23 Sep 2020
Indonesia’s FSA Tightens Rules on Affiliate and Conflict-of-Interest Transactions for Listed Companies
The Indonesian Financial Services Authority (Otoritas Jasa Keuangan / “OJK”) has issued a new regulation on transactions involving affiliates (“Affiliate Transaction”) and conflicts of interest (“COI”). The new regulation (OJK Regulation Number 42/POJK.04/2020 / “Reg. 42”), which revokes and supersedes Capital Markets and Financial Institutions Supervisory Agency (BAPPEPAM-LK) Regulation Number IX.E.1 (“Reg. IX.E.1”), enters into force on 21 October 2020.
Previously, Reg. IX.E.1 defined an Affiliate Transaction as a transaction conducted by a listed company, or a company that is directly or indirectly controlled by a listed company, with an affiliate of the listed company or with a member of the board of directors or commissioners or a major shareholder of the listed company. Reg. 42 now expands this definition to also include every activity and/or transaction conducted by a listed or controlled company in the interests of an affiliate of the listed company or with a member of the board of directors or commissioners or a major shareholder or controller of the listed company.
Under Reg. IX.E.1, an Affiliate Transaction that did not involve a COI only needed to be publicly disclosed within 2 business days of its occurrence, supported by the furnishing of an appraisal report issued by independent professional appraiser.
Under Reg. 42, however, the approval of independent shareholders is now required for an Affiliate Transaction that fulfills the following requirements:
Reg. 42 expands the exemptions established by Reg. IX.E.1 from the requirements described In Section 2 above so as to also cover the following types of transaction:
Exempted transactions only need to be reported to the OJK within 2 business days of their closing.
In addition, an affiliate transaction that forms part of the listed company’s business operations and is conducted to generate income in a regular, repeated, or continuous way (in other words, as part of the listed company’s ordinary course of business) does not need to comply with the (i) independent shareholder approval; and (ii) independent professional appraiser requirements.
Financial institutions may also be exempted from these two requirements by the OJK in certain circumstances.
A transaction involving a COI (“COI Transaction”) may only be conducted if has been independently appraised, the prescribed information has been publicly disclosed and reported to the OJK, and it is approved by independent shareholders.
As regards what precisely constitutes COI and a COI Transaction, Reg. 42 provides a similar definition of “COI” to that in Reg. IX.E.1, namely, COI is any divergence between the economic interests of a listed company and the personal economic interests of its directors, commissioners, a principal shareholder or a controller, which may result in the infliction of losses on the listed company (note: the term “controller” is new in Reg. 42 – it does not appear in the definition of COI in Reg. IX.E.1)
In addition, Reg. 42 provides a new definition of “COI Transaction,” that is, any transaction between a listed or controlled company and any other party, whether affiliated or non-affiliated, that involves a COI and which may result in the infliction of losses on the listed company.
What this new definition means in practice is that any transaction between a listed company and a third party may constitute a COI Transaction and thus require independent shareholder approval, even if the third party is not an affiliate, provided that the definition of a COI Transaction is satisfied.
Besides replicating the exemptions from COI rules previously provided by Reg. IX.E.1, Reg. 42 provides an additional two exemptions:
In addition, financial institutions may also be exempted from the COI requirements in certain circumstances.
In addition to the above changes, Reg. 42 also includes a number of other significant provisions:
While the tighter requirements set out in Reg. 42 are laudable in that they are aimed at better protecting the interests of minority and retail shareholders, they could cause difficulties in practice for some listed companies, given the problems that are often encountered in fulfilling the independent-shareholder quorum requirements.
Should you have any queries on the above or require legal advice as to 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 firstname.lastname@example.org.
Mr. Emir Nurmansyah (email@example.com)
Mr. Nafis Adwani (firstname.lastname@example.org)
Mr. Agus Ahadi Deradjat (email@example.com)
 OJK Regulation No. 42 /Pojk.04/2020 on Transactions Involving Affiliates and Conflicts of Interest (Peraturan Otoritas Jasa Keuangan No. 42 /Pojk.04/2020 Tentang Transaksi Afiliasi dan Transaksi Benturan Kepentingan)
 An independent shareholder is defined as a shareholder who has no has no personal economic interest in a particular transaction and:
 OJK Regulation No. 17/POJK.04/2020 on Material Transactions and Changes in Business Activities (“OJK Reg. 17/2020”) requires a public company to obtain GMS approval prior to conducting a material transaction whose value exceeds 50% of the total equity of the public company. Additionally, this regulation requires prior GMS approval for (i) a material transaction by a public company with negative equity where the material threshold exceeds 25% of the equity, and (ii) an unfair/non-arm’s-length material transaction, as identified by the appraiser.
This edition of 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 herein. 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.