The Financial Services Authority (OJK) recently tightened its control over the disclosure of bankruptcy information by implementing the OJK Regulation on Bankruptcy Information Disclosure for Issuers and Public Companies (26/POJK.04/2017), which came into effect on June 22 2017. The new regulation is significant for investors with an interest in the Indonesian Stock Exchange (IDX) and is consistent with other measures that the OJK has taken in 2017 to improve transparency and align the reporting obligations of issuers and public companies with international standards.(1)
The regulation sets out new disclosure obligations that apply to issuers and public companies in Indonesia and creates a new penalty regime for non-compliance that improves the OJK's enforcement capacity.
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 (BAPEPAM-LK). Previously, the supervisory board oversaw public companies' obligations to disclose bankruptcy information under BAPEPAM-LK Regulation Kep-46/PM/1998.
The OJK Regulation on Bankruptcy Information Disclosure for Issuers and Public Companies maintains substantially similar disclosure obligations to those that existed under the BAPEPAM-LK regulation. However, it has introduced administrative penalties that the OJK may impose on perpetrators. Under the previous system, only criminal penalties, which were cumbersome to enforce, were available to discipline companies that violated their capital markets obligations. As such, the new regulation has created an alternative, comprehensive administrative penalties regime that aims to deter non-compliance through a range of penalties – from written warnings for first offences through to fines and the annulment of a company's registration, where required.
Under the new regulation, issuers and public companies must report bankruptcy to the OJK and the IDX within two days from becoming aware of a bankruptcy petition having been filed against the party, in accordance with the following requirements.
Information to be disclosed
The party fails to meet, or proves incapable of meeting, its financial liabilities to unaffiliated creditors (Article 2 of the new regulation)
Creditors file for the commercial court to declare the party bankrupt (Article 3 of the new regulation)
Other parties' obligations
Under Article 4 of the new regulation, concerned parties that file for bankruptcy against an issuer or public company must also report details of the matter to the OJK within two business days of making that claim. As provided for in Article 85 of the Capital Market Law, the following parties qualify as 'concerned parties':
- stock exchanges;
- clearing and guarantee institutions;
- depository and settlement institutions;
- mutual funds;
- securities companies;
- investment advisers;
- securities administration bureaus;
- custodian banks;
- trust agents; and
- all other parties that have obtained a permit or approval or registration from the authorities.
Under Article 5 of the new regulation, the IDX must publicly announce any information relating to a bankruptcy-related event on the day on which it receives such information.
In addition to the criminal provisions that previously applied to the capital markets sector, which remain available, the new penalties 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 has structured these in a tiered system comprising the following stages:
- written warnings;
- the restriction of business activities;
- the freezing of business activities;
- the revocation of business licences;
- annulment of approval; and
- annulment of registration.
The regulation clarifies that the measures listed in bullet points two to six above may be applied without a prior written warning. The OJK may also impose fines in addition to taking the measures listed in bullet points three to six and take other measures against parties that fail to comply with their disclosure obligations. These 'other measures' may include the suspension of the declaration of a registration statement's effectiveness in the framework of a public offering. Finally, the OJK has been granted the right – apparently as part of a naming and shaming strategy – to announce publicly the imposition of administrative penalties and other measures. Thus, the aim of the new regulation seems to be to create a compelling deterrent to ensure the timely disclosure of bankruptcy-related information.
This regulation is expected to enhance compliance by issuers and public companies which experience a bankruptcy-related event while still operating their business as a going concern. However, it is doubtful whether the penalties will deter 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 them.
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