Equity pledge is a financing method. Shareholders of a company obtain loan funds by mortgaging their equity to creditors. If they can't repay the loan in time, the creditors have the right to dispose of the pledged equity. Equity pledge shows that the company's liquidity is weak and there is a certain liquidity risk in the short term.
The biggest impact of equity pledge on enterprises is financing, because once an enterprise has equity pledge behavior, other financial institutions will not accept financing requests except creditor institutions. Equity pledge itself is a kind of financing behavior with great risks. Because only when the company is extremely short of money will it do equity pledge, then other financing institutions will generally bypass companies with equity pledge behavior in order to control risks.
To sum up, if something goes wrong in the later period, the creditor has the priority to dispose of it, and the creditor can recover the loss by transferring the creditor's rights at a low price. Then other financial institutions that have a loan relationship with this company will be difficult to recover, so the risk is very high.
Legal basis:
People's Republic of China (PRC) Civil Code
Article 430
The pledgee has the right to collect the fruits of the pledged property, unless otherwise agreed in the contract. The fruits specified in the preceding paragraph shall be used as the expenses for collecting fruits first.