Law No. 17 of 2008 on Shipping defines hypothec over a vessel as a collateral right over a vessel that listed to secure certain loan payments and that gives priority rights to certain creditors over other creditors. Given that definition, hypothec over a vessel is one of the types of security rights, together with pledge, fiducia security, security over warehouse receipts and hak tanggungan, that gives its holder priority rights over other creditors.
The definition of vessel includes water vehicles of certain shape or type that are moved by wind power, mechanical power or other energy, pulled or tugged, including vehicles with dynamic support power, submarine vehicles, and floating tools and fixed floating buildings (such as oil rigs).
Only vessels registered in Indonesia are considered as Indonesian vessels and therefore if they are encumbered, it should be done in accordance with Indonesian Law.
If the vessels concerned are registered offshore, then they should be encumbered in accordance with the laws of their country of registration or must be re-registered first with Indonesian Flag and registered in the list of Indonesian Vessels. However, there are certain requirements for the registration of vessels such as the size and the ownership status of vessels.
Hypothec over a vessel is conducted with deed of hypothec in Bahasa Indonesia prepared by a vessel registration and listing of transfers of ownership official (Pejabat Pendaftar dan Pencatat Balik Nama Kapal) or (Registration Official) at the relevant Director General of Sea Transportation office where the vessels is registered, and listed in the List. The effective date of the encumbrance is the time the hypothec is registered in the Master List of Vessels Register (Daftar Induk Pendaftaran Kapal). A vessel can be encumbered by more than one hypothec and they are ranked in accordance with their respective dates and numbers written on their respective deeds of hypothec.
A creditor should serve the borrower with a clear and unequivocal Letter of Demand before enforcing its hypothec. If the borrower does not comply with this letter, then the creditor may proceed with the following methods to enforce its hypothec:
- The hypothec grantee based on the grosse deed of hypothec may enforce the hypothec through a public auction. This method is similar with the enfocement of hak tanggungan.
- If there is resistance from the hypothec grantor, the hypothec grantee may apply to a court for a court order. The court order will be used to enforce the hypothec.