Legal Memorandum
Document
Indonesian
Legal System
In
the current Indonesian law the hierarchy of legal norms is regulated in Ketetapan
MPR No. III Tahun 2000 tentang Sumber Hukum dan Tata Urutan Peraturan
Perundang-Undangan (MPR Decree of 2000 on The Source of Law and
Hierarchy of Laws). The basic hierarchy includes :
1.
UUD 1945 (the “Constitution”)
2.
Ketetapan Majelis Permusyawaratan Rakyat (the “Decree of the
People’s Representative Assembly”),
3.
Undang-Undang (the “Laws”),
4.
Peraturan Pemerintah Pengganti Undang-Undang or PERPU (the
“a law in Lieu of a Law” or an “Interim Law”),
5
Peraturan Pemerintah (the “Government Regulation”),
6.
Keputusan Presiden (“Presidential Decree”), and
7.
Peraturan Daerah (“Regional Regulation”).
The
laws are regulations noted in the hierarchy are made by a varied number
of State institutions. The Constitution can only be amended by the MPR.
MPR Decrees are made by the MPR. Laws are made by joint agreement
between the DPR and the President. Interim Laws are made by the
President. Government Regulations are made by the President. Regional
Regulations are made by joint agreement between the Head of the Regional
or Local Government and the Regional House of Representatives (the “DPRD”).
To
understand the legislative system in Indonesia emphasis must be made on
the review of peraturan perundang-undangan or laws that bind the
public. Undang-undang is the highest law in the hierarchy of peraturan
perundang-undangan. It can determine applicable penal, civil, or
administrative sanctions. It is also a form of law that can immediately
apply to and bind the public. Every Undang-Undang is enacted
through three phases,
a)
preparation of a bill, essentially the researching and drafting
of the bill,
b)
elaboration and approval of the bill, essentially the discussions
held between the DPR and the President to reach a consensus, and
c)
the enactment.
After
a bill is passed by both the DPR and agreed by the President, the
President must sign it. To ensure the President’s power to veto a bill
is not absolute the MPR amended the Constitution to stipulate that after
30 days should the President fail to sign the bill, the bill would
self-enact and automatically become law.
PERPU
is
a form of law that exists at the same level of hierarchy as Undang-Undang.
A PERPU is issued by the President and is immediately in force. The
basic requirement that must be satisfied before a PERPU is issued is
that the legal matter that is to be regulated is an emergency, the need
is immediate, and cannot be legislated or regulated in any other way. A
PERPU once enacted is only applicable for a definite period of time;
namely, a PERPU must be ratified by the DPR in their first sitting after
the enactment of the PERPU. Should the DPR ratify the PERPU then it will
be re-enacted as an Undang-Undang. In contrast, where the DPR
rejects the PERPU then it is void at law and the regulatory
framework returns to the status quo that existed prior to the enactment
of the PERPU.
Peraturan
Pemerintah functions
as a law that is used to implement an Undang-Undang. It can only
be made if it relates to a particular Undang-Undang.
Nevertheless, a Peraturan Pemerintah can be made even if it does
not mention explicitly the Undang-Undang to which it relates.
A Government Regulation may only contain sanctioning provisions if the
Law to which it relates also contains those same sanctions.
Generally,
Keputusan Presiden is issued in one of two forms, namely :
1.
a declaration or a public rule.
2.
form of Keputusan Presiden is considered as a Peraturan
Perundang-Undangan.
In
assisting the President, Ministers can also enact regulations called Keputusan
Menteri, and only those Keputusan Menteri that function as
public rules can be considered to be Peraturan Perundang-Undangan. There
are three Ministerial levels, as follows :
1.
Ministers of Department (Menteri Departemen),
2.
State Ministers (Menteri Negara), and
3.
Coordinating Minister (Menteri Koordinator).
State
Ministers and Coordinating Minister cannot issues Keputusan Menteri that
bind the public, they can only enact internal rules and regulations.
Peraturan
Daerah is
enacted by the Head of the Regional / Local Government (the
“Governor”, the “Regent”, or the “Mayor”) upon approval of
the DPRD. This law regulates matters related to regional autonomy or as
the implementation provisions for higher laws. Peraturan Daerah can
determine penal sanctions up to six months in prison or fines to a
maximum of IDR 5 million. In order to facilitate implementation of the Peraturan
Daerah the Head of the Regional / Local Government can pass a Keputusan
Kepala Daerah (Head of the Regional / Local Government Decision). Peraturan
Daerah and Keputusan Kepala Daerah that regulate and bind the public
must be published in the Lembaran Daerah (Regional /Local
Gazette).
Laws
(or Undang-Undang) are usually issued with a corresponding
Elucidation. The Purpose of the Elucidation is to provide additional
clarification and explanation with respect to interpretation of
provisions to eliminate ambiguity and subsequent misapplication or
interpretation of the relevant law. Unfortunately, there is a
misconception prevalent in the community that Elucidations do not have
any binding power and consequently are an optional feature of the
legislative process. However, the Elucidations specifically address
interpretative matters and endeavor to eliminate ambiguity and
consequently are a key aspect of judicial review and interpretation of
laws.
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The
Indonesian Civil Code
The
basis for all private law applicable in the European group, and former
colonies of the European Group, has been the Dutch Civil Code (Burgelijk
Wetboek – Kitab Undang-Undang Hukum Perdata) of 1848. Subsequent
amendments to the Dutch Code were also incorporated into the Codes for
Indonesia as well based on the principle of concordance.
Transitional
Provision Articles I and II of the Constitution states explicitly that
all existing and regulations valid at the date of Independence shall
continue to be valid pending the enactment of new legislation complying
with the Constitution to the contrary.
The
Indonesian Civil Code contains four books that regulate all private law
matters:
1.
Book
One
– titled Individual, regulates all aspects concerning the enjoyment
and loss of civil rights, assets and the distinctions between them,
residence or domicile, matrimony, the rights and obligations of spouses,
legal community property and management thereof, prenuptial agreements,
community property or prenuptial agreements in the event of second or
further marriages, the division of assets, the dissolution of marriage,
separation from bed and board, paternity and the descent of children,
the relationship by blood and marriage, parental authority, amendment
and revocation of support payments, minority and guardianship,
emancipation, and conservatorship.
2.
Book
Two
– titled Goods, regulates all aspects concerning assets and the
distinctions between them, possession and the rights resulting there
from, ownership, the rights and obligations among owners of neighboring
plots of land, the rights and obligations of spouses, servitude, the
right to build, the right of tenure by long lease, land rent, use of
proceeds, use and occupations, succession by demise, last wills,
executors of last wills and managers, the right of deliberation and the
privilege of estate description, the acceptance and rejection of
inheritances, estate division, ungoverned inheritances, priority of
debts, pledges, mortgages.
3.
Book
Three
– titled Contracts, regulates all aspects concerning contracts in
general, disputes arising from contracts or agreements, disputes arising
by force of law, recision of contract, sale and purchase, exchange,
granting and acquiring leases, agreements regarding the performance of
services, partnerships, legal entities, gifts, deposits, lending for
use, loans for consumption, fixed or perpetual interest, aleatory
agreements, the issuance of mandates, guarantees, and settlement.
4.
Book
Four
– titled Evidence and Procedure, regulates all aspects concerning
general evidence, evidence by witnesses, inferences, confessions, legal
oaths, and Procedure.
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The
Court System
The
Indonesian judicial system comprises several types of courts under the
supervision of the Supreme Court (Mahkamah Agung).
All civil cases will be brought in the first instance before the
District/Lower Courts (Pengadilan Negeri), the daily court of
first distance. Its jurisdiction is as a rule that of the Autonomous
Region such as City or District (kota or kabupaten).
According to Law No. 14 of 1970, at least three judges are required for
each panel for the hearing or session to be declared valid.
The
High Court (Pengadilan Tinggi) forms the court of second instance
or appellate court. They render judgment on appeal of the judgment of
the lower court. A Court of Appeal is normally located in the capital
city of each province. The Court of Appeal similar to the District Court
usually sits as a panel of three judges and have the authority to hear
appeals from all lower courts. The Court of Appeal leads and has control
over the court of first instance within their respective jurisdictions.
As the controlling body they have the power to order that files and
documents of the courts of first instance be sent to them for
examination and evaluation with a view to making a determination of the
capacity and the diligence of the judges sitting Indonesian first
instance.
The
highest court in Indonesia is the Supreme Court. In a technical sense
all courts in Indonesia fall under the leadership of the Supreme Court.
However, the previous regulatory framework meant that although general
courts were being led by the Supreme Court the administrative and
financial matters of the courts were under the auspices of the
Department of Justice and Human Rights. This changed significantly with
the enactment of Law No. 35 of 1999 which stated that all General Courts
were now under the authority and supervision of the Supreme Court.
In
1998, the Indonesian parliament established the Commercial Court (Pengadilan
Naga) through the enactment of legislation. Initially, the
Commercial Court was tasked to handle bankruptcy and insolvency
applications. Its jurisdiction can be extended however to include other
commercial matters such as Intellectual Property Rights. Appeals from
the Commercial Court proceed direct to the Supreme Court.
In
2001 the Constitution was amended to mandate the creation and
establishment of a Constitutional Court (Mahkamah Konstitusi).
Among other matters, the Constitutional Court has the jurisdiction to
hear cases involving the constitutionality of particular legislation,
results of a general election, as well as actions to dismiss a President
office. The Constitutional Court has been established.
The
Mahkamah Agung can also make law if the government or parliament have
not passed a law on a particular issue.
There
are four branches of the judicature in Indonesia.
1.
General
Courts (Pengadilan
Umum). These comprise 295 District Courts (Pengadilan Negeri)
and 26 Provincial Courts (Pengadilan Tinggi). The Pengadilan
Negeri try all criminal and civil cases. A party dissatisfied with
the decision can appeal to the Pengadilan Tinggi in a civil case
if the dispute exceeds a specified (small) amount and in criminal cases
where the sentence is more than three months.
2.
Military
Courts (Pengadilan
Militer). These comprise 23 Military Courts (Pengadilan Militer)
and two Military High Courts (Pengadilan Tinggi Militer). These
courts try criminal cases where the accused is a member of the armed
forces.
3.
Religious
Courts (Pengadilan
Agama). This judicial branch comprises 305 Religious Courts (Pengadilan
Agama) and 21 Religious High Courts (Pengadilan Tinggi Agama).
These hear cases in which both parties are Muslim and the dispute
concerns defined areas of the law, such as marriage, inheritance and
trusts.
4.
Administrative
Courts (Pengadilan
Tata Usaha Negara). These are made up of 15 Administrative Courts (Pengadilan
Tata Usaha Negara) and four Higher Administrative Courts (Pengadilan
Tinggi Tata Usaha Negara). These courts, newly-established, hear
disputes between Indonesian citizens and the Government over alleged
infringements of the law or mis-use of power by a State organ.
Appeals
from all these courts can be heard on cassation (kasasi) by the Mahkamah
Agung, the highest court in Indonesia. The Mahkamah Agung is
also authorized to review its own decisions in the sphere of civil law.
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The Civil Procedure
Indonesian
Civil Procedure is based on two regulations which were inherited from
the Dutch Colonial system, Herziene Inlandsch Reglement (HIR) and
Rechtsreglement voor de
Buitengewesten (RBg.). According to the Emergency Law No. 1 of 1951
on the provincial measures to obtain uniformity in the administration,
competency and procedure of the civil courts ensured that those two
regulations remained in force until such time a new law was enacted to
repeal them.
Court
Processes in District Courts
Most
disputes appear before the courts of general jurisdiction, with the
court of first instance being the District / Lower Court (Pengadilan
Negeri). A typical civil case begins when the plaintiff registers
their claim with the registrar office of a district/Lower court.
Subsequently, the head of the District Court will decide whether to
appoint a single judge or a panel of judges to hear the case. Most cases
are heard by a panel of three judges. The appointed judge or judges will
sit for hearings, examinations, and finally, will issue a decision. The
court will schedule dates of hearings and will summon parties to appear
before the court. The court will serve a summons directly on the
relevant person or, if the address is unknown, place an advertisement in
a newspaper including the content of the summons.
There
are normally eight hearings or sessions once registration has taken
place until the judge or panel of judges renders its verdict. At the
first court hearing, if the plaintiff and defendant attend the session,
the panel of judges will ask both parties whether or not they have
attempted to negotiate an amicable settlement prior to appearing before
the court. If the parties have not done so, the panel of judges has the
obligation to mediate between the two contesting parties or order that
they endeavor to resolve this matter through external mediation. At this
point, the hearing will be temporarily adjourned while the parties
attempt to reach an amicable settlement.
It
the mediation effort is successful, the parties will draw up a
Settlement agreement (Akta Perdamaian), which will have the same
effect as court judgment in the sense that it is enforceable. If the
mediation fails and an amicable settlement cannot be reached then the
parties may proceed to litigation ant the first court hearing will be
scheduled.
If
the event a defendant or their attorney does not appear, the panel of
judges will schedule another hearing and ask for the defendant to be
properly summoned. The panel of judges may also, however, issue a
default judgment in the absence of the defendant. In the event a
plaintiff or their attorney fails to appear on the scheduled day, the
judge or panel of judges will declare the lawsuit null and void.
The
first court hearing starts with the plaintiff stating their case and
submitting their arguments in support of the case and any demands made
regarding how it is hoped the court will decided the matter at hand. The
plaintiff does so by reading the written lawsuit. The reading of
lawsuits is common in the litigation process in Indonesia as the process
is more of a ‘paper’ process than an oral one. After hearing the
plaintiff’s lawsuit, the panel of judges will give an opportunity for
the defendant to rebut at the second court hearing. It is rare for the
defendant to rebut on the same day. The judge or panel of judges will
usually adjourn the rebuttal hearing so as to give the defendant time to
prepare a written rebuttal.
At
the second court hearing, the court will hear the defendant read his
written rebuttal (konpensi). At this point, the defendant also
has the option to file a counter suit (rekonpensi) against the
plaintiff. This is when the process becomes complicated, since the
defendant becomes a plaintiff at the same time. The judge or panel of
judges in this kind of process will have to issue two verdicts at the
same time.
The
third court hearing will hear the plaintiff’s rebuttal against the
argument made by the defendant at the last court hearing. At the fourth
court hearing, the panel of judges will hear the defendant’s arguments
with respect to the plaintiff’s rebuttal.
The
fifth and sixth court hearings are dedicated to examining evidence and
presenting and hearing any witnesses, including expert witnesses. The
plaintiff is given the first opportunity to present evidence, while the
subsequent hearing is given to the defendant to present any witnesses or
testimony that it may wish to do so in support of its case.
The
seventh court hearing is for the court to hear both parties give their
conclusions in the case. The eighth and last court hearing is when the
panel of judges reads its verdict.
The
court’s verdict, however, does not immediately take effect and become
enforceable. The verdict takes effect only after fourteen days have
passed with no appeal submitted. If a party submits an appeal, which is
often the case, the verdict does not take effect and is unenforceable.
Appeal
to the High Court
Appeals
from the District / Lower Court are heard before the High Court (Pengadilan
Tinggi). The High Court is a District Court of Appeal. Appeals from
the High Court and, in some instances from the District/Lower Court, may
be made to the Supreme Court located in Jakarta.
The
High Court will review the case through materials submitted by the
parties at the District Court. In this regard, the High Court procedure
is more of a game for lawyers. The parties to the dispute will not be
physically involved. The High Court’s verdict will take effect and
become enforceable in fourteen days if no cassation to the Supreme Court
is submitted. There are no restrictions, except for time limits, with
respect to challenging a verdict of the High Court to the Supreme Court.
In addition, there is no mechanism to examine the admissibility of
cassation based on sound legal grounds.
Appeal
to the Supreme Court
The
Supreme Court can hear a cassation appeal (kasasi) which is a
final appeal from lower courts. It can also conduct a case review (Peninjauan
kembali) if, for example, new evidence is found which justifies a
re-hearing. The Supreme Court renders decisions concerning disputes of
competency amongst the types of court in the first and last instances.
The
Supreme Court can overrule a verdict of a lower court on any of three
grounds: the court in question lacked jurisdiction or acted beyond its
jurisdiction; the court applied the law incorrectly or violated
prevailing law; and, the lower court neglected to satisfy certain
requirements imposed by law.
The
review of case at the Supreme Court will be based on the same materials
presented at the District Court; the Supreme Court will not admit new
evidence. The process at the Supreme Court is the same as at the High
Court in that the parties to the dispute are not physically involved.
A
case will also not necessarily end once the Supreme Court renders its
verdict. The next challenge is to enforce the verdict, and the case can
always be re-opened by one of the parties to the dispute if they can
furnish new evidence that has a bearing on the decision.
The
Supreme Court gives judgment in cassation. Commercial disputes in
Indonesia also end with the Supreme Court and also as a cassation. The
parties in private law cases may request cassation by the Supreme Court.
Cassation is possible only if no other ordinary means of obtaining
justice is available. If there is a possibility of bringing the case for
appeal to the court of second instance (High Court) then the cassation
will not succeed. In other words, it is impossible to request cassation
on the decisions of the District Court of first instance. The case must
first be brought before the respective courts of second instance, except
in some instances. For example, in a dispute about trademark
registration and bankruptcy the decision of the first instance court may
be directly brought before the Supreme Court. This is due to the fact
that the decisions for these cases in first instance court are deemed to
be final, without opportunity for appeal.
Cassation
will be successful if the decisions do not comply with the formal
requirements as set forth in the regulation, pertaining to
nullification. It is also possible when the lower courts in rendering
their decision exceed their jurisdiction. Finally, cassation is possible
if the regulations and rules of laws have been improperly used or if
there is a violation of those rules.
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The
Commercial Court
The
Amendment of the Bankruptcy Law, Law No. 4 of 1998, created a special
court tasked specifically with resolving commercial cases including
bankruptcy, the Commercial Court. It is emphasized more on the new
Bankruptcy Law no. 37 of 2004 that replaces the previous Bankruptcy Law.
The Commercial Court is within the jurisdiction of the District Court
and is a first instance court. The Commercial Court was established
through Presidential Decree No. 97 of 1999 and the first court was
established in Jakarta at the Central Jakarta District Court. The Decree
allows for the future establishment of additional commercial courts in
Bandung, Semarang, Surabaya, and Medan. It is important to note that any
appeal against a decision of the Commercial Court is submitted directly
to the Supreme Court.
Under
Law No. 37 of 2004, bankruptcies appear to vary according to the
individual circumstances and what actions the respective debtor and
individual creditors decide to undertake. Specifically, the bankruptcy
may result in liquidation of the debtor’s estate or it may proceed
under a suspension of payments. The new law is full of technical
deadlines, all of which are aimed at insuring the debtor’s case is
adjudicated quickly. Furthermore, it provides a more neutral framework
because safeguards exist for debtors and creditors alike.
The
Commercial Court was set up with at least two goals in mind. The first
was to have a court with career-judges knowledgeable on insolvency or
other economic law matters. In the context of the Bankruptcy Law, the
judges were selected from a list of career-judges from all over
Indonesia. They then had to undergo training in bankruptcy law. The
second purpose was to provide for the possibility of introducing new
concepts to the court system without tampering with the generally
accepted mechanisms and procedures governing the majority of cases.
These new concepts include the introduction of non-career judges, of
dissenting opinions, and a scaled remuneration system.
As
noted earlier, with this new court system, the number of cases has
increased, especially bankruptcy cases. The business community is
particular enthusiastic and holds high hopes and expectations that the
new court will help them to balance the leveraging process in the
debtor-creditor relationship. Furthermore, the Commercial Court has
jurisdiction not only over bankruptcy cases but also all other
commercial dispute matters.
In
the Indonesian legal system, there are two kinds of jurisdiction;
namely, absolute jurisdiction and relative jurisdiction. Under the
principle of absolute jurisdiction the Commercial Court will purposely
handle certain commercial cases. The latest development in the
definition of absolute jurisdiction would see the commercial court
handle bankruptcy cases, trademark cases, patent cases, and certain
proceedings related to industrial design and Integrated Circuit system
cases. The current case load is indicative of this definition of
absolute jurisdiction with the majority of cases being either bankruptcy
or intellectual property matters.
One
of main differences between the bankruptcy and intellectual property
regimes are the time limitations placed on proceedings. The most obvious
consequence of this is the difficulty in integrating the two subject
matters efficiently into the administrative framework of the court. The
theory underpinning the court is that it will develop into a court of
special jurisdiction dealing with particular subject matter. In contrast
the concept of relative jurisdiction would see the establishment of a
number of regional courts in the following centers: Central Jakarta,
Surabaya, Semarang, Medan , and Makasar.
Indonesian
law requires that a panel of judges sit on all matters and this is no
different in the Commercial Court with all matters being adjudicated by
a panel of three judges. In Bankruptcy matters once a declaration of
bankruptcy is made, then a sole supervisory judge is appointed to
oversee the liquidation and distribution of the estate pursuant to the
decision. These supervisory judges observe and supervise the activities
of the appointed curators or administrators of the estate.
The
Commercial Court continues to be the most advanced and prominent
experiment in judicial reform in Indonesia. The Court’s regulatory
framework means it is the most accountable and transparent of all
Indonesian courts. In contrast to other Indonesian courts the decisions
handed down by the Court are published and accessible to the public.
Decisions of the Commercial Court also incorporate dissenting opinions
into the full judgment of the panel ensuring that the individual legal
reasoning of dissenting judges is available for analysis ensuring active
legal debate on points of law and greater public security of the
judicial process.
Generally
speaking the vast majority of Intellectual Property Rights/IPR disputes
used to be heard in either the administrative courts or the general
courts. The administrative courts used to decide whether the IPR office,
a government body, should have registered a particular trademark or
patent, or not. General courts used to decide the majority of other
cases, including those concerning civil and criminal infringement of IPR
rights. However, recent changes in the HAKI legislation have given the
new Indonesian commercial courts (which form part of the general courts)
almost exclusive jurisdiction to hear intellectual property rights
cases.
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The
Firma
The
Firma is a partnership form is which is generally used by commercial
partnerships such as trading and services enterprises. The provisions
governing the Firma are part of the Commercial Code (Title III, Section
2). The Firma a form an partnership usually used for the performance of
some sort of activity in the sphere of trade or commerce. The Firma as a
business partnership has its roots in the old rule that the Commercial
code only applied to traders and businessman. feature a Firma does
business under a common trade name whereas in a Maatschap (Partnership)
the partners act under their own names.
A
Firma can come into existence by a written or an oral contract. However,
in practice, it is best that a written contract or an authentic deed be
made when establishing a firma. Although an oral agreement of the
parties is sufficient to constitute a Firma agreement, a written
agreement may be needed as evidence of the existence of the Firma if it
is denied by a partner or a third party (See Article 22).
After
a Firma has been incorporates by an authentic deed, the partners should
promptly register the deed with the local court (the Pengadilan Negeri)
and publicize the deed in the Official gazette (Berita Negara R.I.) (See
Articles 23, 24, 27, and 28). Failure to register and publicize the
existence of the firma may have direct consequences for the partners.
According to Article 29, with regard to third parties an unregistered
Firma will be regarded as having unlimited business purposes, partners
with unlimited responsibility, and an indefinite period of existence.
With this provision, a third party acting in good faith is protected
when dealing with an unregistered Firma.
If
a Firma has not been registered, a third party doing business with a
number of persons under a common name may assume the existence of a
Firma. Article 18 states that whoever gives the impression of acting as
a partner of a Firma, will be liable for his acts. A person who holds
himself out as a partner is stopped from denying the existence of the
Firma. If on the other hand a Firma has been registered, then a third
party will bear the risks involved in doing business with a partner who
lacks the authority to execute such business.
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The
Commanditaire Vennootschap (C.V.)
Article
19 of the Commercial Code states the C.V. it a partnership consisting of
one or more ordinary partners and one or more silent partners. An
ordinary partner is personally liable for the entire debt of the
partnership. A silent partner, who only contributes capital to the
partnership, is liable only to the extent of his contribution. The
presence of a silent partner is essential feature of a C.V. or limited
partnership.
The
status of a silent partner is significantly different from that of a
creditor. Whereas a creditor retains his claim on the C.V. even after
the partnership assets are depleted, a silent partner only has a right
to share in the partnership assets if there are such profits. A silent
partner shares in the losses as well as the profits of the partnership;
in either case, he gains or losses only to the extent of his
contribution.
A
C.V. is a Firma and as such has to meet the Firma registration
requirement under Article 23 of the Commercial Code. Like the Firma, the
C.V. is regarded as separate legal entity which may have its own assets
separate from the private assets of the partners.
There
are several differences between an ordinary partner and a silent partner
:
(1)
An ordinary partner has the right to manage C.V., whereas a
silent partner does not.
(2)
An ordinary partner is personally liable for the entire debt of
the C.V., whereas a silent partner is only responsible for the
transactions of the C.V. up to the amount of his contribution. In this
respect, a silent partner in the same position as a shareholders of a
Perseroan Terbatas (Limited Company).
The
prevailing view is that third parties may not sue the silent partners.
Third parties dealing with the C.V. may sue only the C.V. or the
ordinary partners, thus leaving it to the ordinary partners to get from
the silent partners what ever is their due.
However,
if a silent partner gives the appearance of having managing powers of
the C.V., he may be sued as an ordinary partner by a third party (Art.
21 Com. C). A silent partner is regarded as giving such a managerial
appearance if he performs acts of management (Art. 20 Com. C.) or if his
name is inserted into the firm name when he has not formerly been an
active partner (Arts. 20and 30 (2) Com. C.).
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Limited
Liability Company (PT)
However, the promulgation of the new
Indonesian company law in 1995 abolished the dualism of the Indonesian
company structure – PT under the Commercial Code and PT under IMA, and
brought the Indonesian company structure into one common corporate
regime: the (New) Indonesian Company Law.
Perseroan Terbatas (“PT”) or local
companies, PT, as an Indonesian company, is a
legal person who has a legal identity
separate from it shareholders. Thus, shareholders
are not personally liable for the obligations of the company. The
shareholders have limited liability to the extent that their liability
for the acts of the company can be limited to their capital
contribution. Nevertheless, there are some limited possibilities to
pierce this corporate veil, for instances in the event that the relevant
shareholders either directly or indirectly with bad faith take advantage
of the company solely for their personal interest or the relevant
shareholders either directly or indirectly unlawfully use company’s
asset causing the company’s assets to be inadequate to settle
company’s.
There are four steps for incorporating a
PT. First, execute the deed of establishment, which also includes the
company’s article of association before a notary in the form of a
notarial deed. Second, obtain a formal approval over the deed from
Ministry of Law and Regulation. Upon approval, the deed has to be
registered in the Company Registry that is maintained by the Ministry of
Industry and Trade. Lastly, publish the deed of establishment in the
State Gazette. It needs to be pointed out that prior to the registration
and publication processes, the liability of a company can be put in the
hands of its directors. In other words, in addition to the liability of
the company, a personal liability
of the director’s may arise if the new company fails to
register and publish the approved deed.
Another requirement is establishing a PT
is to have at least two persons as the founders or shareholders. The
eligible person can be an individual or legal entity. With an exception for PT BUMN (State-Owned Company) can be established by a
single entity, the government. The requirement to have at least two
shareholders still continues. If a PT has only one shareholders and it
does not offers shares to other shareholders within six month, then the
existing shareholders is personally liable for the agreements and losses
of the company. The requirement to have at least two shareholders is
based on contractual theory, a conception that a PT is a product of
contract, thus it requires two or more shareholders at all times.
A
company may issue registered and bearer shares and may also issue
non-voting shares. Furthermore, it can issue redeemable and convertible
shares, cumulative and non-cumulative shares, and preference shares.
However, a company must have at least one of ordinary shares (“saham
biasa”) with voting rights.
Payment
for shares can be made in cash or in other forms (“in kind”), but
payment in kind, such as of real property in consideration for the issue
of shares, requires an independent expert valuation. Under the UPPT, a
company may not issue shares to itself or to its subsidiary. Subsidiary
is defined as a company in which the parent company owns more than 50%
of its shares or the parent company controls more than 50% of the voting
rights in a Shareholders General Meeting (“SGM”), and/or the parent
company influences management control such as the appoinment and
dimissal of director and commissioner. However, under special
circumstances, it can buy back the issued shares and hold them as
‘treasury shares’ that the company can sell at later date. Such
shares cannot be counted to form a quorum not can be the voting rights
be attached to the shares being exercised.
Indonesian corporate structure is
different from the common law system, since it adopts a two-tier
management structure instead of a single-tier management. The management
structure comprises of Board of
Directors (“BOD – Direksi”) and Board
of Commissioners (“BOC – Dewan Komisaris”). Senior officers
are responsible for the company’s actual management in the operational
sense is the Direksi. Even though there is one director, there is
usually more than one. The basic functions of the Direksi is to manage
and represent the company, and not the shareholders. The second tier is
Komisaris (“Commissioner”), which has the role of supervising and
advising the Direksi, and representing the interest of the company and
not merely the interest of the shareholders.
The requirement of a company to have a BOC
is a significant alteration from the old provision (the Code). To date,
all public companies, companies in the business of mobilizing funds from
the public or companies that issue debt instruments must have at least
two directors and two
commissioners. The UUPT also distinguishes between the collegial nature
of the BOD and the non-collegial nature of the BOC. Where a company has
more than one commissioner, the BOC constitutes a council pursuant to
the Elucidation that no individual commissioner can represent the
company if there is more than one commissioner. In contrast, when a
company has more than one director, each director has the individual
authority to represent the company unless the company’s articles of
association states otherwise.
Although the primary responsibility of
managing the company rests on the directors, in some circumstances,
commissioners can exert certain managerial powers – provided by the
company’s articles of association or the SGM – for instance
managing the company for a specific time period. Both director and
commissioner bear personal liability for any fault or negligence
committed in discharging his/her task. Although the UUPT does not define
“fault” or “negligence”, it does however acknowledge the
concepts of fiduciary duties. In case of
breaching any fiduciary duties, shareholders who control at least
ten percent of the issued shares with valid voting rights may, in the
name of the company, bring a cause of action against the director or
commissioner for the loss suffered by the company. Since the shareholder
initiates the legal action in the name of the company, it can be
considered derivative action.
Pursuant to the UUPT, the shareholders of
an Indonesian company via SGM. The SGM has various rights, some of which
cannot be waived under any circumstances i.e. the right to approve
amendments of the company’s Articles of Association and to approve a
dissolution or winding of the company, while the rest may be modified in
the company’s Article of Association. There are two types of SGM :
annual and extraordinary meetings. An annual SGM is held within the last
six months of the company’s fiscal year. The SGM convenes in order to
approve the annual report, including its annual accounts that must
comply with Indonesian Financial Accounting Standards and the signatures
of the directors and commissioners required for the annual accounts. The
extraordinary SGM can be convened at any time that the company deems
necessary for the purposes stipulated in the UUPT or Articles of
Association. In other word, a company shall undertake an extraordinary
SGM for the purposes other than approving the company’s annual
account, such as: merges, acquisitions or appointment of a new Board of
Director, Commissioner, Director or a party that controls at least 10%
of the issued shares may request the meeting.
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Introduction
of Contract
Indonesian contract law is governed by two
separate systems, namely modern legislation (including the Indonesian
Civil Code (“Civil Code”)) and Adat Law (“Customary
Law”).
There are several principles with respect
to contract law that are important to understanding the operation
contract law.
First, the principle of freedom of
contract a principle that recognizes that each and every person has the
right to enter into contract so long as it does not breach the
prevailing laws and regulations, accepted decency and moral standards,
and public policy.
Second, the consensual principle in
essence a contract in itself implies a meeting of minds, and from the
moment this meeting occurs a contract is formed. Thus, the consensual
principle is a principle stating that a contract is considered to come
into existence once the parties reach a mutual consensus.
These two principles form the basis of
Indonesian contract law. Other principles are contained in Book III of
the ICC where Indonesian contract law is referred to as “an open
system”. Generally, this has been interpreted to mean that the
provisions contained in Book III are considered as an optional law, in
which the parties are free to make use of or ignore those provisions. As
optional law the parties are permitted to determine specific provisions
regulating the contract into which they will enter including agreeing to
provisions that are expressly contrary to the optional law contained in
Book III. In the event that the parties opt for a standard contract and
have not made any specific provisions in the contract to the contrary
then the provisions of Book III apply this is referred to as the
“default rule”.
Formation of a contract requires
fulfillment of the following conditions as contemplated under Article
1320 of the Civil Code as “elements
of contract” because not all contract constitute valid and binding
contracts. To establish a valid and binding contract, there are four
conditions as follows:
1.
Namely consent of the
parties to conclude the contract;
2.
Legal
capacity of the parties to
enter into the contract;
3.
The contract should have a
certain subject; and
4.
The contract should have a
lawful or permissible purpose.
Indonesian law does not specifically
regulate the concepts of offer and acceptance.
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Formal
Requirement of a Contract
As a general rule, no formal requirements
(writing, registration, etc) need to be observed to make a contract
binding. Mutual consent of the contracting parties is sufficient. This
means that oral agreements are valid and binding. There are, however,
exceptions to this general rule as provided under the Civil Code and the
prevailing laws and regulations in Indonesia whereby certain contracts
must be made in writing or in the form of an authentic deed (notarial
deed form). These exceptions, among others, include (1) a settlements
between parties over a dispute or a dispute; (2) the articles of
association of a limited liability company (as regulated under Law No. 1
of 1995 regarding Limited Liabilities Company) (which technically is
considered as a contract between its founders); (3) a contract in
relation to the grant of security agreement); (4) a fixed term
employment contract; and (5) a contract in relation to the sale and
purchase of land and building (which must be in a notarial deed form and
made before a land deed official).
The only “formal” requirements which
applies to all contracts is the satisfaction of the conditions mentioned
above in relation to the formation of contracts (i.e. consents, legal
capacity, certain subject, lawful purpose). One of the basic principles
of the law of contracts in Indonesia as regulated by the Civil Code is
the “freedom of contract” principle. There are three important
elements under the freedom of contract principle that are deemed as
formal requirements of a contract, namely that a contract validly
entered into cannot be unilaterally revoked; a contract validly entered
into has the force of law on the parties to the contract; and a contract
has to be implemented by the parties in good faith.
With respect to the freedom of contract
principle it should be noted that no freedom of contract exist with
respect to some forms of contract, such as security contracts. A party
is not permitted to enter into a security contract other than those
regulated by law or ( in the case of a fiduciary security), which have
been recognized as such by constant jurisprudence. Parties have no
freedom to change the substance of the rights of the mortgage holder or
the pledge or to create other kinds of security contracts. No freedom of
contract exists regarding security contracts as interest of third
parties are involved and should be protected. Third party creditors
entitled to know what kind of security encumbrance are obtainable over
the property of their debtors to determine whether the debtor they deal
with are financially sufficiently solid or not. Similarly, one is not
free to change the rules of hereditary law or family law by contract and
so no freedom of contract exists in these fields either. Generally, the
freedom of contract principle exists with respect to “obligatory”
agreements, a term derived from the Dutch denoting agreements which
create obligations between the parties to the contract.
Acknowledgments.
There is no necessity for the signature given in a contract entered into
by a company to be accompanied by the company’s official seal or chop.
In order to avoid disputes concerning the authenticity of the signature
given in a contract signed abroad, or in relation to the date of the
signing of such contract, the signature (s) should ideally be
authenticated by the Indonesian embassy or consulate and by officials
(i.e. public notaries) designated by the law of the country where the
contract is signed. It is a mandatory requirements for contracts which
are to be used as evidence before the courts in civil lawsuits to be
drawn up on stamped paper or provided with duty stamp in the amount of
either Rp. 6.000 (approximately US$0.70) or Rp. 3.000, depending on the
value and nature of the contract but will result in the document not
being acceptable as evidence before a court pending payment of the stamp
duty. Correction of an oversight to affix a stamp when signing the
contract can be done by presenting the document to the post office for
affixing the duty stamp and by paying a small financial penalty. There
is no ad valorem stamp duty in Indonesia.
Notaries.
As a discussed above, some contracts need to be prepared in certain form
by a notary in Indonesia. An authentic notarial deed form is mostly
required in relation to contracts that need to be registered or further
processed with governments authorities before they can be deemed as
meeting applicable legal requirements. An example of this is a contract
effecting the sale and purchase of land. This needs to be prepared by a
land deed official in a notarial deed form and further registered at the
land office. The presence of a notary is also sometimes undertaken for
“ordinary” contracts, in the relevant contract and for the notary to
witness the agreement and consensus of the parties as contemplates in
the contract.
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Arbitration
Arbitration according to the Arbitration Law is defined as a mechanisms
of dispute resolution commenced prior to pursuit of a court based
litigation process. The most notable feature of arbitration is
the agreement between the parties to pursue arbitration as the
foundation fro resolving their outstanding dispute. Any agreement to
pursue arbitration should be in the written form and signed by all
parties to the agreement. The Arbitration Law stipulates that it is only
commercial disputes that are to be resolved through this mechanism
however any other substantive issues that are to be resolved through
arbitration are to be agreed by the parties. In the event they parties
elect to pursue arbitration they waive their right to litigate this
matter through the General Court system until such time the parties
agree that they cannot resolve the dispute through arbitration.
The procedures and methods of arbitration are set out in Arbitration Law
as applicable guidelines to be followed by arbitration bodies and any
other ad-hoc institution
engaged in arbitration matters. The guidelines cover substantive
procedural matters such as closed examination, language, time limits,
election between national and international arbitration, administrative
procedures, witnesses, and evidence, among others. A closed examination
is simply a method of protecting the identity of the witness providing
testimony as well as the protection of any confidential business
information such as trade secrets which may be the source of the
dispute. The guidelines are also specific on the appointment of
arbiters, particularly that bith parties must agree on the appointment.
In the event one party does not agree to the arbiter they may veto the
appointment. Nevertheless, it is important that a party cannot utilize a
veto to purposefully frustrate the arbitration process.
Arbitration in Indonesia is possible within one of the for recognized
arbitration institutions; namely, Badan
Arbitrase National Indonesia (BANI or the Indonesian national
Arbitration Board), Badan
Arbitrase Muamalat Indonesia (BAMUI or the Indonesian Muamalaat
Arbitration Board), and Pusat
Perselisihan Bisnis Indonesia (P3BI or the Indonesian Business
Dispute Resolution Center). BANI was founded in December 1977 and was
the first arbitration institution in the country. Badan Arbitrase
Muamalat Indonesia (BAMUI) was established in October with a specific
mandate to rsolve matters pertaining to commercial activities based ion
the principles of Islam. Finally, the Pusat Perselisihan Bisnis
Indonesia (P3BI) was established in February 1996. a recent development
has been the establishment of the Badan Arbitrase Pasar Modal Indonesia
(BAPMI or the Indonesian Capital Market Arbitration Board). The
establishment of BAPMI has coincided with the demand for a specific
arbitration authority to resolve complex and specific securities related
disputes. The complex disputes that arise as a result of activities on
the capital market that would exceed the skills and resources of the
other recognized arbitration boards.
Each arbitration board or authority has its own procedural rules. An
example is BANI, BANI requires that the parties to the dispute agree to
have their dispute resolved under the auspices of BANI. BANI further
requires the parties to act in good faith and have a commitment to the
amicable resolution of the dispute.
In addition to the recognized arbitration boards and authorities noted
above there are also a number of non-court based dispute resolution
institutions. These institutions are normally integrated parts of
government Departments and are restricted to subject matter directly
related to the services they provide. Several prominent examples include
the Panitia Penyelesaian Perselisihan Perburuhan (P4P or the Central
Committee for the Settlement of Labor Disputes) and the Panitia
Penyelesaian Perselisihan Perburuhan Daerah (P4D or the Regional
Committee for the Settlement of Labor Disputes) both of which are part
of the Department of Labor and Transmigration designed specifically to
resolve labor disputes. A further example is the Majelsi Pertimbangan
Pajak (MPP or the Tax Review Authority) which is tasked with resolving
all tax related matters and complaints.
Other examples include the Badan Pertimbangan Kepegawaian (BPK or Public
Servant Review Board), the Mahkamah Pelayaran or the Maritime Court, and
the Consumer Dispute Resolution Body (Badan Penyelesaian Sengketa
Konsumen/ “BPSK”) as mandated in the Consumer Protection Law.
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Alternative Dispute Resolution (ADR)
The Arbitration Law regulates not only arbitration but also other
alternative methods of dispute settlement including those specifically
stated in Chapter 2 of the Law. Interestingly the Arbitration Law itself
does not specify the ADR mechanisms that may be utilized by parties in
dispute however the Elucidations to the Law do state that mechanisms
such as consultation, negotiation, mediation, conciliation or expert
judgement may be used in an attempt to resolve a dispute. The mechanism
noted above are not that far removed from additional adapt means of
dispute resolution noted earlier, particularly the concept of the musyawarah
mufakat.
In mediation and conciliation the parties are required to find solution
for their disputes on their down. There is not usually a third
independent or impartial party appointed to oversee the process. In the
event a mediator is used it is important to note that the mediator’s
role is simply to facilitate the discussion process and to assist the
parties in reaching an agreement or resolution. The role of the mediator
is not to adjudicative or resolve the dispute for the parties. This is
distinct from the role of an arbiter appointed as part of an arbitration
process. In arbitration, the arbiter is appointed as part of an
arbitration process. In arbitration, the arbiter is appointed by the
parties to decide and make decisions about the dispute, and the result
is potentially a win-lose solution. Nevertheless, some parties still
prefer arbitration to adjudication as the parties still maintain some
control of the process. Clearly, any control the parties have during
mediation, conciliation, or arbitration is lost in the court based
litigation process.
The Arbitration Law sets out the guidelines that are to be used in the
ADR process from the commencement of an action to the issue of a
mutually agreed settlement. The most essential element of the ADR
process is that the parties participate in good faith. The initial step
involves the parties coming together in a face-to-face meeting with a
view to achieving settlements and a written agreement to the parties
expressing the terms and conditions of the agreement concluded. There
are no specific guidelines or rules on how to the meeting should be
conducted nevertheless the parties have only 14 days to reach a
settlement. In the event the parties do not reach settlement in 14 days
they may request the assistance of an independent and impartial third
party to assist them through the process for a further 14 days.
In the event that the parties and the independent and impartial third
party after a period of 28 days is unable to reach a mutually acceptable
agreement, then the parties can seek to enter formal mediation or
arbitration. Once a mediator is appointed the process should commence
within 7 days and must be completed within 30 days of being commenced.
Any decision is final and binding on the relevant parties once they have
signed the documents indicating their respective agreement to the terms
and conditions of the settlement. The settlement agreement reached
between the parties is to be registered at the District Court within 30
days of agreement and any enforcement order will be issued within 30
days of registration of the settlement agreement.
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The Enforcement of International Arbitration Awards
Indonesian courts have historically been very reluctant to enforce
international arbitration judgements without first confirming that
judgment or award through the Indonesian judicial system. An example of
this reluctance was highlighted in the Karaha Bodas case where Karaha
filed their international arbitration claim in Switzerland. The Swiss
arbitration resulted in an award of USD 261 million of the USD560
million claimed. On receipt of the judgment Karaha sort to execute that
award in Indonesia.
Indonesia has already ratified Convention on the Recognition and
Enforcement of Foreign Arbitral Award (New York Convention 1958) through
the provisions of Presidential Decree No. 34 of 1981. However, Article 5
of this convention stipulates that the enforcement of an international
arbitration judgment can be refused if it breaches public policy or
would be detrimental to public order. In the Karaha Bodas case, the
suspension of the project was considered to be in breach of public
policy and as such the Court of First Instance in Indonesia, the
District Court, refused to issue the necessary writs of execution to
enforce the judgment.
The Indonesian and foreign mass media seized on this refusal to issue the
Writ of Execution as evidence that Indonesia was not only reluctant but
would not enforce foreign arbitral awards.
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Obligations
on Foreign Investors
With
Government Regulation of 1994 No. 20 dated 19 May 1994 regarding “the
share ownership in companies established under Foreign Capital
Investment” has been loosened again to make investments more
attractive to the foreign party.
A business license for 30 years is given
and can be renewed by the State Minister for the Mobilization of
Investment Coordinating Board (BKPM) (Art.3 of Government Regulation
No.20 of 1994). It is now possible to operate throughout the territory
of Indonesia. Priority is given to business activities in bonded
zones or industrial estates. (Article 4) Special provisions to that
effect are further given in the Decree of the Investment
Minister/Chairman BKPM No. 21/SK/1996 dated July 15, 1996, presently
valid.
The joint ventures as PMA may undertake
business activities in the field “vital”
to the State and the living standard of the whole population, e.g.
taking part in generation and transmission, as well as distribution of
electricity to the public, telecommunications, shipping, airlines,
drinking water supply, public railways, atomic energy reactors and mass
media.
In PMA joint venture at least 5% of the
entire paid-in capital should be taken by Indonesian partners upon
establishment (article 6 Government Regulation No. 20 of 1994). They so
called “Indonesianisasi” process for 100% direct investment “PMA” ,
wholly owned by foreigners, is now as
follows: within 15 years after commercial production, a part of
the foreigner shares shall be sold to Indonesian citizens or companies.
The sale could be done directly or via the domestic capital market
(article 7 Government Regulation No.20 of 1994).
PMA
companies which have started commercial production shall also be allowed
:
a.
To set up new companies.
b.
To buy shares of existing domestic investment companies which are
non PMA or non PMDM, whether already producing commercially or not.
The buying is effected through the
domestic capital market (article 8 sub a). “Direct
investment” PMA companies (wholly owned by foreigners) can also
buy domestic Companies shares,
through direct ownership based on agreements reached between the resp.
parties. This purchase of shares can be done as long as the field of
business of the relevant companies remain open to foreign capital
investments. For this criteria, the so-called “Negative
List” issued by BKPM is of importance.
The shares purchase referred to above
shall not change the corporate status (article 8). Another provision of
practical importance is the possibility opened for foreign corporate
bodies, to buy shares of PMA or
PMDN companies and non-PMA or
non-PMDN companies, whether already commercially producing or not
(article 9 par. 1).
This purchase of shares is only possible
if the resp. fields or business of the companies are open to foreign
capital investments. The
purchase can be done through direct ownership of through the domestic
capital market (article 9 par.3). Foreign companies can only buy such
shares if it is done in an effort to restore the sound condition of the
relevant companies (article 9 par. 4). The implementory regulations will
be issued by the Investment Minister/Chairman of the Investment
Coordinating Board, after consultation with the Relevant Ministers
(Decision No.15/SK/1993 dated October 23,1993). The previous Government
Regulation No.50 of 1993 on the requirements for share ownership in PMA
companies is no longer valid.
PMA companies set up or engaged in
commercial production before the enforcement of this government
regulation, based on agreement by share-holders, can make adjustments to
confirm with this regulation No.20 of 1994 of May 19,1994. The Law
requires that a foreign investment company operating in Indonesia must
be legal entity incorporated under Indonesian law, have its seat in
Indonesia and shall be embodied as a PT (Perseroan
Terbatas), a limited liability company (article 3 FIL).
The procedure
in establishing a joint venture company within the frame-work of foreign
capital investment shall include mutual agreement of founders, notarized
Articles of Association, legalization of the Articles of Association by
the Minister of Justice and announcement in the State Gazette, in
compliance with the requirements set out in the Commercial Code and the
new law on PT’s of 1995 No.1. The Foreign investment Law and
implementing regulations, although creating a climate to be favourable
to foreign capital investment, has as goal to
preserve and develop Indonesian interests. Foreign investment is
regarded as supplemental. The
following items could be mentioned:
(1)
Whenever possible, Indonesians should be employed.
(2)
Training programs for Indonesian personnel is to be undertaken.
(3)
Transfer of
technology should take place.
(4)
Prohibit companies fully controlled by foreigners to operate in
important areas vital to the daily necessities of the people, e.g. the
distribution of electric power and drinking water. Some changes has
recently been made regarding PMA joint ventures to operate in providing
electricity.
(5)
Prohibit foreign investment in industries vital to the national
defense, such as the production of fire arms.
(6)
Provide that in the field of mining, including oil and gas,
foreign investment must be in the form of a “kontrak
karya” (“works contract”) with the government (Pertamina),
giving the government supervisory control over these resources.
(7)
Limitation of investment permits 30 years, although with
possibility of renewal by the Government. For comparison, PT’s
incorporated according to the Commercial Code, are in practice for a
period of 75 years.
(8)
Require that the foreign enterprises must transfer a part of
their share to Indonesian share-holders, by way of direct sale or sale
at the public share market. The percentage of this so-called “Indonesianisasi”
process it ever changing, along with the Government’s policy of making
foreign investments more attractive.
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Bankruptcy
Law
The previous bankruptcy law, Law 4 of 1998
(also stressed out in Law 37 of 2004 article 300), had established a
special court to handle commercial cases including bankruptcy. This
court was simply named, the Commercial Court. The implementation of the
Amended Bankruptcy Law requires further ‘implementing regulations’
to facilitate and ensure compliance with the amended provisions.
Presidential Decree 97 of 1999 created additional Commercial courts in
Bandung, Semarang, Surabaya, and Medan.
The Commercial Court falls under the
jurisdiction of the District Court, a first instance level court of the
Indonesian judiciary, and is considered to be a specialized chamber of
the relevant District Court, similar to Human Rights Courts and
Children’s Courts. Article 11 of the Bankruptcy Law stated that the
new Commercial Court or ‘Bankruptcy Court’ is intended to be a
method of last resort. Essentially, this requires that all other methods
and means of satisfying payment have been exhausted and the debtor
remains delinquent in their obligation to make payment on the relevant
debt despite being in apposition to do so or where a debtor has
consistently negotiated in bad faith with respect to settling any
outstanding debt obligation. Therefore, it is reasonable to state that
the underlying premise of the Bankruptcy Law is to force delinquent
debtors, and who have the means to pay their debts, to expedite the
liquidation of the debtor’s assets. The Bankruptcy Law includes both
the material and procedural elements of law to ensure compliance with
and enforcement of the provisions of the law.
Basically, like other bankruptcy system
the parties in Indonesian Bankruptcy Law are the debtors and the
creditors with the receiver to assist them in reaching settlement. The
Bankruptcy Law introduces two mechanisms to deal with the insolvent
debtor.
The first mechanism is the petition to
declare the debtor bankrupt with the aim of liquidating the assets under
Chapter II, either the debtor or its creditors can initiate this type of
proceeding. The debtor under the Bankruptcy Law can be individual as
well as a juridical person (a company, a bank, or any other legal entity
that has legal personality). However, in Article 2 (2), (3), (4), and
(5) states there are four other categories that may file a bankruptcy
petition:
(1) the Office of the Attorney General in
the public interest
(2) the Indonesian Central bank if the
debtors are banks,
(3) the Capital Market Supervisory Board
if the debtor is a listed company
(4) the Minister of Finance if the debtor
is Insurance Company.
The second mechanism introduced under
Chapter III of the Bankruptcy law is the Suspension of Debt Payments
(“Penundaan Kewajiban Pembayaran Utang” or “PKPU”). This
mechanism does not aim to liquidate assets but rather encourage the
debtor and creditor to restructure the debt and payments provided there
is an intention of achieving a compromise with creditors and unsecured
creditors to restructure the debt.
These proceedings may be initiated by the
debtor and Article 224 (1) states the restructuring agreement can only
take effect once it has been agreed by the court. Furthermore, Article
236 states that once a restructuring agreement takes effect it will
immediately revoke any suspension in debt payments that has been granted
previously.
The Indonesian Bankruptcy law is
pro-creditor and provides for a wide variety of creditor remedies, for
instance:
(1) establishes assets apportioned to
creditors;
(2) allows for a suspension of debt
payments procedure;
(3)
grants broad powers to the court appointed receiver to generate as much
profit as possible on behalf of the insolvent company; and
(4)
Indonesia’s company Law director’s mismanagement of the company
resulted in the bankruptcy.
Significantly, the Indonesian Bankruptcy
Law does not result in a discharge of the debtor’s, but rather
preserves the debtor’s liability to creditors even the adjudication.
Under the Indonesian Bankruptcy law In
Article 3 (1), any natural person or entity as prescribed by the laws of
Indonesia is eligible for bankruptcy if domiciled within the country.
Moreover in Article 3, the petition for bankruptcy is filed in the
District Court that has jurisdiction over the debtor’s place of
domicile.
Article 36 states that a petition for
declaration of bankruptcy requires the court to immediately adjudge the
debtor’s status and deem the debtor bankrupt if past due debts exist.
The effect of a debtor being adjudicated bankrupt is that a lien is
placed over the debtor’s property. In the event of a judgment of
bankruptcy Article 11 notes that the debtor has the opportunity to
appeal within 8 days, depending on whether the debtor had prior notice
of the proceeding. However, such an appeal does not stay the bankruptcy.
After declaring a debtor bankrupt, the
judge has 14 days to establish a deadline for all creditors to submit
their claims to the court and to determine the time and place for a
meeting of the judge, receiver, debtor, and any creditors who desire to
attend as noted at Article 113. This meeting is called a verification
meeting, and its purpose is to review all of the claims filed by
creditors and determine which are secured, preferred, or general, and
whether or not any filed claims are being disputed. At the meeting, the
receiver may demand proof to substantiate a creditor’s claim and
negotiate with creditors while the creditors may dispute the validity of
a claim or its amount.
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Mortgage
or Security Right upon Land
One method of securing obligations is by a
mortgage. Unlike other mortgages, which also include a pledge where a
creditor can occupy the property encumbered with the relevant mortgage,
the Law of Hak Tanggungan only provides the creditor with an in jure right which means that there is no immediate occupancy right
attached to the mortgage. On 9 May 1996 the Indonesian Government
enacted Law No. 4 of 1996 on Hak Tanggungan. This new law repealed the
previous hypothec provisions contained in the Indonesian Civil Code in
so far as it related to land and other assets related to the mortgaged
land.
In Indonesia, the Hak Tanggungan on land
and land related fixtures is the only security right under which a land
in title is placed as defined in the Basic Agrarian Law (“BAL”) with
or without other fixtures forming a totally with the land for security
of a particular loan, which gives priority to a particular creditor over
other creditors. The Hak tanggungan shall give the right to the creditor
to sell the land through a public auction without the requirement of a
court order permitting it to do so, as the certificate of Hak Tanggungan
serves as a court order.
The land which can be placed by Hak
Tanggungan are :
(1) Hak Milik (right of ownership);
(2) Hak Guna Usaha (right to till or right
to exploit);
(3) Hak Guna Bangunan (right to build);
(4) Hak Pakai (right of use) and
(5) Hak Milik atas Satuan Rumah Susun
(Strata Title).
Hak Tanggungan can also be attached to the
land including the buildings and fixtures on that land.
A holder of Hak Tanggungan has a priority
right over other creditors upon encumbered land and has a priority
right to have any outstanding loan and debt payments settled from any
funds generated from the liquidation of the property subject to the Hak
Tanggungan. Nonetheless, it is possible that there is multiple Hak
Tanggungan against the one of land with each being held by a different
creditor. Therefore, the priority right rank of the Hak Tanggungan is
based on the date of registration of the Hak Tanggungan. Simply, the
first registered Hak Tanggungan shall have first right of settlement and
each following Hak Tanggungan holder will receive payment so long as
funds from the sale of the subject of the fiduciary security remain.
In the case that loans are transferred or assigned to other parties, the Hak Tanggungan
secured for the loans are transferred also to the other parties and
should be registered based on the transfer or assignment agreement.
However, a new APHT is not required for this process.
Under the Hak Tanggungan Law, creditors
have the right to immediate execution (parate
executie) upon the debtor’s property. On the debtor’s default,
the creditor may execute the secured property without having to comply
with the civil procedural law and procedures of seizure. Therefore, a
Hak Tanggungan holder enjoys the right of direct execution, which is
relatively simple and cost efficient means of ensuring payment of
outstanding debts. Nevertheless, unless the debtor agrees to the
auction, the Auction Office, which conducts and supervises the public
auction, requires a court order for the auction, which in veritably is a
costly and lengthy process.
The position of the Hak Tanggungan’s
holder in the order of distribution of the debtor’s assets remains
unchanged by a declaration by the debtor of bankruptcy. However, to
enforce the Hak Tanggungan (for closure), the Hak Tanggungan holder has
to wait 90 (ninety) days as of the declaration of bankruptcy by the
court. (Article 56A of the Bankruptcy Law).
It the Hak Tanggungan holder does not
enforce its right within the specified time, the curator
or receiver at any subsequent action of bankruptcy assets will
carry execute any collateral facility comprising the Hak Tanggungan
holder’s right to share in the proceeds of any sale. If the proceeds
are insufficient to satisfy the Hak Tanggungan holder’s claim, then
the Hak Tanggungan holder becomes a general creditor with the respect to
the settlement of any remaining and outstanding debts.
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Fiduciary Security Law
Fiduciary security is a relatively new
type of security in Indonesia. Law No. 42 of 1999 on Fiduciary Security
was enacted on 30 September 1999. Fiduciary is a transfer of the right
of ownership of a property based on trust with the provision that the
property transferred in still held by the owner of the subject property.
Fiduciary security is a form of security right over moveable property
either tangible or intangible also over immovable property that cannot
be attached to a Hak Tanggungan (mortgage), in which the fiduciary
grantor retains the property transferred that is being used as a
Security to pay the loan and it provides the fiduciary grantee with a
priority right over other creditors. The fiduciary grantor is an
individual or a corporation that owns the property that is to subject to
the fiduciary Security. The fiduciary grantee is an individual or a
corporation that is owed a debt whose payment of which is guaranteed by
fiduciary security.
Matters that are not within the scope of
the law of fiduciary guarantee include Hak Tanggungan (mortgages)
related to land and buildings so long as the regulations require
registration; hypothec on registered ships whose bruto volume is 20m3
or more; hypothec on aircraft; and, pledges.
A fiduciary guarantee is an accessoir agreement of an initial agreement that gives rise to one
or more obligations on the relevant parties to the agreement. Granting a
fiduciary security for securing those obligations must be made with a
Notarial Deed in Indonesian and specifically state that it is a
Fiduciary Security Deed. The Deed must, at least, note the identities of
both the grantor and the grantee of the fiduciary security; all relevant
data on the initial agreement that is to be secured with the fiduciary
security; a description on the value of the security; and, the nominal
value of the property subject to the fiduciary security.
Furthermore, the Deed must also specify
whether the debts that are secured by the fiduciary security are
existing debts, future debts that have be measured at the nominal value
at the time of the execution in accordance with the initial agreement
that gave rise to the original obligation. A fiduciary security can be
given against more than one object, a debt that already exist, or that
will accrue in the future. The provision of a fiduciary security for
some future debt does not have to be contained in a separate security
agreement.
The property that is the subject of the
fiduciary security must be registered at the Fiduciary Registry Office.
The fiduciary grantee themselves, or their attorney, or someone on
appointed on their behalf can complete the application for registration.
The Registry Office will then note the
fiduciary guarantee in the Fiduciary Register Book, then issue and give
the certificate of Fiduciary Security to the fiduciary grantee and date
the certification on the day it received the application.
The objective of the registration itself
is to give legal certainty to both the fiduciary grantor and grantee as
well as to any third party interest in the fiduciary security.
The transfer of loans secured with a
fiduciary security results in the transfer of all of rights and duties
of the fiduciary guarantee to the new creditor by law. The new creditor
must register the transfer at the Fiduciary Registry Office. The
fiduciary security remains in force against the property noted in the
fiduciary security irrespective of who may have physical possession of
the object, except if the transfer was completed and effected in a
manner which is not common within the business community. However, in
order to secure the fiduciary security interest, the transfer of a
fiduciary guarantee where the object is a stock of goods, then those
stocks must be exchanged for some other equivalent value.
A fiduciary grantee has a priority right
over other creditors and has the priority to receive payments of debt
from the any income gained in the execution of the fiduciary security.
Moreover, those rights cannot be eliminated in the case of bankruptcy or
liquidation of the fiduciary grantor since the fiduciary security is a
right of security to payment of debt. Nevertheless, in the law of
bankruptcy, there is also a provision that the property that becomes the
object of fiduciary security is be dealt with separately to those of the
other bankruptcy or liquidation assets.
If the debtor or the fiduciary grantor
fails to pay the debt, the property that becomes the object of the
fiduciary security can be executed. The execution can be done in 3 ways:
a.
Executing title by the fiduciary grantor without the help of the
court. However, in practice it is difficult to execute and enforce the
security without the assistance of the court.
b.
Selling the property that is the object of the fiduciary security
through public auction then utilize the resulting income to pay the
debt.
c.
Selling the property that is the object of the fiduciary security
by non-notarial deed. This can be done based on the agreement by both
grantor and grantee of the fiduciary security provided that the
agreement ensure the maximum price of the asset is reached in order to
maximize the benefits derived by both parties. The conditions that must
be satisfied are:
1.
The sale must be completed one year after the public notification
by the fiduciary grantor and/or grantee to interested parties.
2.
Announced in two newspapers;
In case the result from execution is over
the nominal security granted under the fiduciary agreement, then the
fiduciary grantee must return the difference to the fiduciary grantor
and if the result is not enough to pay the debt. However, where the
income from the sale is insufficient to cover the outstanding debt then
the liability is not expunged until such time as the remaining debt is
finalized to the mutual satisfaction of the parties.
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Introductory
Land Law
The basic principles and provisions of the
present land tenure structure in Indonesia can be found in the Basic
Agrarian Law, Law No. 5 of 1960 (BAL), which came into effect on 24
September 1960. The nomenclature is a little misleading as the BAL does
not only regulate agrarian matters it also regulates Indonesia’s vast
natural resources including minerals, territorial waters, fish and other
marine resources, oil and gas, space, and almost all other natural
resources deemed critical to the ongoing national development of
Indonesia. Nevertheless, the BAL is generally referred to as the Land
Law.
According to the BAL, the pre-emptive and
ultimate right is the right held by the State (Hak
Bangsa). The underlying premise of this concept is that all of
Indonesia’s land and natural resources are owned by the people and as
such the government of Indonesia as the elected representatives of the
people are empowered to administer these vast lands and resources in the
best interests of the communities and people that they serve. This right
is all encompassing in that it permits the State to regulate all matters
concerning both publicly-owned as well as privately-owned land and
resources and is often referred to as the Hak
Menguasai Negara or the Right of Control over the State.
In Indonesia, Article 6 of the BAL states
that all tittles to land have a social function. This function is
specifically that not only is the holder of land entitled to make use of
the land but is in fact expected to utilize it in order to serve the
general welfare of the community. Based on the BAL, several implementing
regulations have been enacted to regulate the land tenure structure in
Indonesia, including different types of land titles, the rights and
obligations of title holders, and measures to obtain title of land. The
authority who has jurisdiction with regard to land matters is the
National Land Institute (Badan Pertanahan Nasional / BPN).
Besides BAL and its implementing
regulations, customary and Adat law still exists. However, these
customary and traditional laws are being consumed by the uniform
application of the BAL which has developed into the standard for the
administration of land in Indonesia. Despite the BAL developing into the
pre-eminent source of land law in Indonesia there is a belief that the
BAL enacted in 1960 is no longer reflective of the current community and
public needs with respect to land law in Indonesia in the 21st
century.
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Type of Land
Title
1.
Right of Ownership (Hak Milik/HM)
HM is the most complex form of ownership
of land in Indonesia. It is subject to planning regulations. In which
the holder can use the land for any purposes, including for housing. It
also entitles the holder to use the air space (the space above the land)
as well as the soil beneath it. However, HM does not allow the holder to
exploit the natural resources found on or under the land as this is a
right that is regulated under the provisions of Law No. 11 of 1967 on
Mining.
In principle, only individuals of
Indonesian nationally and the legal entities stipulated in Government
Regulation No. 38 of 1963 (government banks, cooperatives, and religious
and social bodies) can hold this title. Therefore, foreigners and legal
entities, such as joint venture companies, cannot hold a HM title. There
is no time limit on this title and it can be given or bequeathed to
another, even on the holder’s deathbed. HM is also one of the titles
that makes a person eligible for a mortgage in Indonesia (Hak
Tanggungan).
2.
Right of Exploitation (Hak Guna Usaha/HGU)
HGU is the principle title that applies to
agricultural areas such as plantations, fisheries, and cattle
properties. A HGU is provided by the State in order that a private legal
individual or entity may utilize State-owned land. The holder is allowed
to erect structures so long as it is utilizing the land subject to the
granted HGU in some substantial and significant manner.
In general, the right is granted for an
initial maximum period of 35 years for plantations, but can be extended
for another 25 years on the submission of an application seeking the
extension. The prevailing laws and regulations stipulate all necessary
fees and charges associated with the application for extension process.
These payments will be made to the State treasury and constitute a form
of non-tax revenue.
The HGU right cannot be granted on areas
of less than five hectares and is not subject to any other limitations
and large tracks of land are normally granted. However, in practice, the
government will not issue a right to a plantation if the proposed
plantation area is less than 25 hectares. A HGU can be transferred and
granted to another party and is eligible for Hak
Tanggungan.
3.
Right of Building (Hak Guna Bangunan/HGB)
The holder of this little is entitled to
erect and posses a structure on the land. A HGN can exist on both State
and privately owned land. Most land in local areas is subject to a HGB
grant from the government with respect to residential, commercial and
industrial land. The HGB title is also granted to most major development
projects, such as energy and mining projects. The right is normally
granted for an initial period of up to 30 years and it can be extended
for a further 20 years on application.
Based on Government Regulation No.40 of
1996, a company, formed in the nature of investment, shall pay official
costs (uang pemasukan) to the
State Treasury for a period of 80 years which is inclusive of the
initial 30-year grant, the 20-year issues of the HGB title by the
relevant authority. The title is also eligible for Hak
Tanggungan.
4.
Right of Use (Hak Pakai/HP)
A HP is granted against specific plots of
State or privately-owned land in order that the holder of the HP title
may exploit the land for productive purposes. In practice, the right is
usually only granted to enter a lease or some other equivalent set of
terms of agreement, rather than going through the formality of granting
the entities as well as by foreign residents for
a maximum of 25 years and it can also be extended for another 20
years.
5.
Right of Management (Hak Pengelolaan/HPL)
A HPL is given to State-owned companies
and Regional Governments with respect to planning and development of
State-owned land. It is usually given to those who will use the land for
industrial and/or business purposes. The holder has the power to grant a
HGB and a HP. Many examples exist of the use of the HPL grant such as
the Pulogadung Industrial Estate and some low-cost housing projects
including those developed by the State Housing Company. The time period
of the HPL is in accordance with the time in which the holder intends to
use it for industrial and/ or business purposes. This right is not
eligible for Hak Tanggungan.
Unregistered
Titles of Land
Besides the rights defined in the BAL, in
rural areas customary land titles, which are not registered still exist.
One of them is the Customary Right of Ownership (Hak
Milik Adat), which by law has to be converted to a registered Hak
Milik and must be registered since 24 September 1960. In Central Java,
particularly in Jepara, the Hak Milik Adat is called Hak Yasan and is
referred to as “Letter C”.
This right is known in West Java as “Girik”.
In addition to Hak Yasan, there is also Village Land (Tanah
Bengkok or “Tanah Jabatan”),
which is given to and can be used by the Head of the Village (Kepala
Desa) during his/her tenure in office.
Theoretically, Tanah Bengkok cannot be
sold since it is regarded as “salary” for the Kepala Desa, thus it
can only be possessed and used during the term of office. However, in
the event that this land is needed for the purpose of development, it
can be sold under Village Decree (Keputusan
Desa/Rembug Desa) and confirmed through
Governorial Decree.
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The Land
Acquisition Process
Three things most be taken into
consideration when obtaining land: the status of the land, the status of
the individual who will acquire the land, and the willingness of the
title holder to surrender the land. In regards to the status of land,
there are two kinds of land in Indonesia, State and private.
1.
State Land
The only way to obtain State land is to
apply for the relevant land title through an authorized state official,
as stipulated in the regulation of the Department of Home Affairs No. 6
of 1972. to obtain a land title, applicants are required to pay the
associated land taxes, which is 5% of the value of land and buildings
minus IDR 30 million. In addition to the PPHTB (Pajak
Penghasilan atas Pengalihan Hak atas Tanah dan/atau Bangunan –
Income Tax over Transfer of Land dan/or Building), they are also
required to pay the all other official costs to the State in accordance
with State Minister for Agrarian Affairs/Head of the National Land
Institute Regulations No.4 and 6 of 1998. The procedure for granting a
land title is stipulated in the Minister for Agrarian Affairs/ Head of
National land Institute No. 2 of 1993 and has recently been further
amended by Minister of state for Agrarian Affairs/ Head of BPN
Regulations No. 2 and 3 of 1999.
2.
Private Land
There are four legal methods to obtain
private land, but it depends on the individual who wishes to posses the
land as well as the type of title that they desire. The method are :
a.
Available land which is based on an agreement with the title
holder (such as a lease agreement) is usually used on the condition that
a party wishes to use a small plot of land over a short period of time,
say between to 3-10 years, thus it is considered to not be necessary to
posses a strong title over the land.
b.
If done by direct transfer, such as sale and purchase or exchange
of land, the status of the individual who wishes to posses the land will
be evaluated and taken into consideration. This is to avoid the
possibility that the transfer will become null or void at law, thus
making the particular land subject to this agreement the property of the
particular land subject to this agreement the property of the State. A
direct transfer is frequently used for sale and purchase.
c.
Indirect transfers or the relinquishment of land title is used
when a company wishes to posses land, but is not eligible to hold the
title. An example of this a company that is trying to obtain both of the
title of Hak Milik and Hak Milik Adat. In order to posses these titles,
the owner of the land must first release his/her title over the land in
exchange for an agreed price that is to be paid as part of a sale and
purchase transaction. The owner then declares that s/he has released the
title over the land. This release should be in written form of a
Notarial Deed and or at a minimum witnessed by a notary and confirmed by
relevant State appointed body. The declaration states that the owner
releases title over the land for the benefit of the company. It is
preferred that the declaration be made before the Head of the Regional
Land Office, who will then draft a new Deed. Additionally, in order to
subvert the possible rejection of the release of title by the relevant
State authority the Deed of Release usually included a clause that
expressly states that in the event of rejection that the owner permits
the company to transfer the “rights” to any other qualified party.
Thereafter, the request for the appropriate title should be submitted to
the local Agrarian Affairs Office and the process is then complete in
the issue of a certificate. The grant of land title in this procedure
does not require the payment of any uang
pemasukan to the State Treasury since the company has paid the price
of the land to the owner, but there is an administration fee charged by
the relevant local authority that must be paid.
d.
Expropriation – this is the last method that can be used for
the purposes of obtaining land for the public’s benefit. Expropriation
requires that the relevant parties, the owner and the individual who
wishes to obtain the land, enter into negotiations in order to reach an
agreement. In the event the parties fail to reach a mutually acceptable
agreement regards to terms and conditions to effect transfer then the
law would allow for an expropriation of the property to occur. The
expropriation principles are explicit that the State is subject to the
law and as such must respect the rights of the individual and as a
result the BAL stipulates a number of strict provisions that must be
satisfied before expropriation can occur; namely, Article 18 of the BAL
states that: (a) the land will be used in order to fulfill the public
interest, (b0 the expropriation must be accompanied by proper
compensation, and (c) the expropriation must be executed based on a
Presidential Decree. Once expropriation has occurred then the new owner
of the land must submit the relevant applications to the relevant bodies
to secure appropriate title over the land.
Land
Acquisition for Companies in the Framework of Capital Investment
The emergence of fierce competition
between developing countries for foreign investment and the plain link
between foreign investment and the need to acquire title in land spurred
the government to improve and simply the land acquisition process for
foreign investors. According to the new regulation, Minister of State
for Agrarian Affairs / head of BPN Regulation No. 2 of 1999, in order to
acquire land in accordance with the Regional Spatial Lay Out Plan, a
company must be granted a location permit (izin lokasi), which only
valid as a transfer title permit.
Foreign
Ownership Land/Property
Under government Regulation 41 of 1996 (GR
41/1996), foreign residents in Indonesia, foreign companies with the
representative office in Indonesia, representatives of foreign countries
(Embassies and Consulates), and representatives of international organizations are among the few categories of
people who can hold Hak Pakai. The definition of foreign residents, as
defined in GR 41/1996, is ”foreigners whose presence in Indonesia
gives opportunities to national developers”. Unfortunately, this
definition is able to be so broadly construed any sort of uniform
application is almost to effect.
^ Back On Top
Anti Monopolistic
The
Law includes 11 Chapters and 53 Articles, with the major substantive law
sections covering issues prohibited
agreements, prohibited activities, abuse of dominant position,
exceptions, the creation of the Commission for the Supervision of
Business Competition (the “KPPU”) and applicable sanctions.
Prohibited
agreements cover issues of oligopoly, price fixing, price
discrimination, predatory pricing (by agreement with competitors),
resale price maintenance, market division, group boycotts, cartels,
trusts, vertical integration, exclusive dealings concerning re-supply,
tying, reciprocal dealing, and agreements with foreign parties that may
result in monopolistic practices or unfair business competition.
The
prohibited activities set forth in the law cover matters such as
monopoly (Article 17), monopsony, market control, predatory pricing
(unilaterally), determining production and other costs, conspiracies to
rig bids, obtaining competitors’ business secrets, and impeding the
production and marketing of a competitors’ products. The Law also
prohibits what is known as the abuse of dominant position which is
categorized into interlocking directorates, cross-share holdings,
mergers & acquisitions that may result in monopolistic or unfair
business practices. This section of the law also stipulates the
obligations of businesses to provide notice to the KPPU when a business
activity such as merger is to be executed.
Article
50 provides exemptions for certain activities such as agreements
intended to implement applicable laws and regulations, intellectual
property, standard setting, joint ventures for research and development,
international agreements ratified by the enterprises, and activities of
small-scale members. There is also exceptions for state action, defined
as activities carried out by a state-owned enterprise or institution
formed or appointed by the government allowing for the creation of a
monopoly.
Another
important element of the Law is the establishment of the Commission for
the Supervision of Business Competition or the KPPU. The KPPU is the
body responsible for the enforcement of the Anti-Monopoly Law. This
authority and power is derived from Articles 30 – 37. The
Anti-Monopoly Law also sets out the procedures and methods applicable to
the KPPU including the power and authority to issue sanctions for any
proven breach of the Law. Consequently, any alleged or reported breach
of the Anti-Monopoly Law is to be heard by the KPPU and the results of
the investigate process are to be announced publicly to reinforce public
confidence in the accountability and transparency of the KPPU.
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The
KPPU constitutes Indonesia’s first truly independent regulatory
commission, as it is not a branch of government and the government is
strictly prohibited from intruding on the independence of the KPPU. The
KPPU has three major functions; namely, law enforcement, policy advice,
and public compliance through education of the community. The first
aspect, law enforcement, deals with the methods used by the KPPU to
investigate, interpret and enforce the Law. Second, the KPPU is required
to assist the government in the development of competition policy
through submissions on the interpretation of the law so as to ensure
that government policy is indicative of a prohibition on monopolistic
practices and supportive of fair and healthy business practices.
Finally, the KPPU has an obligation to assist businesses and the public
in understanding the provisions of the law so that full public and
government compliance is achieved.
The
KPPU is responsible to the nation, the president, the DPR, the
judiciary, and the public. The KPPU must report to the DPR all matters
relating to the appointment and dismissal of members as well as all
budget requirements. The KPPU although not directly related to the
judiciary it is important to note that decisions of the KPPU may be
appealed to the General Court system as a means of appellate review. To
ensure accountability and transparency in the decision making processes
of the KPPU, the KPPU is required to announce all decisions publicly.
The
procedure to commence an action at the KPPU requires the submission of a
written report stating the alleged breach of the Anti-Monopoly Law.
However, the KPPU may initiate an investigation without a report being
lodged if it becomes aware of a breach of the Law that has not yet been
reported. Anyone who is aware of a violation or is the injured party can
make a report by revealing his or her identity. Although it is not
expressly stated in the Law there is an element of whistleblower
protection incorporated in the provisions that allow the KPPU to
suppress the identify of any witnesses that it may call on the course of
an investigation. Once a report has been received and accepted by the
KPPU, then the KPPU must have commenced a preliminary investigation and
made a determination as to whether there are sufficient grounds to
proceed with an additional more detailed investigation of the alleged
breach within 30 days. In the event that the KPPU considers additional
investigation is warranted then the KPPU should commence this detailed
investigation of the alleged breach. Any and all information that comes
into the possession of the KPPU during the course of its investigation
must be handled with appropriate care to ensure that all trade secrets
are protected. Where the KPPU deems it necessary it may hear testimony
from witnesses, experts, or any person considered to be able to assist
in resolving the alleged breach of the Law.
All
investigations undertaken by the KPPU must be formal and as such comply
with the strict stipulations contained in the Law. The KPPU maintains
the power and authority to call any party to provide evidence to
determine the validity of any report and witnesses and experts called
are required to assists to the fullest extent possible within the
boundaries of the prevailing laws and regulations. Any attempt by
witnesses or experts to delay or obstruct the process may be subject to
sanction therefore compliance is encouraged to ensure that these
sanctions are not imposed o the relevant parties.
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The
foundation of tax Law in Indonesia is the Constitution, particularly Article
23A, which states, “Tax and other levies which are characterized as
compulsory for the needs of State are to be regulated by law”. Since
Indonesia gained independence in 1945, Indonesia has recognized two primary
terms in taxation laws; namely, tax and fiscal. There has been no agreement,
particularly among the experts, on the difference between these two terms
however there has been no shortage of possible interpretations. Several
experts have stated that tax is a non-compulsory contribution from the
expenses incurred in the common interest of all citizens without reference to
any special benefits conferred by regulation. Fiscal, on the other hand is
defined by Soemitro as any form of government action to receive contributions
from their people for particular purposes and to be used exclusively at
certain times for the purpose for which the fiscal was levied.
There
are 3 basic categories of taxes in Indonesia; namely, National taxes, regional
taxes, and custom (duties and excise) tax on luxury goods, land and building
tax, and the fiscal departure tax. Regional Taxes include developments tax,
motor vehicle tax, and other relatively minor taxes. Customs Taxes include
import duties, export tax, and taxes on certain commodities such as tobacco,
alcohol, sugar and gasoline.
The
Indonesian Government is currently undertaking a significant amount of tax
reform, particularly through amendments to current legislation and the
enactment of new legislation. The primary aim of these reforms is to provide
taxpayers with increased fairness and greater levels of legal certainty with
respect to their rights and obligations under the tax law. Furthermore, it is
expected that these reforms will provide more clarity and simplicity in both
procedural and technical matters. Interestingly, the reform package also
introduces the possibility of self-assessment with respect to tax. The
Government has recently confirmed the Tax Policy Blue Print which sets out the
Government’s tax policy and strategy for the decade from 2001 through to
2010. The proposed tax reform program has already commenced with some of these
amendments coming into force as of 1 January 2001. The Directorate General of
Taxation was responsible for drafting several amendments to three earlier tax
laws, namely: Law 16 of 2000 on General Taxation Arrangements and Procedures;
Law 17 of 2000 on Income Tax; and, Law 18 of 2000 on Value-Added Tax on Goods
and Services and Luxury Sales Tax. The amendments include revisions to tax
brackets and a number of measures designed to improve taxpayer compliance. The
current prevailing tax legislation restricts the Directorate to making a
request to the National Police Force to arrest delinquent taxpayers or
individuals alleged to have breached any other tax law or regulation.
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DISCLAIMER :
SMA Law Firm is available to advise and
assist client with every legal
aspect of the establishment of their business activities
and operations in Indonesia to ensure that they should comply with
current regulation. This Memorandum is prepared for the general information of
our client and others interest person. This archieve is not, and does not
attempt to be, or comprehensive contents. This archieve is not to, and
must not, be regarded as legal advice.
This memorandum is
protected by copyrights and is available on the SMA Website : www.suyud.com
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