The pledging of company shares or holdings

The pledging of company shares or holdings

The pledging of shares is one of the possibilities offered by our legal system and the market to guarantee the fulfillment of certain guarantees by a company and its shareholders. This real right allows agents operating in the market to access more flexible financing models when establishing guarantees, as well as to avoid financial leverage, as is the case with other formulas such as the establishment of bank guarantees. But what exactly is this figure? 

Concept

The pledge, or pledge, is a right or guarantee that is established with the aim of guaranteeing by one or several debtors the effective fulfillment of a certain obligation according to what the parties, in the exercise of their free autonomy, agree. Once this guarantee has been established, in the event of non-payment, the pledgee can enforce the pledge, i.e. his right, being able, among other remedies, to dispose of the company shares and subsequently satisfy his right. 

A pledge is the equivalent of a mortgage in terms of security in rem; we guarantee with a good or right the fulfillment of certain obligations that we have contracted. The difference lies in the fact that in the pledge of shares or company shares, the pledged assets cannot be freely disposed of while the main obligation remains in force, i.e. they cannot be freely transferred without the consent of the pledgee. This type of collateral is a common way of accessing financing for companies, even if we are not very familiar with it.  

Regulation

The regulation of the pledge is included in our Civil Code, in articles 1857-1862 and articles 1863-1873. 

In article 1866 of the Civil Code we can find a first approximation to the definition and characteristics of the pledge in terms of positive regulation: 

“The contract of pledge gives the creditor the right to retain the thing in his possession or in that of the third person to whom it has been delivered, until the credit is paid.

If, while the creditor retains the pledge, the debtor contracts with him another debt due before the first debt has been paid, the creditor may extend the retention until both credits are satisfied, even if it has not been stipulated that the pledge is subject to the security of the second debt”.

Three important questions to bear in mind regarding the pledge of shares or stocks

(i) The pledge on company shares or stocks must be elevated to public, i.e. it will be necessary that it be recorded in a public deed; 

(ii) The pledge must be entered in the company’s register of shareholders, for which purpose a notice of this must be sent to the administrative body; 

(iii) If the pledgee wants to have access to the political rights inherent to the status of shareholder, these must be included in the articles of association, as they will be governed by their provisions, and if this is not provided for, it will be necessary to amend the articles of association.