement solely or jointly with any other person to or with the stock exchange, whether the period for the payment fulfillment or discharge thereof shall have actually arrived or not;
  • except as ordered by a Court of competent jurisdiction, or required by statute  COMPANY 4 and COMPANY 5 shall not be bound to recognise any equitable or other claim to or interest in such share on the part of any other person. Hence in default by the Borrower, for enforcement of a transfer of COMPANY 4 and COMPANY 5, COMPANY 2 will be required to file suit.
  • if any member of the Exchange who has been declared defaulter by reason of his failure to fulfill any engagement between himself and any other member or members and who fails to fulfill such engagement within fifteen days on which he has been so declared a defaulter shall, at the expiration of thirty days automatically cease to be a member, in which case the value of the share of such member will diminish.
  • If any member being adjudicated insolvent the share held by such member shall ipso facto be forfeited. Forfeited share will become the property of Exchange. And the forfeiture of share shall involve the extinction of all interest in and also of all claims against the exchange, in respect of the share and all other rights incidental to share except only such of those rights as by the article of association expressly saved.

COMPANY 2 may take lien on the shares subject to the risks and impediments to enforcement highlighted above. If the COMPANY 2 creates lien on the shares, it will have the right to retain possession of Shares until the holder discharges the debt or obligation to the COMPANY 2. It is a possessory right only. COMPANY 2 will not be able to sell the Shares in case of default by the Borrower without going to court and even if a court order is obtained, COMPANY 4 and COMPANY 5 will have a first right over the sale proceeds of the shares.

In view of the above, other securities should also be taken in additional to the lien on the shares.

Query 2: Should the Lender require R.R Securities Ltd. to transfer the shares in their name?

The COMPANY 4 and COMPANY 5 are established for the purpose of promoting, support and regulating its member who are made up of stock brokers, having not only shares but membership in the Exchanges. Once the shares are transferred the membership relating those shares are invalidated and the R.R Securities Limited will not longer be able to act as brokers.

A lien may be taken on the shares however, to cover the risks of COMPANY 2, other securities may be taken.

Should you have any further query, please revert back to us.

The papers/documents referred to us are returned herewith.

Thanking you.

Yours faithfully,


For: “The Lawyers & Jurists”