Indonesia’s Financial Services Authority (OJK) has updated public companies’ disclosure obligations concerning bankruptcy. The regulations create a new sanctions regime for non-compliance that improves the OJK’s enforcement capacity. The changes are relevant to investors and others with an interest in Indonesia’s capital markets. They came into effect on 22 June 2017.

The Financial Services Authority (Otoritas Jasa Keuangan “OJK”) recently renewed its controls over bankruptcy information, by setting out the disclosure obligations and sanctions regime that now applies to issuers and public companies in Indonesia.

OJK Regulation Number 26/POJK.04/2017 (“POJK 26/2017”) on Bankruptcy Information Disclosure for Issuers and Public Companies is significant for all investors with interest in the Indonesian Stock Exchange (“IDX”). It is consistent with other measures the OJK has taken this year to improve transparency and to align reporting obligations for public companies with international standards - such as by enacting OJK Regulation Number 11/POJK.04/2017 on Reporting of Ownership, or Changes in Ownership, of Shares in Issuers of Public Companies.

Regulatory history

The new regulation falls within the OJK’s mandate to assume supervision and control over Indonesia’s capital markets, taking over from the Capital Market and Financial Institutions Supervisory Board (Badan Pengawas Pasar Modal dan Lembaga Keuangan – “BAPEPAM-LK”). BAPEPAM-LK previously controlled the requirements for public companies to disclose bankruptcy information under Regulation No. Kep-46/PM/1998.

POJK 26/2017 maintains substantially similar disclosure obligations as those that existed under the BAPEPAM-LK regulation. What is new, however, is the introduction of administrative sanctions that the OJK may now impose. Under the previous system, only the criminal provisions attached to the capital-markets sector were available to discipline companies that violated their obligations. These criminal sanctions are cumbersome to enforce. POJK 26/2017 creates an alternative, comprehensive administrative sanctions regime that is aimed to deter non-compliance through a system that includes written warnings for first offences, through to annulment of company registration where required.

Disclosure obligations

POJK 26/2017 provides that issuers and public companies must report bankruptcy to the OJK and IDX within two days, in accordance with the following requirements:

BANKRUPTCY RELATED EVENT INFORMATION TO BE DISCLOSED
The party fails, or proves incapable, of meeting its financial liabilities to unaffiliated creditors (Article 2 POJK 26/2017).

The report must include:

i. The value of the loan in question and its interest;ii. The terms of the loan;iii. The name of the lender (creditor);iv. The purpose of the loan; andv. The reason(s) for the failure or inability to pay the loan;(Elucidation Article 2 POJK 26/2017)

Creditors file for the commercial court to declare the party bankrupt.

The report must include:

i. Names of the relevant creditors;

i. Names of the relevant creditors;

ii. A summary of the bankruptcy claim; andiii. The amounts of any outstanding loans, aside from the ones which are connected to the bankruptcy claim.(Elucidation Article 3 POJK 26/2017)

Obligations of other parties:

Creditors that file for bankruptcy against an issuer or public company must also report details of the matter to the OJK within 2 business days of making that claim (Article 4 POJK 26/2017).

The Indonesian Stock Exchange must publicly announce any information relating to a bankruptcy-related event on the same day it receives that information (Article 5 POJK 26/2017).

Administrative Sanctions

In addition to criminal provisions attached to the capital-markets sector, which remain available, the sanctions regime arms the OJK with a range of tools to discipline issuers, public companies and creditors that fail to comply with their disclosure obligations. The OJK structures these in a tiered system that begins with written warnings, escalating through increasingly punitive measures such as fines and the revocation of business licenses, in the following stages:

a. written warnings;

b. fines, which is the obligation to pay a certain sum of money;

c. restriction of business activities; d. freezing of business activities;

e. revoke of business license;

f. annulment of approval; and/or

g. annulment of registration.

The regulation makes clear that these measures listed under b. to g. may be applied without prior written warnings. In addition, the OJK may impose fines in addition to taking the measures under c. to g. The OJK may also take “other measures” against parties who fail to comply with their disclosure obligations. Such other measures may include a suspension of the issuance of a declaration of effectiveness of a registration statement in the framework of a public offering. Finally, the authority is granted the right –apparently as part of a naming and shaming strategy- to announce the imposition of administrative sanctions and “other measures” to the public. The intention of POJK 26/2017, therefore, seems to be to create a compelling deterrent effect that ensures the timely disclosure of bankruptcy-related information. However, it can be doubted whether the sanctions will have any deterrent effect on issuers or public companies that face bankruptcy related events, given that their business activities will cease anyway and it may be hard if not impossible to collect fines from these parties.

POJK 26/2017 came into effect 22 June 2017 and replaces BAPEPAM-LK under Regulation No. Kep-46/PM/1998. (by: Gustaaf O. Reerink)