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Friday, October 21, 2011

What are encumbered shares?

In order to avail secured debt from the debtors, owners or promoter of a company needs to present the company shares as the security.
These securities are owned by the owner or promoter but subject to a legal claim by the debtor.  Title to the securities lies with the promoter but debtor enjoys the legal claim or lien on such shares better called as encumbered or pledged shares.
If a company goes bankrupt its promoters can’t sell encumbered shares without the consent of the debtor.

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