CLIFFORD CHANCE
Memorandum
TO
Badan Pengawas Pasar Modal
(BAPEPAM)
DATE
15 December 2011
COP Y TO
Ali Budiardjo, Nugroho,
Reksodiputro (ABNR)
FILE REF
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DIRECT DIAL
+852 2825 8888
Clifford Chance
FROM
Legal Questionnaire in relation to Indonesian Annex for GMRA
1.
Indonesian Entities
(a)
Are there any capacity and/or authority issues in relation to an Indonesian
entity entering into the GMRA? (In the context of this legal questionnaire, an
"Indonesian entity" refers to any companies, banks, securities dealers, central
bank, mutual funds, pension funds, finance companies, insurance companies
and state-owned companies.)
ABNR:
Since in respect of the Board of Directors of companies apparent authority
does not exist under Indonesian law, the issue in relation to capacity and/or
authority in entering into GMRA is that the counterparty must review its
constitutional documents, including the business license. Please see our
explanation below. We will start with a general description of the analysis and
steps in determining the capacity and authority (including its limitations) of
Indonesian companies. This general description shall be followed by specific
requirements (if any) applicable to each entity, which may be regulatory in
nature.
A.
General
In order to determine whether an Indonesian legal entity in the form of a
corporation or company has the capacity and authority to enter into
transactions, such capacity will first of all be determined by its constitutional
documents, which include its Deed of Establishment, Articles of Association
and the business licenses. Based on this initial assessment, one can determine
whether there are any such limitations on capacity and authority of such
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corporation or company to enter into such transaction. Absent any internal
restrictions, or if appropriate corporate approvals to enter into the transaction
have been given, review of applicable laws and regulations must be conducted
to determine whether any regulatory approvals are required. We highlighted
the most important applicable statutory provision per-category of the local
counterparties below.
B.
Ultra Vires Issues
Under the Indonesian corporate law, the doctrine of ultra vires fully applies.
Briefly, this means that if a legal act or transaction of a legal entity is not
provided for or contravenes the objects and purposes clause of its Articles of
Association, the legal entity concerned may invoke the nullity of the act or
transaction. The general Indonesian contractual limitation period of 30 (thirty)
years is applicable to a claim based upon ultra vires. Generally, an Indonesian
company has a rather limited objects and purposes clause. It is also quite
common that the objects and purposes clause fails to enumerate transactions
for financing or treasury purposes beyond such general powers as the entering
into of loans or the giving of guarantees.
Given this fact, when entering into a transaction with the local counterparties,
a review must be made to determine whether or not the particular transaction
is in line with the objects and purposes of the local counterparties and/or
conducive to its general commercial interest and/or has corporate benefit. A
transaction which is entered into pursuant to risk or treasury management
(hedging) can generally be regarded as being in line with the company’s
borrowing powers or asset management and therefore within the corporate
purpose and interest of the company. On the other hand, a transaction which is
of a purely speculative nature will likely violate the objects and purposes of
the Indonesian company and its nullity may be invoked.
There is scant jurisprudence in Indonesia on the question of whether or not an
Indonesian company may waive its rights to invoke an ultra vires claim; but
the majority of legal writers deny the possibility of a general waiver by the
company, the argument being that a waiver of the right to invoke an ultra vires
claim is in itself also an ultra vires act.
In addition to the Articles of Association, the business license of the company
must also be reviewed; there might be an express prohibition to enter into a
certain transaction based on such document. The prohibition stated in the
license might be tied to the regulatory framework governing a particular
industry. We will elaborate on some of the industries in subsequent sections.
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Lastly, while the corporate objects and purposes as contained in the Articles of
Association remain the ultimately relevant test, it is still advisable to insert an
express provision in the agreement related to the transactions or in any other
bespoke documentation, whereby the local counterparty confirms (i) its
powers to enter into the transaction, (ii) acknowledges the corporate benefit
thereof, and (iii) expressly waives its right to invoke the nullity of the
transaction. In addition, the Indonesian counterparty could be requested to
give an indemnity in the event that the transaction is nullified by it (or by its
liquidator) on the basis of a lack of capacity or authority to enter into the
transaction.
C.
Documents Required to Verify Capacity and Authority
It is advisable to verify the local counterparties’ authority and capacity of
those purporting to act for it to enter into the transaction prior to executing any
documentation on a transaction. Indonesian corporate law provides for a twotier board system, consisting of (i) a Board of Directors with general executive
powers to bind the company, and (ii) a Board of Commissioners with a general
corporate task to supervise the Board of Directors, but whose members
generally have no executive management role. The Articles of Association of
an Indonesian company may provide that the company is represented by one
single Director, by two or more Directors acting jointly or by all members of
the Board of Directors acting jointly. Furthermore, important decisions such as
major financial transactions to be entered into, or credit support granted by,
the Indonesian company may be subject to a right of approval of the Board of
Directors, Board of Commissioners or the company’s shareholders. A
violation of any of the Articles of Association may lead to the invalidity and
unenforceability of the transaction.
In Indonesia, there is a lack of readily accessible public corporate registers. In
addition, many Indonesian companies, shareholders and other parties may fail
to comply with the obligation to file the relevant corporate data and variations
thereof in the Company Register maintained by the Indonesian Department of
Trade.
At a minimum, the following documents should be produced by an Indonesian
corporate counterparty:
(a)
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a copy of the Deed of Establishment, including the Articles of
Association of the company, and any amendments thereto;
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(b)
if a state-owned enterprise, the administrative documents or legislation
under which the entity was constituted and copies of the applicable
regulations as to its powers and authority;
(c)
primary operational licenses of the company; these would include the
Trade Business License (Surat Izin Usaha Perdagangan or "SIUP"),
Company Registration Certificate (Tanda Daftar Perusahaan or "TDP"),
Taxpayer Registration Number (Nomor Pokok Wajib Pajak or "NPWP"),
Basic Industrial License (Izin Usaha Industri or "IUI") and for wholly or
partially foreign owned companies, the BKPM Approval (see below);
(d)
a certified copy of the minutes of a meeting (or resolutions) of
shareholders, containing the appointment of the company’s existing
Directors and Commissioners, and a certificate signed by an authorised
Director confirming the composition of the Board of Directors and
Board of Commissioners;
(e)
a certified copy of the minutes of a meeting (or resolutions) of the Board
of Directors and/or Board of Commissioners and/or the shareholders to
approve the transaction if required by the Articles of Association of the
company; and
(f)
evidence that the company’s Articles of Association and the names of its
Directors have been reported to the Indonesian Minister of Laws and
Human Rights, and published in the State Gazette and registered in the
relevant Company Register with the Indonesian Department of Trade.
D.
Local Counterparties
1.
Government Authorities
If the local counterparty to the transaction is an Indonesian Government
authority, the question of capacity in such case must be determined by
reference to the statute or decree establishing and regulating the government
authority concerned. A general answer on this issue cannot be easily given
and each case should be investigated on its own merits.
One government authority which may enter into GMRA is the Indonesian
Central Bank ("Bank Indonesia" or "BI").
BI is an independent state institution in the form of a legal entity. It is
guaranteed by law that in implementing its duties and authority, BI shall be
free of any government interference or any other parties. According to Article
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7 of Law No. 23 Year 1999 as amended by Law No. 3 Year 2004 and Law No.
6 of 2009 concerning Bank Indonesia (the "Bank Indonesia Law") the
ultimate objects and purposes of BI is to achieve and maintain the stability of
the Rupiah currency. To attain such goal, Article 8 of the Bank Indonesia Law
states that BI must perform the following functions: (i) to maintain a sound
monetary system in Indonesia, which includes regulating the circulation of the
Rupiah currency as the legal payment instrument in Indonesia, (ii) to regulate
and implement the clearing activity and fund transfer service, as well as the
final settlement of interbank payment transactions, and (iii) to supervise the
banking system by regulating, issuing licenses to and imposing sanctions on
banks.
BI is governed by a Board of Governors, which according to Article 38 of the
Bank Indonesia Law is authorised to represent and act on behalf of BI,
particularly in attaining its objects and purposes and in performing its
functions. The Board of Governors makes executive decisions and sets out its
internal decision making policies, including a policy regarding entering into
commercial transactions. The Board of Governors may designate any of its
members or appoint a proxy to act on its behalf.
The preceding paragraph demonstrates that BI (i) is independent from the
Government; (ii) is a legal entity; and (iii) pursuant to the Bank Indonesia Law
has defined objects and purposes, much like the objects and purposes clause of
an ordinary limited liability company. Therefore, in undertaking any activities
or transactions, we believe it is imperative that such activity or transaction is
consistent with the stated objects and purposes of BI. In addition to its
functions as regulator, the elucidation of the Bank Indonesia Law allows BI to
conduct any banking activities as it deems necessary. This seems to indicate
that BI may enter into commercial transactions with a third party; however, as
noted such commercial transactions must always be conducive to BI’s stated
objects and purposes.
With regard to the question of the types of commercial transactions that it may
undertake and the underlying legal basis for such undertaking, we understand
from officials at Bank Indonesia that while there is no explicit provision in the
Bank Indonesia Law allowing or prohibiting BI to enter into commercial
transactions, they do acknowledge that BI as a matter of course does enter into
commercial transactions and for that purpose generally relies on Article 4(3)
of the Bank Indonesia Law, which stipulates that BI is a legal entity, and
Articles 7-8 referred to above. This means that as a legal entity it may bind
itself and enter into an agreement with a third party, and the Bank Indonesia
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Law generally does not restrict the types of commercial transactions that BI
may enter into provided that it is not against the stated objects and purposes of
BI.
Furthermore, we understand that BI’s internal practice also requires prior
consideration of the following factors before entering into a specific
commercial transaction:
(a) level of risk involved;
(b) liquidity of the transaction; and
(c) profitability of the transaction.
We note that the foregoing factors are subjective considerations on the part of
BI and may vary depending on the financial and monetary condition of the
country.
In light of the above we conclude that BI can in general terms legitimately
enter into the proposed transactions, provided such transactions serve the
purposes set forth in Article 8 of the Bank Indonesia Law.
2.
State-owned Enterprises
Statutory corporations and/or state-owned Enterprises (Badan Usaha Milik
Negara or "BUMN") are generally governed by Law No. 19 of 2003 on
State-Owned Enterprises dated June 19, 2003 ("Law No. 19/2003"). BUMN
are companies which are wholly or partly, and directly or indirectly, owned by
or form part of the Government of the Republic of Indonesia, such as a public
utility enterprise (Perusahaan Umum or "Perum") and limited liability
State-owned enterprise (Perusahaan Perseroan or "Persero"). Persero is a
BUMN in the form of a limited liability company whose capital is divided into
shares in which all or at least 51% (fifty-one percent) of its shares are owned
by the Republic of Indonesia with the main purpose of making a profit. Perum
is a BUMN where all of its capital is owned by the state and is not divided into
shares for the purpose of public benefit in the form of inventory of goods
and/or services of high quality, and concurrently to make a profit under the
principles of corporate management.
Persero and Perum, as regulated by Law No. 19/2003, are subject to stringent
supervision by the minister responsible for the technical departments
concerned and the Minister of State-owned Enterprises.
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In addition to being regulated by Law No. 19/2003, a Persero purview of Law
No. 40 of 2007 on Limited Liability Company, dated August 16, 2007
("Indonesian Company Law"), and, in general, conducts the same activities
as private companies.
If a transaction is entered into with any of these corporations, both the
constituent statutory framework as well as the articles of association of these
entities should be carefully checked to verify that those documents allow the
entering into of the contract concerned, and what corporate or departmental
approvals are required to be obtained.
3.
Banks
Generally, banks are regulated under Law No. 7 of 1992 regarding Banking,
as amended by Law No. 10 of 1998 ("Banking Law"). There is no specific
restriction on banks in entering into a repurchase transaction under the
Banking Law. Therefore, in general, the documentations we request from a
private company to be reviewed shall also be applicable for banks. Further,
with regard to the ultra vires considerations described above, they apply
equally to banks.
4.
Financial Institutions
The latest regulation on the financial institutions is stipulated under
Presidential Regulation No. 9 of 2009, dated March 18, 2009 ("Financial
Institutions Regulation"). Based on the Financial Institutions Regulation,
"financial institution" is defined as an entity which conducted investment
activity in the form of provisions of funds or goods. The Financial Institutions
are further divided into 3 (three) different types, namely:
(a) Financing Company;
(b) Venture Capital Company; and
(c) Infrastructure Financing Company.
Pursuant to the Financial Institutions Regulation, an Infrastructure Financing
Company shall be allowed to conduct the following activities:
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(i)
direct lending for the infrastructure financing;
(ii)
refinancing over infrastructure that has been financed by
another party; and/or
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(iii)
subordinated loans which relate to the infrastructure financing.
In order to support the above activities, an Infrastructure Financing Company
shall also be allowed to conduct the following activities:
(i)
credit enhancement including guarantee for infrastructure
financing;
(ii)
advisory services;
(iii)
equity investment;
(iv)
effort to look for a swap market which relates to the
infrastructure financing; and/or
(v)
other activities which relate to the infrastructure financing
upon the approval of the Minister of Finance.
Based on the foregoing, we believe there will be no restrictions on an
Infrastructure Financing Company to enter into the proposed transaction,
provided that such transaction is related to the infrastructure financing.
As for the other types of financial institution, there is no clear stipulation on
whether the said institutions are restricted from entering into the proposed
transaction. However, by considering the form of the financial institutions
which should be either in the form of a limited liability company or
cooperatives (koperasi), we generally believe that the said financial institution
will be subject to the same stipulation as prevail for a corporation or company.
5.
Insurance Companies
As in most jurisdictions, the insurance industry in Indonesia is heavily
regulated. Among others, the Government regulates the types of investment
that insurance companies may undertake. Article 11 of Minister of Finance
Decree No. 424/KMK.06/2003 dated September 30, 2003, as amended by
Minister of Finance Regulation No. 135/PMK.05/2005 dated December 27,
2005 and Minister of Finance Regulation No. 158/PMK.010/2008 dated
October 28, 2008 concerning the Financial Solvability of Insurance and
Reinsurance Companies (the "MOF Insurance Regulation"), states that the
types of investment that insurance and re-insurance companies can make is
limited to the following:
(a)
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time deposits and certificates of deposit;
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(b)
shares traded in an Indonesian stock exchange;
(c)
bonds and medium term notes with an A rating;
(d)
promissory notes issued by the Government of Indonesia or Bank
Indonesia;
(e)
units issued by Indonesian mutual funds;
(f)
direct investment in shares which are not traded in the stock exchange;
(g)
strata title property, land and buildings for purposes of investment;
(h)
mortgage-backed loans; and
(i)
insurance policy loans.
Article 26 of the MOF Insurance Regulation explicitly prohibits insurance and
re-insurance companies from acquiring assets other than those listed in Article
11. There is, however, no specific restriction for insurance and re-insurance
companies entering into a repurchase agreement. Therefore, generally, we
believe that insurance and re-insurance companies can enter into a repurchase
agreement by observing the requirements under the Articles of Association of
the company.
6.
Corporate or Company
A limited liability company (Perseroan Terbatas or "PT") under Indonesian
Company Law is defined as a company with capital divided into shares. The
liability of its shareholders is limited to the amount contributed for the shares
subscribed. The PT’s management is entrusted to a Board of Directors, under
supervision of a Board of Commissioners, both of whose members are
appointed and dismissed by the general meeting of shareholders of the
respective PT. The PT is regulated by the Indonesian Company Law, and its
implementing regulations, as well as by its Articles of Association which must
be approved by the Indonesian Minister of Laws and Human Rights, registered
in the relevant Company Register with the Indonesian Department of Trade,
and published in the State Gazette.
As noted in the previous section, the question of whether or not the company
has the corporate capacity is determined by the objects and purposes clause of
the company as contained in its Articles of Association. A type of company
which requires special attention with regard to its capacity is the so-called
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PMA Company. A PMA Company is a company incorporated pursuant to the
Law No. 25 of 2007 on Investment ("Investment Law"). A PMA company is
a PT in which one or more foreign persons or legal entities own shares and
which enjoy special investment facilities and repatriation assurances contained
in the Foreign Investment Law and its implementing regulations, as issued and
monitored by the Capital Investment Coordinating Board ("BKPM") and the
regional investment coordinating agencies. The capacity issue arises in
respect of a PMA company because it is sometimes argued that a PMA
company, apart from being subject to restrictions contained in its Articles of
Association, may only engage in activities which are set forth in its investment
license issued by BKPM, which will invariably be silent on the repurchase
transactions. Nonetheless, when entering into a repurchase transaction with a
PMA Company, in addition to whether or not the particular transaction is in
line with the objects and purposes of the PMA Company, we believe it is still
prudent to carefully review its investment license.
Response:1
Agree / Disagree
Explanation and recommended view / course of action:2
(b)
In particular, are there any additional representations which you would
recommend in relation to Paragraph 9 of the GMRA where a foreign entity is
facing an Indonesian entity under the GMRA?
ABNR:
It is still advisable to insert an express provision whereby the Indonesian
counterparty confirms (i) its capacity to enter into the transaction; (ii) the
corporate benefit thereof; and (iii) that the transaction is entered into for
legitimate hedging purposes or otherwise to protect against adverse external
developments affecting its operations (although there is no specific legal
requirement for a GMRA to be entered into for such purposes or in such
connection).
1
Please indicate your response to each question by deleting as appropriate.
2
If your response to the above was "Agree", please insert "N/A" if you have no further comments, or
alternatively, please provide any other relevant views to supplement or support ABNR's response.
If your response to the above was "Disagree", please provide supporting explanations and recommend
appropriate views / courses of action to be taken to address the legal issue.
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In the context of certain speculative transactions, it should be noted that
Article 1788 of the Indonesian Civil Code ("ICC") provides that claims
arising from gambling are not enforceable. However, Article 1791 of ICC
also provides that if a gambling or betting debt has been paid, such payment
cannot be claimed back.
In addition, the Indonesian counterparty could be requested to expressly waive
any right to invoke the nullity of the transaction for the lack of any of the
above, and to give an indemnity in the event that the transaction is nullified by
it (or by its liquidator) on the basis of a lack of capacity to enter into the
transaction. However, such an indemnity provision would most likely not be
enforceable in the event the relevant GMRA containing the indemnity
provision itself was nullified. Even if parties to the GMRA were to document
the indemnity separately (e.g. as a standalone indemnity), the indemnity
provision would also most likely not be enforceable if the GMRA was
nullified on the basis of a lack of capacity.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
If Bank Indonesia enters into a GMRA with a foreign counterparty, will Bank
Indonesia benefit from sovereign immunity against any claims of the foreign
counterparty under the GMRA?
ABNR:
Immunity, including the sovereign immunity for public or private entities has
never been explicitly regulated under Indonesian law. Under the general
applicable law, however, the doctrine of sovereign immunity entails that a
sovereign state and all of its sub-divisions and agencies cannot be sued in a
court of law without its consent, except in case where that state, sub-division
or agency enters the commercial domain and engages in business activities.
Bank Indonesia, in entering into a GMRA with a foreign counterparty, does
not, we believe, have sovereign immunity since state-owned companies
generally enter into a GMRA as part of their commercial and business
activities. Please note that in some cases where the sovereign immunity
defense was used, the state-owned company was deemed to have waived its
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immunity (if any) by the fact that it is involved in commercial activities and
conducting its activities in the commercial domain.
More generally, Indonesia has subscribed to the doctrine of restrictive
sovereign immunity by its entry into the Convention on the Settlement of
Investment Disputes between States and Nationals of other States of 1965.
Pursuant to this Convention, a dispute arising out of an approved investment
by a foreign national or entity in Indonesia may be submitted to the panel of
arbitrators of the International Center for the Settlement of Investment
Disputes ("ICSID") in Washington, D.C., United States of America, provided
the parties have submitted to the authority of ICSID. We understand that in
practice, the government does not use sovereign immunity as the basis of its
defense in a dispute which relate to its obligation under a commercial
agreement.
Further, the government specifically does not waive any immunity in respect
of:
(a)
actions brought against the Republic of Indonesia arising out of or
based upon U.S. federal or state securities laws;
(b)
attachments under Indonesian law;
(c)
present or future "premises of the mission" as defined in the Vienna
Convention on Diplomatic Relations signed in 1961;
(d)
"consular premises" as defined in the Vienna Convention on Consular
Relations signed in 1963;
(e)
any other property or assets used solely or mainly for government or
public purposes in the Republic of Indonesia or elsewhere; and
(f)
military property or military assets or property or assets of the Republic
of Indonesia related thereto.
The Republic of Indonesia is subject to suit in the competent courts of
Indonesia. However, the Law on State Treasury (Law No. 1 of 2004)
expressly prohibits the seizure or attachment of property or assets owned by
the Republic of Indonesia. This implies that it may effectively be impossible
to enforce any judgment successfully obtained in respect of any property or
assets owned by Bank Indonesia. However, in theory, the chances for an
Indonesian court to issue a judgment on seizure on the Republic of Indonesia's
property or assets is extremely low.
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Save for the abovementioned scenarios, there is generally no other ground for
an Indonesian counterparty to argue that immunity applies.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
2.
Events of Default
(a)
Does the definition of "Act of Insolvency" under Paragraph 2(a) of the GMRA
adequately cover all of the insolvency proceedings which may occur in respect
of an Indonesian entity?
ABNR:
Subject to our response in point 2 (b) below, the definition of "Act of
Insolvency" under Paragraph 2 (a) of the GMRA adequately covers all of the
insolvency proceedings which may occur in respect of an Indonesian entity
(i.e. bankruptcy and suspension of payments). The coverage of the events
under the definition of "Act of Insolvency" in the GMRA is very broad and
therefore covers the available insolvency proceedings under Indonesian law.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(b)
Paragraph 1.2 of the Indonesian legal opinion commissioned by ICMA in
respect of the GMRA (the "Indonesian Legal Opinion") recommends that the
definition of "Act of Insolvency" under the GMRA should be amended to
cover a revocation of business license as regulated in Chapter X Article 142
paragraph (1) item (f) of the Company Law. Should the definition of "Act of
Insolvency" be amended as such?
ABNR:
Generally, we do not disagree with the recommendation in the Indonesian
Legal Opinion. However, to address that condition, we suggest that a general
description be added in the definition of "Act of Insolvency" to the effect that
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it expressly covers any prerequisite conditions or events which may lead to
bankruptcy, winding-up, liquidation, insolvency proceedings or any analogous
proceedings.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
Following an insolvency of an Indonesian entity, are there any grounds under
Indonesian bankruptcy law which would allow a receiver (or analogous officer)
to "clawback" any payments made under the GMRA?
ABNR:
Under Articles 41 and 42 of the Indonesian Bankruptcy Law, for the interest
of the bankruptcy assets, the receiver could request the nullification (clawback)
of a preferential transfer transaction conducted by the debtor before its
bankruptcy, if such transaction was considered detrimental to the creditors.
Please also see our response under point 5 (a) below.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
3.
Tax Issues
(a)
Are there any taxes (e.g. stamp duty or withholding tax) under Indonesian law
which may be applicable to a transaction under a GMRA in respect of
Indonesian securities or bonds?
ABNR:
According to Government Regulation No. 24 of 2000, a document that effects
a sale of Indonesian shares or bonds is subject to stamp duty. Currently, the
nominal amount of the Indonesian stamp duty is Rp6,000 for transactions
having a value greater than Rp1,000,000 and Rp3,000 for transactions having
a value between Rp250,000 and Rp1,000,000.
Generally, the stamp duty is due at the time the document is executed. A sale
of shares listed on Indonesian stock exchanges would be subject to 0.1% final
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flat withholding tax (i.e. regardless of whether there is any capital gain or loss).
Founder shareholders may opt to pay tax at 0.5% of the market price of their
shares upon listing. If they do not opt for this, gains on subsequent sales are
taxed under normal rules (and under certain tax treaties, this tax may not be
due). Further, any profits deriving from the sale of bonds listed on Indonesian
stock exchanges would be subject to a final 15% income tax as calculated
from such capital gain.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(b)
Are there any tax filing requirements which arise under a GMRA?
ABNR:
If the party effecting the payment is a resident taxpayer, it must file a tax
return for the transactions it made and entered including any withholding tax it
must deduct. For any non-resident taxpayer, no tax filing is required to be
made. The general representations and warranties on compliance with
prevailing laws and regulations under the Indonesian GMRA Annex will cover
such tax filing requirements.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
What are the consequences for failing to make a tax filing? Will this affect the
validity and enforceability of the GMRA transaction entered into?
ABNR:
The consequences for failing to make file a tax filing would cause certain
administrative sanctions (e.g. interests payments, penalties and increments)
and criminal sanctions to the taxpayer concerned. The validity and
enforceability of the GMRA transaction would not be affected.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
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4.
Recharacterisation
(a)
Are there any grounds under which an Indonesian court may recharacterise a
Transaction entered into under the GMRA (e.g. as a secured loan)?
ABNR:
From an Indonesian law perspective the purpose of a GMRA could be deemed
to create a security interest in respect of assets. This would depend on the
particulars of the GMRA. Where recharacterisation occurs, the security
interest purported to have been vested would not be recognised under
Indonesian law, given that Indonesian law maintains a "closed system of
security rights" and only recognises a limited number of specifically accepted
security interest. Thus, the entering into of a GMRA could be seen as a
circumvention of the security under Indonesian laws.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
Will the transfer of margin securities and equivalent margin securities under
the GMRA be recognised under Indonesian law?
ABNR:
The transfer of margin securities by a repo Buyer and equivalent margin
securities by the Seller under the GMRA is recognised under Indonesian law.
With reference to the definition of "Margin Securities" under the GMRA, we
assume that margin securities would by nature be similar to original securities.
This means that recharacterisation issues relating to the original Transaction
would also apply to such margin securities and equivalent margin securities.
There is no special rule or additional issue applicable to margin securities
particularly.
We are not aware of any examples of GMRA transactions (or similar financial
transactions) which have not been recognised or have been viewed as a
circumvention of Indonesian laws on taking security as described above.
Response:
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Agree / Disagree
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Explanation and recommended view / course of action:
(b)
In particular, although the Indonesian Legal Opinion generally takes the stance
that the GMRA will not be recharacterised by an Indonesian court, we are
aware of a view which maintains that there is a potential for the GMRA to be
recharacterised (such as where the seller bears taxes imposed on the sold
goods or the seller retains the right to income generated under the underlying
assets of the transaction). Please describe the circumstances under which a
transaction under the GMRA may be recharacterised as a fiduciary
transfer/assignment of receivable/claims for security purposes.
ABNR:
This would be the case where the buyer does not completely enjoy the full
economic benefit as the owner of the underlying assets, e.g. the Seller still
reserves all or some of the rights and benefits over the sold shares (such as
rights to receive dividends, repurchase proceeds or liquidation proceeds or to
cast a vote in any general meetings of shareholders).
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
Under the GMRA, the seller remains entitled to "manufactured dividends"
under the transaction (i.e. the buyer will make payments to the seller
equivalent to the amount of dividends received on the securities or bonds
subject to the repo.) Will this affect the recharacterisation analysis under
Indonesian law?
ABNR:
We understand that under the GMRA, the rights to interest payments,
dividends or other distributions are attached to the relevant purchased
securities. Therefore, the Buyer as purchaser (or owner) of the purchased
securities will receive these payments in respect of such securities. However,
the Buyer will deliver "manufactured payments" of interest, dividends and
other distributions it receives during the term of the repo, to the Seller
pursuant to the terms of GMRA. In this case, it is arguable that the Buyer may
still be considered under Indonesia law to enjoy the "full economic benefit" if
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it was contractually bound to deliver the "manufactured payments" of interest,
dividends and other distributions it is entitled to receive during the term of the
repo to the Seller. Therefore, we are of the view that the arrangement would
be subject to the similar risks of recharacterisation as mentioned above.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(d)
Please describe the consequences under Indonesian law if a transaction under
the GMRA is recharacterised as a secured loan, e.g. will the security be
unenforceable due to lack of registration? Will a tax be imposed on the price
differential between the Purchase Price and the Repurchase Price on the basis
that it is taxable interest?
ABNR:
The contemplated transaction would likely be deemed void from an
Indonesian law perspective, and thus the security would also be void and
unenforceable. The parties would be reinstated in their position prior to the
contemplated transaction.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(e)
If a transaction under the GMRA is recharacterised (from a title transfer
arrangement to a secured loan arrangement) by an Indonesian court, will a
party's ability to "self help" under the GMRA be lost as a result? ("Self help"
in this context refers to the ability of the non-defaulting party to exercise the
contractual remedies available under the GMRA in the event of the insolvency
of the defaulting party.)
ABNR:
Yes, if a GMRA transaction were to be recharacterised, it will affect the
ability of the non-defaulting party to exercise contractual remedies under the
GMRA. Under Indonesian law, the most likely legal implication of
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recharacterisation is that the GMRA transaction may be deemed as a
circumvention of Indonesian security laws and accordingly, would be held to
be void and unenforceable. Consequently, any contractual terms (including
any contractual remedies available under the GMRA) under the GMRA which
is declared to be void will be unenforceable.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
5.
Set-off and Netting
(a)
We understand that following an insolvency of an Indonesian entity which is a
party to the GMRA, the counterparty's rights to set-off and netting under the
GMRA will be enforceable, although the GMRA may be subject to
cancellation if an Indonesian court considers that the GMRA amounts to a
preferential transaction or "actio pauliana". Please describe the circumstances
under which an Indonesian court may consider a transaction to be a
preferential transaction which is subject to cancellation.
ABNR:
Preferential Transfer under Indonesian Bankruptcy Law
Under Articles 41 and 42 of the Indonesian Bankruptcy Law, for the interest
of the bankruptcy assets, only the receiver could request for the nullification of
a preferential transfer transaction conducted by the debtor before its
bankruptcy, if such transaction was considered detrimental to the creditors
("Bankruptcy Preferential Transfer"). To nullify a Bankruptcy Preferential
Transfer the receiver must prove the following requirements:
(i)
the preferential transfer was performed by the debtor before it was
declared bankrupt;
(ii)
the debtor was not obligated by contract (existing obligation) or by law
to perform the preferential transfer;
(iii) the preferential transfer was prejudiced the creditors’ interests; and
(iv) the debtor and such third party had or should have had knowledge that
the preferential transfer would prejudice the creditors’ interests.
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If the preferential transfer transaction was conducted within the period of one
(1) year before the company’s bankruptcy, provided that the transaction was
not mandatory for the debtor and unless it could be proven otherwise, both the
debtor and the third party with whom the said act was performed were deemed
to know that such transaction was detrimental to the creditors when such
transaction belongs to one of the following three categories:
(i)
a transaction in which the consideration that the debtor received was
substantially less than the estimated value of the consideration given;
(ii)
a payment or granting of security for debts which are not yet due; and
(iii) a transaction entered into by the debtor with a certain relative or related
parties.
Other than as specified above, other circumstances as to when a counterparty
"should have had knowledge" of prejudice to other creditors' interests are
subject to the interpretation of the Indonesian courts.
There is no provision under the Bankruptcy Law which stipulates a specific
period within which the Bankruptcy Preferential Transfer claim must be made.
However, a request for the nullification of a Bankruptcy Preferential Transfer
can be made by the receiver only and not by individual creditors.
If the creditors find debtor’s assets which have existed during the bankruptcy
proceedings but are just discovered only after the bankruptcy proceedings has
been completed, the creditors may report such findings to the Commercial
Court. Then the Commercial Court will appoint a receiver to distribute such
newly discovered assets to the creditors whose rights have not been satisfied in
full.
Preferential Transfer under Indonesian Civil Code
Under Articles 1341 and 1454 of the Indonesian Civil Code, any creditor
could request the nullification of a preferential transfer transaction conducted
by the debtor, if such transaction was considered detrimental to the creditors
("Civil Code Preferential Transfer"). Under the Indonesian Civil Code, to
nullify a Civil Code Preferential Transfer the creditor must prove the
following requirements:
(i)
HKG-1-910086-v6
the debtor was not obligated by contract (existing obligation) or by law
to perform the preferential transfer;
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(ii)
the preferential transfer prejudiced the creditors’ interests; and
(iii) the debtor and such third party had knowledge that the preferential
transfer was prejudiced the creditors’ interests.
The Civil Code stipulates a specific period when the Civil Code Preferential
Transfer claim can be made. Creditors can make the claim within the period of
five (5) years starting from the date when the creditor had knowledge (knew or
should have known) that the debtor and the third party with whom the said act
was performed, were aware that the preferential transfer was prejudiced the
creditors’ interests. Although in theory proving the debtor’s and the third
party’s awareness on the detrimental action may be made, it should be noted
that a successful preferential transfer claim by creditors under Article 1341 of
Civil Code is extremely rare in Indonesian practice (there was one successful
preferential transfer claim in 1971) and it is heavily based on the factual
circumstances (evidence of knowledge). After the lapse of the five-year
period, the creditor cannot make a Civil Code Preferential Transfer.
We have not seen any precedent where a GMRA transaction was set aside due
to the doctrine of Bankruptcy Preferential Transfer under Indonesian law.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(b)
Are there any formalities which must be complied with (e.g. filing or
registration requirements) in respect of an Indonesian entity in order for set-off
and netting under the GMRA to be effective against such a party?
ABNR:
No. There are no formalities in respect of an Indonesian entity in order for
set-off and netting under the GMRA to be effective against such a party.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
HKG-1-910086-v6
Does Article 52 of the Indonesian Bankruptcy Law impose a requirement of
good faith on a creditor which seeks to claim for set-off against a bankrupt
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debtor? If so, what would this requirement entail in respect of a counterparty
seeking to exercise its right of set-off and netting under the GMRA in respect
of an Indonesian entity?
ABNR:
The term "good faith" used in Article 52 has a meaning that is different from
how it is used elsewhere in Indonesian contract and insolvency law. The term
here signifies absence of knowledge of the contrary. Article 52 prohibits
creditors from assuming the debts of a bankrupt entity for the sole purpose of
acquiring a right of set-off (and vice versa: debtors are prohibited from buying
claims on the bankrupt for the same purpose). A creditor who assumes a debt
must do so "in good faith" (itikad baik) which, inter alia, requires that when
the debt was assumed the creditor was not aware that the debtor’s bankruptcy
was imminent. The provision of Article 52 section 1 thus effectively restricts
the build up of set-off rights on the eve of bankruptcy with a view to setting
them off against other relevant obligations.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(d)
In the event of an insolvency of an Indonesian entity, is it necessary for the
GMRA to provide for automatic early termination ("AET") to preserve the
other party's right to set-off and netting under the GMRA?
ABNR:
No, it is generally not necessary for GMRA to provide AET to preserve the
other party with rights to set-off and netting under the GMRA. The reason is
because as a result of the express contractual right of parties to terminate a
GMRA, AET does not strictly need to be elected in order to preserve the other
party's rights and net its relevant obligations under a GMRA. However, we
are not aware of any case-law testing the parties' optional termination rights in
the context of GMRAs or other derivatives transactions documented under a
2002 ISDA Master Agreement ("ISDA").
In the framework of derivatives transactions under an ISDA, the parties often
choose to apply AET for a variety of reasons. The GMRA operates primarily
on the basis that the various termination procedures only become operational
once the non-defaulting party has given notice to its counterparty that the
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event of default or the termination event has arisen. The onus is on the nondefaulting party to specify the breach. Where transactions are conducted with
Indonesian counterparties which are not known sufficiently well to the nondefaulting party, the non-defaulting party would not know that such a
termination event had come into existence. One example would be the
obligation that the Indonesian counterparty has to maintain authorisations with
its regulator, and another would be an obligation to maintain a given level of
credit worth where there is no published credit rating.
AET provides that termination of the GMRA will take place automatically on
the occurrence of one of the events of default or of the termination events.
This removes the obligation on the non-defaulting party to give notice before
the termination procedures would be activated: termination takes place at the
time of the event and not at the time when it was discovered subsequently.
Therefore, the non-defaulting party would be able to rely upon the automatic
termination of those transactions which had been outstanding at that time. It is
generally held that, if chosen, AET is effective as a matter of Indonesian
contract law and does not stand in the way of the parties exercising their rights
of set-off and netting in the event of an insolvency of a party.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
6.
Regulatory Capital
(a)
How will the GMRA be treated by Indonesian regulators from a regulatory
capital perspective? Will Indonesian regulators recognise the credit risk
mitigation provided by the margining provisions under the GMRA?
ABNR:
Other than minimum nominal capital requirements, regulatory capital
requirements are in practise only relevant to the extent it concerns Indonesian
banks and the extent to which they conform to the Basel II Accord. In our
view, Indonesian banking regulators take a narrow view on regulatory capital.
If the Indonesian regulators were to examine a capital base they may exclude
capital which is subject to a GRMA.
Response:
HKG-1-910086-v6
Agree / Disagree
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Explanation and recommended view / course of action:
(b)
Are there any regulatory capital filing requirements which arise under a
GMRA?
ABNR:
There are no regulatory capital filing requirements that must be made
as a requirement for effectiveness and enforceability of a GMRA as
between the parties. However, Indonesian banks may have to apply
certain calculation methods to assets subject to a GMRA, and the
question whether or not the assets under a GMRA qualify as capital
assets is determined by the relevant Bank Indonesia capitalisation
regulations.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
7.
Use and Recognition of English law
(a)
Are there any circumstances under which an Indonesian court would not
recognise English law as the governing law of the GMRA? For example, are
there any public policy considerations which may lead an Indonesian court to
reject English law as the governing law of the GMRA?
ABNR:
In general, Indonesian laws and regulations do not provide any terms not to
recognise English law as the governing law of GMRA. The choice of a foreign
law (including English law) as the governing law of a certain transaction is
valid and binding to the Indonesian parties under the laws of Indonesia, except
to the extent:
(i)
HKG-1-910086-v6
that any term of the document (underlying the transaction) or any
provisions of such law is manifestly incompatible with the public
policy of Indonesia;
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(ii)
that a court or arbitration body may give effect to mandatory rules of
the laws of another jurisdiction, in which case those rules must be
applied, whatever the chosen law; and
(A)
under principles of the Indonesian Private International Law
("IPIL"), there must be a connection between at least one of
the parties or the transaction and the chosen law.
We wish to point out, however, that there have been in fact a number of
instances where Indonesian courts have refused to give effect to foreign choice
of law clauses for other (specified or unspecified) reasons. If an Indonesian
court refuses to give effect to the choice of foreign law as the governing law of
the transaction, we believe it will apply Indonesian law to govern the
transaction. Further, if the Indonesian court deemed the GMRA transaction is
governed under Indonesian law, the disputed issue arising from GMRA will be
viewed from Indonesian law perspective instead. Further, recharacterisation
would also be an issue in this case.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
8.
Enforcement of Foreign Judgments
(a)
We understand that, in accordance with Article 436 of the Indonesia Code of
Civil Procedure (Reglement op de Rechtsvordering / RV), foreign judgments
cannot be enforced in Indonesia on the basis of territorial sovereignty. Please
confirm whether this understanding is correct.
ABNR:
Confirm. Please note, however, that generally a judgment rendered by any
court in foreign jurisdictions in respect of a certain transaction could be
offered, accepted, and given such evidentiary weight as the Indonesian Court
may deem appropriate under the circumstances. However, in the absence of
an applicable convention between the foreign jurisdictions with Indonesia, a
judgment rendered by a foreign court will not be enforced by the courts of
Indonesia. At present, Indonesia has no bilateral convention in place with any
other countries other than those countries which are signatories to the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
1958 (i.e. the New York Convention).
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In order to obtain a judgment which is enforceable in Indonesia, the claim
must be brought before or re-litigated by a competent Indonesian court. On
this point, please note that any provision in the documents permitting that
concurrent proceedings are re-litigated in different jurisdictions may not be
enforceable in Indonesia. In addition to that, a court may not enforce payment
of moneys owing if the event of default giving rise to the money becoming
due and payable is deemed immaterial. Also, it should not be taken as
indicating that the remedies of specific performance, injunction or prejudgment attachment (being in some instances discretionary remedies of the
court) would necessarily be available in any particular instance with respect to
any particular provision of any of the transaction, should the matter be
litigated in Indonesia.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(b)
If the GMRA is amended to include an arbitration clause, would an arbitral
award be enforceable in Indonesia on the basis of the 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (i.e. the New York
Convention), Law 30 of 1999 and the Indonesian Supreme Court Regulation
No. 1 of 1990?
ABNR:
Yes, the arbitral award would be enforceable in Indonesia on the basis of the
1958 Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (i.e. the New York Convention), Law 30 of 1999 and the Indonesian
Supreme Court Regulation No. 1 of 1990. International arbitration is accepted
under the Indonesian law, provided that:
HKG-1-910086-v6
(i)
the award must be granted by an arbitration tribunal from a country
which has entered into either a bilateral agreement with Indonesia
regarding recognition of arbitral awards or which is also a signatory to
the New York Convention (known as the "reciprocity" principle);
(ii)
the award is one which, under Indonesian law, arises out of a dispute
which is "commercial" (whether contractual or otherwise) in nature;
(iii)
the award does not contravene public order; and
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(iv)
the award may be enforced only after a writ of execution (known as an
"Exequatur") is obtained from the Chairman of the District Court of
Central Jakarta.
To enforce the award it is necessary to register the award with the Clerk of
Central Jakarta District Court, obtain an Exequatur from the Chairman of the
Central Jakarta District Court or, in case the award involves the Republic of
Indonesia as one of the parties in dispute, from the Supreme Court of the
Republic of Indonesia (through the Central Jakarta District Court).
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
If an arbitration clause in the market standard GMRA Annex for Indonesia,
are there any special considerations which should be addressed in the
documentation?
ABNR:
The following clauses may be included in the arbitration clause:
HKG-1-910086-v6
(i)
Any claim, difference, dispute or controversy arising between the
parties hereto, arising out of or in connection with this Agreement,
including without limitation, any question regarding its execution,
existence, validity, enforcement, breach, performance, interpretation,
implementation, termination, expiration, or the consequences of its
nullity, and any dispute relating to any obligation arising out of or in
connection with it a ("Dispute") shall be referred to and finally
resolved by arbitration.
(ii)
The arbitration shall be conducted in accordance with the Arbitration
Rules (the "Rules") of the [__] ("[X]") which Rules, as modified from
time to time, are deemed to be incorporated by reference into this
Agreement.
(iii)
The seat or legal place of arbitration shall be [__]. The law governing
the agreement to arbitrate contained in this Agreement shall be [__]
law.
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(iv)
The Tribunal shall consist of three arbitrators. The claimant shall
nominate one arbitrator in the request for Arbitration who does not
have the same nationality as the claimant. The respondent shall
appoint one arbitrator in the Response who does not have the same
nationality as the Respondent. The third arbitrator (who shall be
Chairman of the Tribunal) shall be nominated by the two partynominated arbitrators within 15 days of the receipt by the secondappointed arbitrator of confirmation of his/her appointment. If any
arbitrator is not nominated in accordance with the terms of this Article
that arbitrator shall be selected and appointed by X.
(v)
The language of the arbitration shall be [English] and all arbitrators
shall be fluent in [English].
(vi)
The Tribunal shall use its best efforts to produce a final and binding
award or awards within [six months] of the appointment of the
Chairman. The parties shall use their best efforts to assist the
Tribunal to achieve this objective, and the parties agree that this [six
month] period shall only be extended in exceptional circumstances,
which are to be determined by the Tribunal in its absolute discretion.
(vii)
The arbitral award made in accordance with this Article shall be final,
binding and incontestable and may be used as a basis for judgment
thereon in the Republic of Indonesia or elsewhere. It shall include a
determination as to which party shall pay the costs of the arbitration.
(viii) The Parties waive Article 48.1 of Law number 30 of 1999 concerning
Arbitration and Alternative Dispute Resolution so that the mandate of
a board of arbitration duly constituted in accordance with the terms of
this Agreement shall remain in effect until a final arbitration award
has been issued by the Tribunal.
HKG-1-910086-v6
(ix)
Neither party shall be entitled to commence or maintain any action in
a court of law in Indonesia or elsewhere upon any matter in dispute
arising from or in relation to this Agreement except for the
enforcement of an arbitral award made in accordance with this Article.
(x)
Solely for the purpose of enforcing any arbitration award, the Parties
agree to choose the general, permanent and non-exclusive domicile of
the Office of the Registrar of the Central Jakarta District Court
(Kantor Panitera Pengadilan Negeri Jakarta Pusat) without prejudice
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to the Parties' rights to enforce any arbitration award in any court
having jurisdiction over the other party or its assets.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
9.
Margin issues
(a)
Where Indonesian securities or bonds have been transferred as Margin
Securities or Equivalent Margin Securities, are there any issues under
Indonesian law which would prevent a counterparty setting off or netting such
Margin Securities or Equivalent Margin Securities in accordance with the
provisions of the GMRA?
ABNR:
Unless specifically agreed with the debtor, the Indonesian Civil Code provides
that, generally, a debt can only be set-off by the creditor against a similar
obligations due to the debtor. Generally this takes into account the parties'
obligations with the "same monetary reference", i.e. which are owed to each
other and denominated in the same currency. However, margin securities and
payments under a repo transaction are not considered as having the same
monetary reference. Consequently, these obligations may not be set-off under
a repo transaction. However, if there is a right to liquidate, such proceeds may
be set off.
It is possible to contract out of the set-off restrictions under the Indonesian
Civil Code. The parties to a GMRA may simply agree to waive the
applicability of the provisions under the Indonesian Civil Code to the extent
that they are not of a mandatory nature. This waiver should for the avoidance
of doubt be expressly stated in the agreement. Set out below is a sample of the
wording of the waiver language:
"The parties hereby agree to waive the applicability of provisions under
Articles 1425 and 1435 of Indonesian Civil Code or other applicable
provisions to the extent they prohibit to effect set-off in accordance with said
provisions"
Response:
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Agree / Disagree
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Explanation and recommended view / course of action:
10.
Agency Transactions
(a)
Will an Indonesian court treat a Transaction entered into by a counterparty
acting as agent in respect of a principal under a GMRA with an Indonesian
entity in isolation from a Transaction entered into by such counterparty
directly with an Indonesian entity?
ABNR:
This would generally depend on the terms of any agency and the extent to
which the agency was disclosed to the counterparty. Generally, there is no
disclosure requirement for a party to be treated as an agent under Indonesia
law to disclose the terms of the relevant agency. The extent to which the
agency was disclosed to the counterparty would depend on the arrangement
between the parties.
For example, even in a situation where a repo Seller (e.g. bank customer) faces
a buyer (bank) which acts on behalf of an undisclosed principal not known to
the seller, this arrangement is not required to be disclosed to the Seller under
Indonesian law. As a general matter, the bank as disclosed agent shall only act
for and on behalf of its principal who shall assume all liabilities legitimately
entered into by the bank. The bank shall thus not be held responsible for any
transactions entered into by the bank on behalf of the principal, except for the
loss suffered by the other party due to gross negligence. As such, an agency
agreement will contain provisions stating that the bank as an agent in
performing or omitting any action shall only rely on instructions from its
principal, and it shall be indemnified from any liabilities resulting from any
lawful act taken or omitted by the bank pursuant to proper instructions from its
principal.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
11.
Formalities in respect of Indonesian Securities
(a)
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Where the Purchased Securities, Equivalent Securities, Margin Securities or
Equivalent Margin Securities in respect of a Transaction under the GMRA
consists of Indonesian equities or bonds, please describe the formalities
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required under Indonesian law which must be complied with for the Purchased
Securities, Equivalent Securities, Margin Securities or Equivalent Margin
Securities to be respected as an outright transfer of legal and beneficial title.
ABNR:
In order to ensure that the Purchased Securities, Equivalent Securities, Margin
Securities or Equivalent Margin Securities owned by the purchaser are freed
from the creditor’s claim of the seller, the transfer of ownership has to be a
true sale without any conditions. Article 1458 and 1459 Civil Code juncto
Article 584, 612, and 613 Civil Code has to be considered in respect of this
requirement. From the regulations it is clear that a GMRA does not involve a
complete transfer of ownership. The ownership will be transferred after
"juridische levering" pursuant to article 612 or 613 Civil Code, depending on
the type of asset sold.
Specifically in relation to Article 613 Civil Code, it has to be cleared that the
ownership of registered receivables changed by the time the deed of transfer
(cessie) is signed, either authentically or privately drawn up. The ownership
will be transferred from the previous creditor (cedent) to the buyer/receiver
(cessionaries). Approval form debitor cessus is not necessarily needed.
Accordingly, constitutive action for the transfer of registered receivables from
the previous creditor to the new one is the Transferred Deed which is a real
action of juridische levering, as mentioned in Article 584 Civil Code.
The juridische levering for scripless securities traded in the stock exchange
must be made in a proper registration by a central custodian of securities
("KSEI") or Bank Indonesia scripless securities settlement system ("BI SSS").
In relation to the formalities required to effect the transfer of legal or
beneficial title to equities and bonds in Indonesia, the relevant formalities
would involve issuing the instructions from the Seller and Buyer to their
respective authorised broker to do the sale and purchase. The brokers will
complete the transaction by performing all required deliveries, registration and
payments via the systems (KSEI or BI SSS). This would take around 3 to 5
bourse days (i.e. days on which the Indonesia Stock Exchange is open for
business).
Response:
Agree / Disagree
Explanation and recommended view / course of action:
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12.
Foreign Exchange Issues
(a)
Are there any foreign exchange restrictions in respect of Indonesian Rupiah
which may affect a party's ability to perform its obligations in respect of a
Transaction under the GMRA?
ABNR:
There is generally no foreign exchange control in Indonesia, and a person may
freely hold, use and transfer foreign currency, subject to the regulation on the
Foreign Currency Purchases against the Rupiah as stated in Regulation of BI
No. 10/28/PBI/2008 dated November 12, 2008 and Circular Letter of BI No.
10/42/DPD, dated November 27, 2008 concerning Foreign Currency
Purchases against the Rupiah to a Bank ("Foreign Currency Regulation").
The Foreign Currency Regulation provides that a foreign party or customers
(Indonesian citizen, Indonesian legal entity other than banks) which are
domiciled in Indonesia and have a taxpayer registration number (i.e. a NPWP)
may only purchase foreign currency against Rupiah with an amount not
exceeding USD 100,000 (one hundred thousand United States Dollars) or its
equivalent per month from Indonesian banks, if such purchase was supported
by an underlying transaction. The maximum amount of purchases of Rupiah
allowed would be the same as the amount of the underlying transaction.
Further, the regulation also states that the purchase of foreign currency against
Rupiah may only be conducted for a non-speculative activity.
However, the transfer of foreign exchange to and from abroad is subject to a
reporting obligation to Bank Indonesia, which must be conducted by the local
counterparties. In the event the relevant local counterparty fails to conduct
their required reporting obligations, criminal or administrative sanctions may
be imposed on such parties. However, the failure of a party's compliance with
the above reporting obligation will not render the transaction to be
unenforceable.
Law No. 24 of 1999 on the Flow of Foreign Exchange and the Exchange Rate
System dated May 17, 1999, imposes reporting requirements to BI on the flow
of foreign exchange to and from abroad which is conducted by Indonesian
banks, non-bank financial institutions, and non-bank institutions.
With regard to non-bank institutions, BI issued the following implementing
regulations: Bank Indonesia Regulation No. 13/15/PBI/2011 dated 23 June
2011 concerning the Monitoring of the Flow of Foreign Exchange Activities
of Non-Bank Institutions, and Circular Letter of BI No. 13/21/DSM dated
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15 August 2011 concerning the Reporting of Foreign Exchange Activities of
Non-Bank Institutions ("Regulation 13/15").
In the above mentioned Bank Indonesia Regulations, "Non-Bank Institutions"
is defined as non-bank institutions with the status as Resident, i.e.: (i) StateOwned Enterprises (ii) Regional Government-Owned Enterprises (iii)
Indonesian Private Enterprises (iv) other institutions whether in the form of
legal entity or non-legal entity, among others, Foundations, Non-Government
Organisations, and educational institutions which are established by the
government or the community. Further, "Foreign Exchange Flow" is defined
as the movement of assets and financial obligations between a resident and a
non-resident, including the movement of foreign financial assets and foreign
financial liabilities between residents. Residents, which term includes persons,
corporate bodies and other bodies, which are domiciled or are planning to be
domiciled in Indonesia, including Indonesian diplomatic staffs abroad, are
required by Bank Indonesia to give information and data on their foreign
exchange transactions. The transactions that must be reported by the non-bank
institutions are sales and purchase of goods, services and other transactions
which are carried out through (i) domestic Indonesian banks; (ii) foreign
banks; (iii) the companies’ intercompany office account; and/or through other
means.
Further, based on Regulation 13/15, the transactions that must be reported to
BI are transactions which resulted in the movement of financial asset and
liabilities between resident and non-resident, including the movement of
Foreign Financial Asset and Foreign Financial Liability between Residents.
Regulation 13/15 defines "Foreign Financial Asset" as the asset of the
company in the form of receivables owed by non-resident, either in foreign
currency or Rupiah, among others in the form of capital participation in
foreign companies, savings in overseas banks and possession of commercial
papers issued by non-residents, and "Foreign Financial Liability" as the
liability of the company towards non-residents, either in foreign currency or
Rupiah, among others in the form of offshore loan and trade debt to overseas
company.
Based on the foregoing, we believe the transaction as meant in Regulation
13/15 also includes the intended transaction. Please also note that the
obligation to report the foreign exchange flows shall apply to the following
local counterparties:
1. State-Owned Enterprises;
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2. Regional Government-Owned Enterprises having an offshore debt;
3. Non-Bank Financial Institutions;
4. Public Companies;
5. Companies which conduct oil and gas mining business;
6. Companies which conduct export and/or import goods business;
7. Companies which conduct service business;
8. Foreign investment companies;
9. Private Enterprises having an offshore debt;
10. other enterprises having an offshore debt; or
11. Other parties, other than the above, which have a total asset or gross
selling turnover within 1 (one) year period, whichever reaches the amount
of at least Rp100,000,000,000 (one billion Rupiah) earlier.
The above reporting obligations are only relevant for the Indonesian party, in
the form as stated above. Where there is a failure to conduct such reporting
obligation, criminal or administrative sanctions may be imposed on the said
party.
Based on the foregoing, we are of the view that the failure of the local
Counterparties to comply with the above reporting obligation will not impact
the transaction or cause the GMRA to be unenforceable.
Though, there are no regulations restricting the payment in foreign currency,
however, for the payment or remittance of sales proceeds in Rupiah, certain
transactions of Rupiah have been restricted by Bank Indonesia Regulation No.
7/14/PBI/2005 and Circular Letter of Bank Indonesia No. 7/23/DPD as
amended by Circular Letter of Bank Indonesia No. 7/44/DPD/2005 dated 15
September 2005, concerning Restriction on Rupiah Transactions and Foreign
Currency Credit Offered by Banks. The restrictions applied to Indonesian
banks include:
(a)
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Banks are prohibited from transferring Rupiah currency to an account
owned by a foreign party and/or any account which is jointly owned by
a foreign party and a non-foreign party in an onshore Bank, save for
the transfer of Rupiah to the account of a foreign party in an onshore
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Bank executed in relation to certain economic activity in Indonesia
(such as divestment of equity participation, dividend payment, sale of
Rupiah denominated securities or receivables payment); or transfer of
Rupiah between accounts in onshore banks held by the same foreign
party.
(b)
Banks are prohibited from transferring Rupiah currency to the account
of a foreigner and/or any account which is jointly owned by a foreign
party and a non-foreign party in offshore Banks.
(c)
Banks are prohibited from transferring Rupiah to non-foreign parties
outside Indonesia.
The term "foreign parties" include foreign citizens, foreign legal entities or
foreign institutions, Indonesian citizens having permanent resident status
overseas and not domiciled in Indonesia, and offices of Indonesian banks or
Indonesian legal entities domiciled outside of Indonesia. Violation of these
regulations is subject to administrative sanctions.
Please note that the above restrictions specifically applied to the Indonesian
banks. However, practically, it is not possible the Indonesian party to pay or
remit the sales price or proceeds in Rupiah abroad given the above restrictions.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(b)
What foreign exchange disruption events would you recommend in respect of
a Transaction under the GMRA which involves settlement in respect of
Indonesian Rupiah?
ABNR:
Generally, the foreign exchange disruption events would be the same with a
loan arrangement, e.g., regulatory changes which would require payments in
local currency, enactment of foreign exchange control, etc.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
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13.
Miscellaneous Issues
(a)
We understand that Law Number 24 of 2009 on Flag, Language, Emblem and
National Anthem ("Law 24") in Indonesia requires that any agreement
between limited liability companies established under Indonesian law and any
foreign party must be executed in the Indonesian language as well as the
national language of the relevant foreign party (or in English). Please confirm
that this requirement applies to the GMRA.
ABNR:
Confirm. The requirement to execute an Indonesian language version of the
GMRA applies in the event that it is signed by an Indonesian party.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(b)
Please also confirm whether Law 24 extends to any written confirmations in
respect of Transactions entered into under the GMRA (as set out under
Paragraph 3(b) of the GMRA).
ABNR:
Confirm, to the extent that the confirmation is considered as an agreement.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
(c)
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Please consider how the "flawed asset" provision under Paragraph 6(j) of the
GMRA will be treated under Indonesian law in respect of an Indonesian entity
which has become insolvent e.g. whether the 'flawed asset' provision will be
void on the grounds that it deprives the insolvent Indonesian entity of 'assets'
under the GMRA.
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ABNR:
We understand the flawed assets notion to entail that the parties are subject to
certain conditions precedent the right of one party to delivery or repossession
of an asset owned or to be owned by it but held by another. Flawed assets
arrangements are as such valid and enforceable under Indonesian law and
Paragraph 6(j) of the GMRA will be given effect to by an Indonesian court.
This is only different where the "flawed" character was added during the
suspect period prior to bankruptcy, but in the case of Paragraph 6(j) of the
GMRA that would be an exception. Exercise of the flawed asset provision in a
bankruptcy situation may also lead to the GMRA becoming an executory
contract.
Response:
Agree / Disagree
Explanation and recommended view / course of action:
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