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.
^
Back On Top
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.
^
Back On Top
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.
^
Back On Top
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.
^
Back On Top
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.
^
Back On Top
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.
^
Back On Top
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.).
^
Back On Top
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.
^ Back On Top
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.
^ Back On Top
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.
^ Back On Top
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 Arbitr | 