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Print articleIndonesia - New Affiliated and Conflict of Interest Rules for Public Companies
January, 2010 -
The Head of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) has determined that the previous regulation regarding affiliated and conflict of interest on particular transactions no longer suits its purpose and through his decision No.KEP-412/BL/2009 he has repealed and replaced the earlier regulation Decision No. Kep-521/BL/2008. The new regulation has been in effect since 25 November 2009.
Some of the amendments to the rule include among other things definitions of an affiliated transaction, a conflict of interest and a transaction.
Under the old regulation an Affiliated Transaction was defined as any transaction conducted by a Company with an Affiliated Company, while under the new regulation an Affiliated Transaction means a transaction conducted by a Company or a Company it controls with an affiliated Company or any company affiliated with a member of the Board of Directors, Board of Commissioners, or the majority shareholders of the Company.
The Company must announce to the public an information disclosure of any Affiliated Transaction and provide evidence of such announcement to Bapepam-LK. The company may only have to report to Bapepam-LK on certain types of Affiliated Transaction.
The new regulation also lists exemptions to Affiliated Transactions as enumerated in point 2(c). These include amongst others, those in relation to (i) remuneration, salaries, pension funds and/or special benefits for members of the Board of Commissioners, Board of Directors or majority shareholders, if the preference shareholders are also acting in the capacity of employees, which remuneration should be disclosed in the periodical financial report, (ii) sustained transactions started before and continuing after the company conducts an initial public offering or submits its public company registration statement, (iii) transactions involving the main activities of the company or a controlled company, and (iv) transactions that support the main activities of the company or a controlled company.
The old regulation defined a conflict of interest as any difference between the Company’s economic interests and those of the Board of Directors, Commissioners, or majority shareholders in certain transactions that may cause the Company to suffer a loss because of unreasonable prices being set,, while under the new regulation a conflict of interest means any difference between the Company’s economic interests and those of members of the Board Directors, Board of Commissioners, or the majority shareholders which may cause the Company to suffer a loss.
A transaction containing a conflict of interest must obtain prior approval from independent shareholders at a General Meeting of Shareholders (GMS).
The following transactions containing conflict of interest are, among others, exempted from the requirement of prior approval from independent shareholders:
(i) the utilization of any facilities provided by the company or a controlled company by members of the Board of Commissioners, Board of Directors, or majority shareholders who are also acting in their capacity as employees, and where the facilities are connected directly to their responsibilities to the company and it is in accordance with company policy, having been approved by the GMS;
(ii) sustained transactions started after the company conducted an initial public offering or submitted its public company registration statement;
(iii) transactions conducted by the company with a transaction value not exceeding 0.5% of the paid up capital and not more than Rp5,000,000,000 (five billion Rupiah);
(iv) transactions conducted by the company as part of an effort to implement the Law or a court ruling; and
(v) transactions between the company and a controlled company of which it owns at least 99% of the shares or capital or a controlled company that its shares or capital owned at least 99% by the company.
Some of the amendments to the rule include among other things definitions of an affiliated transaction, a conflict of interest and a transaction.
Under the old regulation an Affiliated Transaction was defined as any transaction conducted by a Company with an Affiliated Company, while under the new regulation an Affiliated Transaction means a transaction conducted by a Company or a Company it controls with an affiliated Company or any company affiliated with a member of the Board of Directors, Board of Commissioners, or the majority shareholders of the Company.
The Company must announce to the public an information disclosure of any Affiliated Transaction and provide evidence of such announcement to Bapepam-LK. The company may only have to report to Bapepam-LK on certain types of Affiliated Transaction.
The new regulation also lists exemptions to Affiliated Transactions as enumerated in point 2(c). These include amongst others, those in relation to (i) remuneration, salaries, pension funds and/or special benefits for members of the Board of Commissioners, Board of Directors or majority shareholders, if the preference shareholders are also acting in the capacity of employees, which remuneration should be disclosed in the periodical financial report, (ii) sustained transactions started before and continuing after the company conducts an initial public offering or submits its public company registration statement, (iii) transactions involving the main activities of the company or a controlled company, and (iv) transactions that support the main activities of the company or a controlled company.
The old regulation defined a conflict of interest as any difference between the Company’s economic interests and those of the Board of Directors, Commissioners, or majority shareholders in certain transactions that may cause the Company to suffer a loss because of unreasonable prices being set,, while under the new regulation a conflict of interest means any difference between the Company’s economic interests and those of members of the Board Directors, Board of Commissioners, or the majority shareholders which may cause the Company to suffer a loss.
A transaction containing a conflict of interest must obtain prior approval from independent shareholders at a General Meeting of Shareholders (GMS).
The following transactions containing conflict of interest are, among others, exempted from the requirement of prior approval from independent shareholders:
(i) the utilization of any facilities provided by the company or a controlled company by members of the Board of Commissioners, Board of Directors, or majority shareholders who are also acting in their capacity as employees, and where the facilities are connected directly to their responsibilities to the company and it is in accordance with company policy, having been approved by the GMS;
(ii) sustained transactions started after the company conducted an initial public offering or submitted its public company registration statement;
(iii) transactions conducted by the company with a transaction value not exceeding 0.5% of the paid up capital and not more than Rp5,000,000,000 (five billion Rupiah);
(iv) transactions conducted by the company as part of an effort to implement the Law or a court ruling; and
(v) transactions between the company and a controlled company of which it owns at least 99% of the shares or capital or a controlled company that its shares or capital owned at least 99% by the company.
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