S.L. 234.42 Art. 37Pledging of securities.

(1) Securities may, provided it is expressly permitted in the memorandum or articles of the company or under the conditions of issue of those securities, be pledged by their holder in favour of any person as security for any obligation. The pledge of securities shall be constituted by means of an instrument in writing entered into between the pledgor and the pledgee: Provided that in relation to transfers of shares, any restriction resulting from the Memorandum or Articles of the company shall, subject to the provisions of paragraph (10) of this regulation, be deemed not to apply to transfers by the pledgee in terms of paragraph

(6) of this regulation or resulting from any judicial sale.

(2) Notice of the pledge shall be delivered by the pledgor or the pledgee to the Registrar for registration within fourteen days of the granting of the pledge. The company whose securities have been pledged, shall also be notified of the pledge in writing within the said period and the company shall record that fact in the register of holders of the respective securities.

(3) Failure to deliver notice of the pledge to the Registrar or the company within the time stated in the preceding sub-regulation shall not render invalid the pledge entered into between the parties; however the pledge of securities shall be effective in relation to a third party only after the registration by the Registrar of the notice.

(4) Saving the provisions of subregulation (3), during the existence of a pledge of securities, any transfer or other assignment, made by the pledgor, whether by onerous or gratuitous title, of the pledged securities shall be null and void.

(5) Notwithstanding the provisions of subregulation (4), any transfer or other assignment of securities made with the consent of the pledgee shall be valid and the securities to be transferred shall continue to be subject to the pledge.

(6) Without prejudice to the right of the pledgee to apply for the judicial sale of the securities and notwithstanding the provisions of the Civil Code or of the memorandum or articles of the company, in the event of a default under the agreement of pledge and upon giving notice by judicial act to the pledgor and the company, the pledgee shall be entitled to:

(a) dispose of the securities which are pledged in his favour; or

(b) appropriate and acquire the shares himself, in settlement of the debt due to him or of part thereof.

(7) For the purposes of subregulation (6) the value of the securities may be established by agreement between the pledgor and the pledgee after notice of default has been given by the pledgee to the pledgor in terms of the said subregulation (6), and no prior agreement thereon shall be valid: Provided that, in case of disagreement, the fair value for the sale or appropriation of the securities shall be determined by a certified public accountant or a certified public accountant and auditor appointed by the court on the application of the pledgee or in such other manner as the parties may agree in writing.

(8) For the purposes of subregulation (7), the fair value of the securities shall be that obtaining on the date of the notice referred to in subregulation (6).

(9) The pledgee shall, in selling the securities in accordance with the provisions of subregulation (6), be obliged to seek the best price being not less than their fair value as determined in accordance with subregulation (7). In the event that a buyer cannot be found for the securities at their fair value, the pledgee may apply to the court for the securities to be sold at less than their fair value as aforesaid subject to such conditions as the court may deem fit.

(10) The pledgee shall be obliged, prior to the exercise of the right granted by subregulation (6), to offer the shares to other shareholders of the company in accordance with any pre-emption rights relating to the transfer of shares as laid down in the memorandum or articles of that company, and, in the absence of such preemptive rights, to all the other shareholders of the company in proportion to their holdings. In either case the shareholders shall be entitled to purchase the shares at the price determined in accordance with subregulation (7). Such offer shall be kept open for at least ten working days.

(11) In the exercise of his rights under this regulation, the pledgee shall only sell or appropriate such number of securities as are needed to raise sufficient proceeds to repay the debt due. All remaining shares shall be released to the pledgor:

Provided that it shall be lawful for a pledgee to sell all the shares pledged in the event that it is not possible to achieve a fair price for the sale of only part of the pledged shares and any excess in the proceeds shall be released to the pledgor.

(12) It shall be lawful for the parties to an agreement of pledge of securities to agree on the person or persons who shall exercise all the rights belonging to the holder of securities including voting rights and the right to receive dividends and interest payments:

Provided that, should the agreement between the parties not make provision for such matters, all rights pertaining to a holder of securities shall, for the duration of the pledge, be exercised by the pledgor until such time as he defaults under the agreement of pledge or until the pledgee enforces his security; and in any such case, upon giving notice by a judicial act to the pledgor and the company, all the rights belonging to the pledgor shall immediately become exercisable by the pledgee:

Provided further that, unless the pledgor and the pledgee have otherwise agreed in the pledge agreement and notice thereof has been given to the company, dividends or interest payments due on securities which are pledged shall, during such time as the pledge is registered in the register of holders of the respective securities, be paid by the company to the pledgee who shall appropriate any such amounts received to the interest due on the debt secured by the pledge, and, if there is an excess, to the capital.

(13) Notice of termination of the pledge shall be delivered by the pledgor or the pledgee to the Registrar for registration within fourteen days of the termination of the pledge. The company, securities in which have been pledged, shall also be notified in writing of the termination of the pledge within the said period and the company shall record that fact in the register of holders of the respective securities.

(14) In the event that the parties to a pledge agreement submit any dispute thereunder to arbitration all references in this regulation to the court shall be deemed to refer to the arbitration tribunal.