Establishment of a pledge over shares of a joint stock company via a custodian agreement

A pledge over the shares of a joint stock company corresponds to a right which entitles creditor to foreclose pledged shares upon debtor's failure to fulfil secured liabilities and to satisfy its receivables from proceeds of such foreclosure. Negotiable instruments law and property law may remain insufficient for the protection of the parties' benefits, if a pledge is established over the shares of a joint stock company. Accordingly, establishment of a pledge over the shares of a joint stock company through a custodian agreement may become necessary for this purpose. As to the joint stock companies' share certificates, it is possible to establish a pledge by way of delivery of the physical possession to a third party, as long as the pledgor's de facto control over the certificates is terminated following such delivery. A custodian agreement is an obligatory contract wherein the pledgor undertakes to transfer the possession of the share certificates, over which he/she undertakes to create a pledge right in favour of the pledgee, to a reliable person, instead of the pledgee, who is determined upon mutual understanding of both parties and wherein the custodian undertakes to keep the share certificates in custody and deliver the possession of the same to the pledgee or to the pledgor, when certain conditions are satisfied. This study aims to determine the acts to be performed to establish a pledge over shares of a joint stock company via a custodian agreement and the essential elements and characteristics thereof.