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A Hypothecation Agreement lets businesses in Pakistan use their movable assets as loan security without giving up physical possession. Think of it like putting up your factory machinery or inventory as collateral while still being able to use them in daily operations. Under Pakistani banking laws, this creates a legal charge in favor of the lender.

These agreements are especially popular among manufacturing companies and traders who need working capital but want to keep using their assets. The agreement must be registered with SECP (Securities and Exchange Commission of Pakistan) within 30 days of creation, and it gives lenders the right to seize the assets if the borrower defaults on the loan.

Consider a Hypothecation Agreement when your business needs financing but can't afford to part with vital assets. This agreement proves especially valuable for Pakistani manufacturers, traders, and SMEs seeking working capital while keeping their machinery, inventory, or vehicles operational. It offers a practical solution when traditional collateral options don't align with your business needs.

The timing is crucial when facing business expansion, seasonal inventory requirements, or equipment upgrades. Pakistani banks typically prefer this arrangement for loans between Rs. 5-50 million, making it ideal for mid-sized financing needs. Just remember to register with SECP promptly to maintain your legal protection.

• Movable Asset Hypothecation: Used mainly for machinery, vehicles, and equipment. Banks typically require detailed asset schedules and valuation reports.
• Inventory-Based Hypothecation: Common in trading and manufacturing, covering stock-in-trade with floating charges that adjust as inventory levels change.
• Book Debt Hypothecation: Allows businesses to secure loans against accounts receivable, popular among wholesalers and distributors in Pakistan.
• Multiple Asset Hypothecation: Combines different asset types under one agreement, offering more flexible security arrangements for larger loans.
• Project-Specific Hypothecation: Tailored for specific business projects, often including both current and future assets related to the venture.

• Commercial Banks: Act as primary lenders, drafting and enforcing the agreements through their legal departments. Major players include HBL, MCB, and UBL.
• Business Owners: Manufacturing firms, traders, and SMEs who need financing while retaining use of their assets.
• Legal Counsel: Corporate lawyers who review and negotiate terms, ensuring compliance with Banking Companies Ordinance.
• SECP Officials: Handle registration and maintain records of hypothecation charges.
• Asset Valuers: Independent professionals who assess and certify the value of hypothecated assets.
• Bank Relationship Managers: Coordinate between borrowers and bank's credit department throughout the process.

• Asset Details: Prepare complete descriptions, valuations, and locations of all assets to be hypothecated.
• Company Documents: Gather SECP registration, NTN certificate, and board resolution authorizing the hypothecation.
• Financial Records: Compile latest audited accounts, bank statements, and cash flow projections.
• Insurance Coverage: Arrange comprehensive insurance for hypothecated assets with bank as loss payee.
• Legal Compliance: Check for existing charges on assets through SECP search.
• Valuation Reports: Obtain independent valuation certificates from approved valuers.
• Registration Planning: Prepare for SECP registration within 30 days of execution.

• Parties' Details: Full legal names, addresses, and registration numbers of lender and borrower.
• Asset Description: Detailed specification of hypothecated assets with values and locations.
• Loan Terms: Amount, interest rate, repayment schedule, and duration of facility.
• Security Creation: Clear language creating the charge over assets under Pakistani law.
• Borrower Covenants: Maintenance, insurance, and proper use of hypothecated assets.
• Default Events: Specific circumstances triggering lender's enforcement rights.
• Registration Clause: Commitment to SECP registration within statutory timeframe.
• Dispute Resolution: Jurisdiction and applicable dispute settlement mechanism.

A Hypothecation Agreement differs significantly from an Asset Purchase Agreement in Pakistani business law. While both deal with assets, their fundamental purposes and effects are quite distinct.

• Ownership Transfer: An Asset Purchase Agreement permanently transfers ownership of assets, while Hypothecation keeps assets with the borrower during normal business operations.
• Legal Purpose: Hypothecation creates a security interest for loans, whereas Asset Purchase involves complete sale and transfer of assets.
• Duration: Hypothecation remains active until loan repayment, while Asset Purchase creates an immediate, permanent change in ownership.
• Registration Requirements: Hypothecation needs SECP registration within 30 days; Asset Purchase requires different documentation including transfer deeds and tax clearances.
• Business Continuity: Hypothecation allows continued use of assets in daily operations, but Asset Purchase typically means losing access to sold assets.