Secured Transactions in Indonesia – in a Nut Shell

Introduction 

In Indonesia, for financing purposes or other transactions it is highly recommended to secure the transactions by attaching security agreements or documents as accessory rights upon the main agreement.

There are three widely use forms of security in Indonesia, which are :-

• Hak Tanggungan (Indonesian Security Right upon Land or mortgage); 

• Fiduciary security; and 

• Pledge. 

A. Hak Tanggungan (Mortgage)

By virtue of Law No. 4 of 1996 on Hak Tanggungan (Mortgage), a security interest known as a real property mortgage may be encumbered on a land title with or without other fixtures forming a totality with the land for security of a particular loan, which gives priority to a particular creditor over other creditors (preferred creditor). The Hak Tanggungan shall provide right to the creditor to sell the land via public auction without a court order permitting it to do so (on the debtor’s default, the creditor may execute the secured property without having to comply with the civil procedural law and procedures of seizure), as the certificate of Hak Tanggungan serves as a court order. Unlike other mortgages, which also include a pledge where a creditor can occupy the property encumbered with the relevant mortgage, the Hak Tanggungan only provides the creditor with an in jure right which means that there is no immediate occupancy right attached to the mortgage

The land title which can be placed under Hak Tanggungan are (1) Hak Milik (right of ownership); (2) Hak Guna Usaha (right to exploit); (3) Hak Guna Bangunan (right to build); (4) Hak Pakai (right of use) and (5) Hak Milik atas Satuan Rumah Susun (Strata Title). Hak Tanggungan can also be attached to the land including the buildings and fixtures on that land. Evidence of land title is a certificate issued by Badan Pertanahan Nasional / BPN (Indonesian National Land Authority).

Procedure

The procedure of Hak Tanggungan are :-

1. The signing of Deed granting the Hak Tanggungan (Akta Pemberian Hak Tanggungan or “APHT” or mortgage deed) before the Land Deed Official (Pejabat Pembuat Akta Tanah or “PPAT”) with jurisdiction over the land to be mortgaged. This deed must be in Indonesian, in the prescribed PPAT form and the APHT must clearly identify the plot or plots of land being used as security and the total amount of the loan/money being secured. Any buildings, plant or others fixtures attached to the land sought to be covered in the Hak Tanggungan must also be specifically described in the APHT; and

2. The Registration of APHT at relevant BPN (Indonesian National Land Authority).

The BPN then issue the Hak Tanggungan land book and note the date of registration. At this stage, the Hak Tanggungan shall be effective and provide the creditor with the status of a preferred creditor. The BPN shall record the Hak Tanggungan in the original land book and the original land title certificate.

B. Fiduciary Security

Fiduciary security governed by virtue of Law No. 42 of 1999 on Fiduciary Security (“Fiduciary Law”).

Fiduciary security is a form of security right over moveable property either tangible or intangible also over immoveable property that cannot be attached to a Hak Tanggungan (mortgage), in which the fiduciary grantor still can use the property transferred that is being used as a Security and it provides the fiduciary grantee with a priority right over other creditors (Preferred Creditor).

Receivable is also one of the intangible assets that may be secured by fiduciary security (Article 19 of the Fiduciary Law).

The exceptions on Fiduciary Security includes :-

a. Land, buildings and all things appurtenance thereto (including machinery affixed thereto), which are subject to the Hak Tanggungan;

b. Hypothec on registered vessels with a gross weight 20 cubic meters or more;

c. Hypothec on aircraft; and

d. Pledges.

A fiduciary security is an accessoir agreement of an initial agreement and must be made with a Notarial Deed in Indonesian and specifically state that it is a Fiduciary Security Deed.

The property that is the subject of the fiduciary security must be registered at the Fiduciary Registry Office. The fiduciary grantee themselves, or their attorney, or proxy can complete the application for registration. The Registry Office will then note the fiduciary security in the Fiduciary Register Book, then issue a Fiduciary Security Certificate to the fiduciary grantee and date the certificate on the day it received the application.

C. Pledge

A pledge in Indonesia is only for tangible movable properties (such as machineries, equipment, vehicles) and intangible movable property (such as bank accounts, shares, bonds, receivables, intellectual property rights) which are regulated in Articles 1150 - 1160 of Indonesian Civil Code (“ICC”).

A pledge is also an accessoir agreement of an initial agreement (as also the other types of Security), it is standard practice in Indonesia that a pledge is provided in a deed of pledge (in authentic instrument/notarized or in private instrument/without notarization) setting forth the specifics of the pledge. There is no registration or notification to Indonesian Governmental Institution for Pledge to have legal power and effect.

For security over Shares, it is standard practice in Indonesia to also include Power of Attorney to Vote Shares (“POA to Vote”) and a Power of Attorney to Sell Shares (“POA to Sell”) in addition to the Shares Pledge. Under Indonesian law, a Shares Pledge does not include voting rights as the voting rights are not assigned through a pledge.


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