The New Head of BKPM Regulation

April 8th, 2013. The head of the Indonesian Investment Coordinating Board (Badan Koordnasi Penanaman Modal/BKPM) issue a new regulation concerning the Guidelines and Procedure for Investment Permits and Non-Permits. The regulation, which named the Perka BKPM number 5 tahun 2013 (“Perka BKPM 5/2013”), revokes Perka BKPM number 12 tahun 2009, which survives only for 4 years. Unlike its predecessor which require an Investor to pass ‘Registration’ stage prior to the establishment of the Company, Perka BKPM no. 5/2013 eliminates this stage and require the investor to directly apply Principal License in starting their investment. The following are some new policy stipulated under this new Perka BKPM 5/2013.

1. Minimum Ownership by one Shareholder

Differs from other countries, Indonesian Company Law (Law No. 40 year 2007 concerning Limited Liabilities Company) require a limit liability company to be owned by more than one shareholders. In some cases, this requirement makes one of the shareholders holds an un-significant ownership over the company’s shares.

This practice, however, has been restricted under the Perka BKPM 5/2013. The Article 22 subsection (3) point c of the Perka 5/2013 requires one shareholder to hold a minimum IDR 10,000,000 ownership over the Company (or its equivalent to US Dollars).

2. Change of Status from PMDN to Become PMA

The Law 25 of the year 2007 concerning Investment (Law 25/2007) define foreign capital as capital originated from foreign government, foreign citizen, foreign entity, Indonesian entity established by foreign investment. Based on such definition, it can be concluded that the subsidiary of foreign invested company (“PMA”) shall also be classified as a PMA company.

Although the previous regime stipulates a Local Investment Company (“PMDN”) which selling its shares to foreign investor shall become a PMA, no clear provision requiring subsidiary of the changing status PMDN to also become PMA. This, however, has been clearly stipulated under the Article 28 subsection (8) and (9) of the Perka BKPM 5/2013. The Article 28 subsection (8) and (9) requires a PMDN which change its status becoming PMA to provide a list of its subsidiaries, and within a year those subsidiaries are required to also change its status to become a PMA.

3. No SIUP is required for PMA

One of the problems faced by the investors when they invest in Indonesia is numerous permits and licenses they have to obtain. The numerous permits and licenses required by various sectoral regulations invite investors’ confusion.

The classic example of this confusion is the obtaining of Surat Izin Usaha Perdagangan/Trade Business License (“SIUP”) by a PMA. The basic understanding is that PMA shall obtain its Business License from BKPM and therefore, SIUP from municipal/regency government shall not be required. Although most government official understand that PMA is not required to obtain SIUP, no specific regulation in place confirming this understanding. Article 31 subsection (12) of the Perka BKPM 5/2013 has clearly state that a PMA holding investment permits from the BKPM, shall not be required to obtain SIUP from the municipal/regency government.

The Perka 5/2013 will start to be effective and implemented at the national BKPM office 30 working days after its enactment, or on 27 May 2013 (its enactment was on 12 April 2013) and 90 working days for the provincial or municipal/regency level BKPM. Therefore, you have to read-through this regulation, if you  wish to invest in this remarkable Indonesia .

Enforcement of Arbitral Award

Most businessmen prefer to settle dispute arisen out between them through Arbitration. Not only because of the arbitral award will be final and binding, the disputing parties also have a chance to appoint their preferred arbiter, who specialized in particular type of business, to examine the case. Although arbitration is not as cost-effective as court, the  New York Convention 1958 allows an arbitral award to be enforced in the territory of the States ratifying the convention. An advantageous that court does not have.

Under the Presidential Decree No.34 Year 1981, Indonesia ratified the New York Convention 1958, and therefore Indonesia is required to recognize and enforce arbitral award taken in the territory of any contracting States (international arbitral awards). However, for the businessmen who wish to enforce an international arbitral award in the Indonesian jurisdiction, local statutory shall apply, and the applicable statutory that govern the execution of international arbitral award are as follows:

1. Law Number 30 year 1999 concerning Arbitration and Alternative Dispute Resolution (“Law 30/1999”);
2. Het Herziene Inlandsch Reglement (Revised Regulation for Native) (“HIR”);

The brief description on the process in enforcing international arbitral award shall be as follows:

1. Recognition and Registration of an International Arbitral Award

Based on Article 67 Paragraph (1) of the Law 30/1999, prior to the enforcement of an international arbitral award, such award is required to be recognized and registered in the District Court of Jakarta Pusat (“PN Jakarta Pusat”). ThisArticle further stipulates that the request for recognition and registration of arbitral award shall be submitted to the PN Jakarta Pusat by the arbiters who examined the arbitration (or its representative). Please be noted that there is no provision specifying the time limit in registering an international arbitral award to the PN Jakarta Pusat.

Although in theory the arbitral award should be final and binding, the losing party (whom the award is enforced) may request for annulment of arbitral award. The Law 30/1999 limits the reason for arbitral award annulment as listed below:

1)      after the arbitral award was issued, there are falsified evidences (see Article 70 point a Law 30/1999);

2)      after the arbitral award was issued, a decisive evidence was hidden by the counterparty (see Article 70 point b Law 30/1999);

3)      the award was taken upon deceit from one of the parties (see Article 70 point c Law 30/1999);

4)      the arbitral award violate the public order (see Article 66 point c of the Law 30/1999).

Pursuant to Article 71 of the Law 30/1999, the petition to annul an arbitral award shall be filed to the District Court of Jakarta Pusat (where the international arbitral award is registered) within 30 days started from the Registration of arbitral award.

Not only the Law 30/1999, the Article V of the New York Convention also stipulates grounds in refusing the recognition of arbitral award as follows :

(a)    the parties to the arbitration agreement (or arbitration clause) were under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b)   the party against who the award is invoked was not given proper notice f the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c)    the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration, provided that, of the decision on matters submitted to arbitration can be separated from those not so submitted, the part of the award which contains decisions in matters submitted to arbitration may be recognized and enforced; or

(d)   the composition of the arbitral authority or arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e)    the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Petition for Enforcement

In case the losing party has failed to voluntarily fulfill its obligation in the award, upon the registration of international arbitral award in the PN Jakarta Pusat, the winning party may submit petition to enforce the award. Based on the Article 67 Paragraph (2) of the Law 30/1999, the petition to enforce the Arbitral Award shall be filed along with the following documents:

1)      Original or Authentic Copy of the International Arbitral Award, with its translation to Bahasa Indonesia;

2)      The Original or Authentic Copy of the disputed contract, and its translation to Bahasa Indonesia; and

3)      Statement letter from the Diplomatic Representative of the Republic of Indonesia, confirming that the State where the arbitration was performed had ratified the New York Convention.

Furthermore, pursuant to Article 196 HIR, the petition to enforce arbitral award shall be addressed to the Chief District Court Judge. Upon such petition, the Chief District Court Judge shall summon the losing party and remind such party to fulfill its obligation under the award within 8 calendar days.

Should after 8 calendar days the losing party failed in fulfilling its obligation, based on Article 197 HIR, the Chief District Court Judge may issue an Order to Enforce (eksekuatur) the arbitral award and appoint bailiff to size the assets of the losing party. Pursuant to Article 64 in conjunction with the Article 69 of the Law 30/1999, Order to Enforce (eksekuatur) shall be written over the arbitral award and the enforcement shall then be performed by the relevant Court in the jurisdiction where the object is located.

Although the seizure of assets is most likely to be happened, HIR established another process to oppose the Petition for Enforcement. During the process in enforcing the arbitral award, the losing party may challenge the petition from the winning party. The Article 207 HIR stipulates that the Opposition shall be addressed to the Chief District Court Judge where the Petition for Enforcement was addressed.

Please also be noted that the Opposition shall not affect the process of Petition for Enforcement. Pursuant to article 207 Paragraph 3 HIR, unless the Chief District Court Judge issues an order to suspend the process of Petition for Enforcement, such process shall not be interrupted.

Revision on Indonesian Manpower Law

In its official portal, the Indonesian Ministry of Manpower stated that a new regulation concerning the limitation of outsourcing business will be issued not in a far future. The official release stated that the Outsource Business will only be allowed for Additional Work function, not the work related to the employer’s core business. Will this regulation stipulate new aspect of outsourcing business? Not necessarily. This limitation has been described in Law 13 year 2003 concerning Manpower (“Manpower Law”) and its implementation regulation.

Although some people may say that this will be a new regulation focus on outsourcing business, others consider that it will be a new regulation that only restate and reaffirm the previous regulation. So, which provisions on manpower are remain in force and which one that has been revised? This might be the question that the employer curious about. Actually the Indonesian Parliament hadn’t issue any amendment to the Law. However, since the Constitutional Court hold the Negative Legislation function, the Constitutional Court judgment can also be deemed as revision made to the Manpower Law. In this case, there are three interesting Constitutional Court’s judgments to be put forward.

1. Employment Termination due the Major Offenses. Indonesian Manpower Law introduces the Termination of Employment due to Major Offenses. Stipulated under Article 158 and other related articles of the Manpower Law, the Employment Termination due the Major Offenses is exempted from the requirement to issue three consecutive warning letters, which is required in standard employment termination. The Constitutional Court believes this provision should be revoked since it gave the power to the Employer to condemn the Employee for an offense (which is suspected to be committed by such Employee) without convening fair trial performed by a Court and in accordance with the ‘due process of law’ principle. Based on this judgment, upon the major offense (which mostly are criminal acts committed in the working site) committed by an Employee, the Employer can only terminate the employment after the judgment from criminal justice court is issued. Although the Constitutional Court revoked the Article 158 and other related articles regarding Employment Termination due Major Offenses, the judgment does not revoked the elucidation of Article 161 of the Manpower Law. The elucidation of Article 161 of the Manpower Law, allows the Employer to stipulate termination of employment due to urgent matters in its Company Regulation. Based on this provision, the Company Regulation may define the offenses that can be used with this type of employment termination. However, unlike the Termination due to Major Offense stipulated under Article 158 Manpower Law, the termination due to urgent matter can only be performed after the issuance of the second warning letter. This judgment was issued under the number of 012/PUU-I/2003 dated 28 October 2004.
2. Employment Termination due to Activity Shut Down. Through the Article 164, the Manpower Law accommodated the possibility for the employers to terminate their employees due to the company shut down. This Article 164 stipulates two types of Employment Termination due to Activity Shut Down which are : (a) The company is no longer be able to continue the business caused by two consecutives losses suffered by the company (Art. 164 paragraph (1)); (b) The company still remains in business, but for some reason, rationalization is needed to keep the company’s survival (Art. 164 paragraph (3)). Although the company was required to compensate two times severance pay, the reason stated in point (b) above was commonly used to terminate employees without giving any Warning Letter (which three consecutive Warning Letters is the pre-requisite to termination). The Constitutional Court had issued its judgment number 19/PUU-IX/2011 dated 20 June 2012 that clarify the misinterpretation of this Article 164 paragraph (3). The Constitutional Court believes that rationalization stated in such article should not be used as an excuse to immediately terminate their employee. Moreover, the company should keep their employee even in the company’s worst financial situation by reducing other expenses, such as reducing the salary of the higher-level management. The judgment further concluded that the termination stated in Article 164 (3) should be interpreted as termination conducted when the Company is permanently shut down and no business activities is performed by the company.
3. Fixed-Term Employment Contract for Outsourcing Business. The last but not the least is the judgment number 27/PUU-IX/2011 dated 17 January 2012. A retired electricity-meter checker filed a petition to annul the provision concerning Fixed-Term Employment in the Manpower Law, for not having permanent employment status. Working as electricity-meter checker for consecutive 5 years, the plaintiff had never been engaged as permanent employee at the State Electricity Company (“PLN”). Working under an outsourcing company which engaged with PLN, the plaintiff was later transferred to the other outsourcing company which also engaged with PLN with the same function and job description. Being transferred before 3 years, the plaintiff cannot receive better benefit from the later outsource company. The worst was that the salary at the later outsourcing company was lesser than the first one. In such circumstance, the Constitutional Court stipulated that the Fixed-Term employment used by the outsourcing company should state “Transfer of Undertaking (Protection of Employment)” in case of the employee is transferred to other outsourcing company. This Transfer of Undertaking should protect the employees’ rights and shall ensure that no lesser benefit is given to the transferred employee.

RUPIAH vs. FOREX : the implementation of Controversial Currency Law

On June 28th, 2011, the parliament of Indonesia enacted a controversial Law number 7 year 2011 regarding Currency. In accordance to its White Paper, the Law was enacted in the spirit of promoting Rupiah, however it was considered controversial since the Law criminalizes the usage of foreign currency in the territory of Indonesia. The controversy starts from the article 33, which imposes criminal sanction of maximum 1 year of prison or IDR 200 million fine.

The sanction is imposed for violations of Article 21 (1) obligating the use of Rupiah in every transaction that has payment intention; settlement of other obligations that shall be fulfilled by money; and/or any other financial transaction, and Article 23 (1), prohibiting the refusal of Rupiah in a transaction that shall be settled by Rupiah. Although some transactions are exempted by that Law, some business practitioners consider the Law will complicate their business, which most times use US Dollars instead of Rupiah.

Article 21

(1) Rupiah shall be used in:

a. every transaction which has payment intention;

b. settlement of other obligation which shall be fulfilled by money; and/or

c. any other financial transaction; which is conducted in the Republic of Indonesia.

(2) Obligations as stated in paragraph (1) shall not be valid for: a. certain transactions in order to implement State Revenues and Expenditures Budget (APBN); b. receiving or awarding of grant from or to overseas; c. international trade transaction; d. bank deposit in foreign exchange; e. international financing transaction.

Article 23

(1) Every person is prohibited from refusing Rupiah where the transfer is intended for payment or fulfilling an obligation that shall be settled by Rupiah and/or for any other financial transactions in the Republic of Indonesia, except if there is any doubt of the originality of the Rupiah.

(2) Exceptions of the stipulations as stated in paragraph (1) are for payment or settlement of obligations in foreign exchange that have been agreed in writing.

To address the concerns of the business practitioners, government held the Socialization of the Law Number 7 year 2011 on December 6th, 2011, which was presented by Senior Officers from the Central Bank of Indonesia and the Ministry of Finance. At this event, Rosalia Suci, Senior Investigator in the Banking Investigation and Mediation Directorate Bank Indonesia, believed that the Law 7/2011 has not sufficiently defined whether the transaction meant by Law 7/2011 is a cash transaction or non-cash transaction. This vagueness will lead to the implementation of the Law 7/2011. Therefore, she suggested that an amendment to this law is needed. While on the other hand, Mr. Tata Suntara, Secretary of the Directorate General of Treasury of the Ministry of Finance argued that the transaction meant by Law 7/2011, is the transaction that shall be made in cash. In other words, the obligation to use Rupiah is only for cash transactions.

The Minister of Finance, the government institution that initiated this Law, is resolute that the obligation to use Rupiah is only for Cash Transactions. This argument is based on several provisions in Law 7/2011 that refer to Rupiah as physical money (Dutch: chartaal geld). One of these provisions is in Article 2 paragraph (2) Law 7/2011, which limits Rupiah only in 2 forms, as follows:

“The form of Rupiah shall be Rupiah in paper form and Rupiah in metal form”

Based on this interpretation, the Ministry of Finance, guarantees that the obligation to use Rupiah is only for cash transactions, therefore Article 21 (1) Law 7/2011 shall be read as follows:

(1) Rupiah in paper form and Rupiah in metal form must be used in:

a. every transaction that has payment intention;

b. settlement of other obligation that shall be fulfilled by money; and/or

c. any other financial transaction;

that is conducted in the Republic of Indonesia.

However, instead of limiting the scope where the Law 7/2011 governs, in legal perspective the foregoing interpretation leads to the obligation of using cash in any transaction and forbids non-cash transactions. This not only invites more confusion, but the interpretation introduced by the Ministry of Finance shows that the Law itself has not been sufficiently prepared by the lawmakers.

Other efforts to avoid criminal sanction as stipulated by the Law 7/2011 come from the jurists. The jurists believe that Article 23 paragraph (2) Law 7/2011 provided another exception for the using of foreign currency in Indonesia. By having a prior written agreement in accord to the using of foreign currency, the business players will evade the criminal sanctions provided by Article 33 of the Law 7/2011.

Article 33

(1) Every person who does not use Rupiah in :

a. every transaction that has payment intention;

b. settlement of other obligation that shall be fulfilled by money; and/or

c. any other financial transaction;

as stated in article 21 paragraph (1), shall be sanctioned with a maximum 1 year prison and a maximum Rp.200,000,000 fine.

(2) Every person is prohibited from refusing Rupiah where the transfer is intended for payment or fulfilling an obligation that shall be settled by Rupiah and/or for any other financial transactions in the Republic of Indonesia, except if there is any doubt of the originality of the Rupiah as stated in article 23, shall be sanctioned with a maximum 1 year prison and a maximum Rp.200,000,000 fine.

Although paragraph (2) of Article 23 Law 7/2011 is considered to be a loophole to evade the criminal punishment, this loophole only refers to the Article 23 paragraph (1). In other words, that the exclusion only applies to the refusal of Rupiah stated in Article 23 paragraph (1) and shall not apply to the obligation stated in Article 21.

Not only that, implicitly the exclusion provided by Article 23 paragraph (1) allows private engagement to nullify a criminal sanction imposed by the Law. This exclusion conflicts with one of the principles in the conditions of agreement stipulated under Article 1320 of the Civil Code, which is “lawful reason.” Instead of nullifying a criminal sanction imposed by Law, an agreement is supposed to be in compliance with the Law.

These show that the Law 7/2011 was not well prepared and apparently the Law 7/2011, like most of Laws applicable in Indonesian, will not effectively impose the criminal sanction as regulated.