21 January 2021
The Financial Services Authority (“OJK”) passed Regulation Number 47/PFSA.05/2020 of 2020 on Business Licensing and Institutional Aspects of Financing Companies and Sharia Financing Companies (“Reg. 47/2020”) in November 2020. This seeks to increase industry competitiveness and support the development of financing and sharia financing companies in order to boost their role and contribution to the domestic economy and to development. OJK Regulation Number 28/PFSA.05/2014 of 2014 on Business Licensing and Institutional Aspects of Financing Companies (“Reg. 28/2014”) has now been revoked and replaced.
Guidelines for Establishment and Capitalization Requirements
Unlike Reg. 28/2014, which allowed companies to be established as cooperatives rather than limited liability companies, Reg. 47/2020 only allows companies and sharia financing businesses to exist as limited liability legal entities. Further, a company must be registered as a member of its professional association in Indonesia no later than 6 (six) months after the date of the stipulation of business license.
With regard to capitalization, a financing company is now required to have minimum paid-up capital of IDR250 billion at the time of its establishment (as opposed to IDR100 billion previously under Reg.28/2014).
Ownership
As with Reg. 28/2014, foreign ownership (direct or indirect) is still limited to 85% of the company’s paid-up capital. However, there are exemptions under the following circumstances:
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A public company whose shares are traded on the stock exchange;
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A company requires additional capital from foreign shareholders due to the minimum capital and equity ratio requirements or liquidity problems that may interfere with continuity of the business; and
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A company that already held a business license at the time Reg. 47/2020 came into force is not a public company whose shares are traded on the stock exchange or had previously exceeded the foreign ownership limitation, provided that ownership of the company has not changed.
Reg. 47/2020 also stipulates that if the foreign ownership limitation is breached, a company must adjust it to what has been approved by OJK within 3 years from the date of reporting the change of ownership to the OJK.
Further, Reg. 47/2020 now requires that every change of ownership through acquisition must be approved at a General Meeting of Shareholders (“GMS”) after receiving OJK approval .
Merger and Consolidation
Financing and sharia financing companies may carry out a merger or consolidation. Companies planning to do so must obtain OJK approval. However, in order to win such approval the proposal must already have been included in the company’s business plan, does not reduce the rights of its debtors, and the company’s financial health, and post merger or consolidation must satisfy the requirements with a minimum assessed composite rating 2.
Sharia Business Units
Reg. 47/2020 increases the requirement for working capital of a sharia business unit to at least IDR100 billion (from IDR25 billion previously). The working capital must be set aside as a time deposit in the name of a financing company and placed with a sharia commercial bank or business unit of an Indonesian commercial bank.
Foreign Worker Utilization
New provisions for foreign workers under Reg. No. 47/2020 include:
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companies, 25% of whose shares are owned by foreign citizens or foreign legal entities, directly or indirectly, may employ foreign workers;
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financing companies and sharia financing companies that utilize foreign workers employed as directors or commissioners are required to ensure that Indonesian citizens fill at least 50% of the positions on the boards of directors or commissioners;
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foreign workers employed as experts or consultants are prohibited from working in fields other than information technology, risk management, and others subject to OJK approval.
Termination of Business Activities, Suspension of Debt Payment Obligations, Bankruptcy, and Dissolution of the Company
Financing companies and sharia financing companies that plan to cease business activities must obtain OJK approval by submitting:
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reasons for the termination of the business activities;
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a draft of the deed of the articles of association containing the new business activity plan;
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a description of the financial state of the Company, including data on the amount of financing, number of debtors, and total liabilities of the Company or debtors;
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plans to settle rights and obligations related to the Company's financing business activities; and
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proof of settlement of OJK levies and administrative fines.
If a company is in the process of suspension of debt payment obligations (at its own request or that of its creditors), it must report to OJK following its request for postponement of the obligations. The report must be submitted by the board of directors, and contain at least the name of the party filing a statement of postponement, a summary of the application for a statement of postponement, and a company action plan to follow up the postponement.
If a company is undergoing bankruptcy (at its own request or that of its creditors), the company is required to report to the FSA within 5 business days of the statement of application for bankruptcy. The report must be submitted by the board of directors, and contain at least the name of the party filing for bankruptcy, a summary of the statement of application for bankruptcy, and a company action plan to follow up the bankruptcy process.
Conclusion
Much of the substance of Reg. 47/2020 is not different to what was in Reg. 28/2014. However, many provisions not contained in Reg. 28/2014 previously have been explained further and made clearer in its replacement.
These adjustments should be helpful for a variety of stakeholders.
For further information, please contact:
Freddy Karyadi, Partner, ABNR
+62818103949
Rita Tyastuti Taufik, Partner, ABNR
+628129172126
Novario Asca H, Senior Associate, ABNR
