15 June 2020
When the Indonesian Company Law (“Law Number 40 of 2007”) was enacted more than a decade ago, it introduced, through Article 77, the possibility of convening a General Meeting of Shareholders (“GMS”) virtually, such as through an electronic platform with video or teleconference facilities (“E-GMS”). In practice, however, the use of E-GMS has been uncommon due to issues with the reliability of electronic systems, data security and, until recently, a lack of technical guidance from the Company Law or its implementing regulations.
That began to change during the COVID-19 pandemic, as the government began to introduce large-scale social restrictions (“PSBB”) in regions around the country, including DKI Jakarta, the economic capital of the country and the epicenter of the virus outbreak. For publicly listed companies in particular, which must hold their annual GMS by the end of June, COVID-19 presents a dilemma. With thousands of public shareholders in some companies, it would be impossible to hold a GMS without violating social distancing restrictions, giving greater importance to E-GMS and underlining the need for clarification on the process for holding an E-GMS.
New OJK Regulations
The Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK”), Indonesia’s principal regulator in the capital markets sector, took steps to address this need for clarification by issuing two regulations after the arrival of COVID-19 in the country. On April 21, 2020, OJK promulgated OJK Regulation No. 15/POJK.04/2020 regarding the Planning and Implementation of GMS of Publicly Listed Companies (“OJK Reg. 15”) and OJK Regulation No. 16/POJK.04/2020 regarding the Implementation of GMS of Publicly Listed Companies by Electronic Means (“OJK Reg. 16”).
In short, OJK Reg. 15 regulates GMS for publicly listed companies. It revokes the previous OJK regulation on the same matter, OJK Regulation No. 32/POJK.04/2014, as amended by OJK Regulation No.10/POJK.04/2017. And OJK Reg. 16 specifically regulates the providers, mechanisms and technical requirements for an E-GMS at a public company.
E-GMS System
Under the Company Law, the possibility of using electronic means, such as teleconference or videoconference, applies only for the “meeting” or “discussion” aspects of a GMS. Article 77 regulates that the electronic means must allow all GMS participants to see and hear each other in real time and participate in the meeting.
OJK Reg. 15 and OJK Reg. 16 broaden the possible use of electronic means for a GMS. Under these regulations, the announcement, summons, convening and reporting of a GMS can now be done using a GMS electronic system, which is defined as an electronic system utilized for the support, provision of information, implementation and reporting of a GMS of a publicly listed company (“E-GMS System”).
E-GMS System Providers in Indonesia
OJK Reg. 16 limits the parties that can provide an E-GMS System (an “E-GMS System Provider”). Article 4 of OJK Reg. 16 stipulates that an E-GMS System Provider must be a depository and settlement body appointed by the OJK, other parties appointed by the OJK, or it can be the publicly listed company itself. The OJK, through OJK Board of Commissioners Decree No. KEP29/D.04/2020, designated the Indonesia Central Securities Depository (PT Kustodian Sentral Efek Indonesia or “KSEI”) as an E-GMS System Provider in Indonesia.
Principally, KSEI serves as the central custodian for security companies and custodian banks in Indonesia. Should a publicly listed company plan to convene an E-GMS without using KSEI’s E-GMS System, it must ensure that the system it uses is connected to the KSEI’s system and to the relevant securities administration bureau. This is crucial to verify the company’s shareholders and ensure that only those shareholders with the right are present at the E-GMS, data of which is held by KSEI and such securities administration bureau.
KSEI as E-GMS System Provider
KSEI’s E-GMS System is called eASY.KSEI and can be accessed at https://eASY.KSEI.co.id. eASY.KSEI has two platforms, namely (1) E-Proxy and (2) E-Voting. E-Proxy allows a shareholder to authorize its proxy electronically to vote on GMS agenda items. The chosen proxy shall then attend the GMS physically and vote in the shareholder’s stead. The proxy can be an independent party proposed by the publicly listed company, a securities company or custodian bank, or any person appointed by the shareholder. E-Voting is a live streaming feature that allows shareholders to interact directly with other GMS participants so they can cast votes in real time. According to a press release from KSEI dated May 18, 2020, and media reports, the E-Proxy platform is up and running, while the E-Voting platform is not.
The eASY.KSEI platform is also meant to make it easier for public companies to comply with the requirements for conducting a GMS. They can simply upload the GMS announcement, summons, agenda and other supporting GMS documents to the eASY.KSEI platform, pursuant to the timeline and other requirements regulated under OJK Reg. 15.
E-GMS System Providers under EIT Law and Regulations
E-GMS System Providers, as electronic system providers (“ESPs”), are subject to some of the technical standards set out by OJK Reg. 16. Most of these standards mirror the provisions under Law No. 11 of 2008 regarding Electronic Information and Transactions, as lastly amended by Law No. 19 of 2016 (the “EIT Law”), and implementing regulations. The principal obligations for ESPs related to ESP registration, user access rights, data retention, a data recovery center and personal data protection apply to E-GMS System Providers.
OJK Reg. 16 mandates, among other things, that E-GMS System Providers (i) register as an ESP with the Ministry of Communication and Informatics; (ii) provide access rights to E-GMS System users; (iii) ensure the reliability and security of the E-GMS System; (iv) maintain audit records of all data processing activities in the E-GMS System for purposes of supervision, law enforcement, dispute resolution, verification and testing; (v) meet the minimum standards for information technology systems, information technology security, system disruptions and failures, and management transfer of information technology systems; (vi) retain all data on E-GMS implementation electronically; and (vii) have a data center replacement facility and disaster recovery center in Indonesian territory at a secure location separated from the main data center, as well as other requirements stipulated in OJK Reg. 16.
E-GMS System Providers also must have procedures in place to provide information regarding users’ registration requirements and cost, access, rights and obligations, personal data protection, and other provisions under Article 7(4) of OJK Reg. 16.
The obligation to have a data center replacement facility and disaster recovery center within Indonesian territory only applies to KSEI and/or other bodies appointed by the OJK. It does not apply to companies that run their own E-GMS System. This difference is most likely due to KSEI’s nature as a public-scope ESP (as an OJK-appointed institution), as opposed to other companies that would be considered as private-scope ESPs. This stance is in line with Government Regulation No. 71 of 2019 regarding Implementation of Electronic Systems and Transactions, which requires that public-scope ESPs but not private-scope ESPs administer their electronic systems within Indonesia.
Compliance with these electronic systems obligations is important to maintain the authenticity and security of E-GMS data retained by the E-GMS System Providers. Otherwise, there could be issues in verifying and proving the evidentiary value of certain documents and/or corporate actions.
E-GMS Execution and Notarization of an E-GMS Minutes Deed
Article 8(1)(b) of OJK Reg. 16 mandates that an E-GMS still requires a physical meeting attended by at least the chairman of the GMS, one director and/or one commissioner, and capital market supporting professionals, such as a notary (for the notarization of the GMS minutes deed) or someone from the securities administration bureau (to assist with verification of shareholders and voting recapitulation). Note that this physical meeting requirement can be waived or subjected to an attendance limit under certain conditions determined by the government or with the OJK’s approval. For instance, the COVID-19 pandemic could be regarded as one of those “certain conditions.” And to further work around situations such as COVID-19, public companies can also limit physical attendance at an E-GMS to a first come, first served basis.
Lastly, OJK Reg. 16 emphasizes the importance of a notarial deed for the minutes of meeting of an E-GMS. Article 12 of OJK Reg. 16 stipulates that the minutes of an E-GMS be made in a notarial deed drawn up before a notary registered with the OJK, without requiring the signatures of the E-GMS participants. This is in line with Article 90(2) of the Company Law, which waives the requirement for the signatures of GMS participants if the GMS minutes are drawn up in a notarial deed. The E-GMS System Provider shall also submit to the notary copies of the list of the shareholders present electronically, the list of the shareholders who authorized their respective proxies electronically, the electronic recapitulation of the attendance and decision-making quorums, and the transcript of all electronic interactions during the GMS. These additional documents will then be attached to the GMS notarial deed. The E-GMS System Provider is obliged to retain this data after submitting these documents to the notary.
Notable Concerns
The current E-Proxy feature provided by KSEI’s E-GMS System has not shifted physical GMS completely into the electronic world. Nonetheless, should the KSEI’s E-Voting system (virtual live streaming) be implemented soon, there are some concerns worth noting. For example, an electronic presence through video or teleconference may require additional technical procedures to verify biometric data, an issue not addressed by OJK Reg. 15 or OJK Reg. 16, and still regulated loosely under the EIT Law and its implementing regulations. Some notaries also have voiced concern that tracing electronic attendance is easier said than done, and it is possible, for example, for a shareholder to vote via eASY.KSEI but then never show up in the video conference, which can cause discrepancies in calculating the attendance and decision-making quorums.
Conclusion
OJK Reg. 15 and OJK Reg.16 are examples of how technology is changing how the law is implemented. It may have been coincidence that these regulations were promulgated during COVID-19, when virtual meetings became a necessity rather than a mere option, but E-GMS will only become more common as time goes by. When the COVID-19 pandemic is finally declared over, it will be crucial for the government, business actors and the legal profession to adapt as we all increasingly move into the electronic world.
