31 Mar 2020
FAQs on Legal Impact of Covid-19 in Indonesia

With the world facing its biggest challenge of the century so far, and probably its greatest challenge since World War II, we have received a considerable number of inquiries as to how businesses should best respond to the impact of the Covid-19 crisis. Here are a number of FAQs and responses to them from our lawyers.

1. What should I do if a commercial contract I am party to comes under stress as a result of the Covid-19 outbreak?

If you are experiencing difficulty in performing a contract, the first thing you need to do is to carefully check through the contract to see if there is anything in it that specifically addresses the problem you face. It is also very important to communicate the problem to your counterparty. If the difficulty could result in you being unable to perform all or part of the contract, then you should notify your counterparty of this at the earliest possible opportunity. In addition, where losses are likely to be experienced by your counterparty or a third party as a result of the difficulty you face in performing the contract, you should apply mitigation measures as quickly as possible so as to limit such losses and the extend of your liability for them.

Conversely, should you believe or suspect that your counterparty may experience difficulties in performing their side of the contract, you should promptly contact them to inquire about this. Depending on the seriousness of the situation, you may need to consider agreeing to a change in delivery date or the method of performance. In extreme situations, you might also need to consider ending the contract by serving a written notice of termination on your counterparty (should this be commercially preferable and legally permissible, having regard to the specific circumstances). It is also important to make efforts to mitigate any losses that may accrue to third parties as a result of your `counterparty’s non-performance.

2. Is the Covid-19 outbreak a valid ground for declaring force majeure?

The Indonesian Civil Code and other legislation provide some guidance as to situations that would come within the meaning of “force majeure”, but do not give a clear definition of the term “force majeure”. Therefore, parties will have to review specific clauses on force majeure in the contract and identify if there is any clarification or requirement that must be satisfied in order to define or establish force majeure.

That said, since the Covid-19 virus outbreak had been declared a global pandemic by WHO, and a national disaster by the Indonesian government, it is likely that common definitions of force majeure cover the Covid-19 virus outbreak, and any cancellation, delay, non-performance or any form of default occurring or resulting from one of the parties not fulfilling its obligation under the contract due to the Covid-19 outbreak could be justified without constituting a breach of contract (provided that the action under point 1 is also taken).

For more information on Covid-19 and force majeure, please click [here] to access an ABNR Legal Update that specifically addresses this issue.

3. Can a contract be unilaterally terminated due to the Covid-19 outbreak?

It depends on the contract. Assuming the contract stipulates that force majeure is a ground for termination, it is likely that the Covid-19 outbreak could be used as a basis to terminate the contract.

4. As an employer, what measures should I take to help prevent the spread of Covid-19?

The Jakarta Provincial Manpower Office, and equivalent agencies in other cities and regencies, have encouraged employers to take measures to help prevent the spread of Covid-19. These include working from home (WFH), and/or temporarily suspending all or some business operations. Companies in particular sectors, including health, household essentials and energy, are exempt. In deciding on what preventive measures to adopt, employers should discuss the issues involved with employees and/or labor unions.

5. Can Covid-19 justify a reduction in working hours / work days, or terminations of employees?

An employer may reduce the number of working hours and/or work days on the basis that it is trying to avoid mass terminations, as provided for in Ministry of Manpower Circular No. SE-907/MEN/PHI-PPHI/X/2004. This circular states that an employer may adopt certain responses (including reducing the number of working hours and work days) if it is experiencing difficulties that affect its employment situation before resorting to terminations. However, prior to reducing working hours or work days, the employer should first discuss the issues involved with the labor union or employee representatives (should there be no labor union) with a view to securing their agreement.

However, the prevailing legislation does not establish an outbreak of disease or a pandemic as an acceptable ground for unilateral terminations of employment. Consequently, terminations would need to be carried out based on the agreement of the parties as per the termination procedure set out in Indonesian manpower legislation.

6. With remote working being applied in government offices, what happens as regards ongoing licensing / regulatory applications or submissions?

The government of Indonesia announced a working-from-home policy for the entire country on 15 March 2020. In practice, we see that most government offices continue to accept and process licensing / regulatory applications and submissions, albeit subject to delays.

7. What about the requirement to hold our annual general meeting of shareholders and ratification of our annual report by the shareholders? How can we fulfil these requirements?

For a private company, it is permissible to hold a shareholders meeting by teleconference, videoconference or some other electronic means that enables all required persons to fully participate.

As for issuers and public companies, the Financial Services Authority (OJK) has issued a directive that allows annual meetings this year to be pushed back from June 30 (the usual deadline) to August 31 (at the latest). Shareholders will also be permitted to electronically provide their authorizations via a system to be provided by PT Kustodian Sentral Efek Indonesia (Indonesian Central Securities Depository). While this system appears to not yet be up and running, it is expected that it will be ready for operation by the end of April.

In addition, the deadline for the filing by issuers and public companies of financial statements has been pushed back to May 31 from March 31, while the deadline for the filing of annual reports has been postponed to June 30 from April 30. Similarly, audit committee appraisal reports on audited financial statements may be submitted up to August 31, instead of June 30 previously.

8. If I am involved in ongoing litigation or ADR, what happens as regards such things as appearances, deadlines for submission of documents and evidence, appeal deadlines, etc.?

The Chief Justice announced a work-from-home policy on 17 March 2020. However, each court should continue to have at least two officials available to handle administrative matters. Other than this, it is up to the head of each court to determine which officials may work from home, taking into account various factors. The work-from-home policy should not disrupt public services. The policy was initially due to continue until 5 April 2020, but this is likely to be extended.

Proceedings that are time barred by law may be postponed, even if the time limit has already passed. It has also been advised that proceedings should be conducted remotely through the e-litigation system, wherever possible. Where physical proceedings continue to take place, the courts have the authority to adopt measures to prevent the spread of COVID-19.

Should you have any queries or require legal advice on how you can best protect your interests during this time of uncertainty, please contact the persons below, call us on +6221-2505125 or email us at info@abnrlaw.com.

Mr. Emir Nurmansyah (enurmansyah@abnrlaw.com)

Mr. Nafis Adwani (nadwani@abnrlaw.com)

Mr. Agus Ahadi Deradjat (aderadjat@abnrlaw.com)

This ABNR News and the contents hereof are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in thislegalupdate. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.