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An Update on The Affiliation Transaction and Conflict of Interest

The OJK through POJK 42/2020 amended the prior regulation as defined in Regulation of Bapepam-LK (“Badan Pengawasan Pasar Modal dan Lembaga Keuangan” or “Bapepam-LK”) Number IX.E.1 of 2009 on Affiliation Transaction and Specific Conflict of Interest Transaction.”

On July 2020, Financial Services Authority (“Otoritas Jasa Keuangan” or “OJK”) has stipulated Regulation of OJK No. 42/POJK.04/2020 on Affiliation Transaction and Conflict of Interest Transaction (“POJK 42/2020”). POJK 42/2020 has been an improvement according to changes and developments of the Indonesian capital market over the past ten years. Furthermore, the differences between the current and prior regulations can be found in the following table:

 Regulation of Bapepam-LK IX.E.1 2009POJK 42/2020
Definition of Affiliation TransactionAffiliation Transaction is activities and/or transaction that conducted by a company or controlled company with its affiliation or affiliation from the Board of Directors, Commissioners, or ultimate shareholders.Affiliation Transaction is activities and/or transaction that conducted by a publicly-listed company or controlled company with its affiliation or affiliation from the Board of Directors, Commissioners, or ultimate/controlled shareholders, including the activities and/or transaction purposes on affiliation’s interests.  
Definition of Conflict of Interest TransactionN/A  A transaction conducted by a publicly-listed company or controlled company with any parties, both affiliates and parties other than Affiliates that contain Conflicts of Interest.  

Conflict of Interest: the differences between a company’s economic interest with directors, commissioners, or ultimate/controller shareholders’ economic self-interest which can harm the said publicly-listed company. *The definition of conflict of interest remains the same.  
Scope of Affiliation TransactionScope of “transaction”: Provide and/or obtain a loan.Acquire, release, or use assets including provide the guarantee (by using assets).Acquire, release, or use service or securities of company or controlled company.Conducting contract related to the aforementioned activity (number 1,2,3).   Which conducted in one transaction or in a series of transaction for a particular purpose or activity.1. Participation in business entity, project, and/or specific business activity. 
2. Buying, Selling, Transferring, Exchanging Assets or Operational Segment.
3. Acquire, release, and/or utilization of service.
4. Asset’s lease.
5. Fund’s lending and borrowing including its transfer.
6. Guarantee the publicly-listed company’s assets and/ or controlled company’s asset upon the loan from the other parties.
7. Provide the corporate guarantee.  
Obligation of having an adequate procedureN/AThe publicly-listed company must have an adequate procedure to ensure the affiliation transaction conducted according to general business practice.  
Excepted from the information disclosure and adequate procedure of Affiliation Transaction (Keep report to OJK) The provisions remain the same with additional provisions on:  
1. Loan transaction which directly received from bank, venture capital company, etc.
2. Guarantee transaction to bank, venture capital company, etc. upon the publicly-listed company and controlled company transaction.
3. Transaction of increasing or decreasing the equity’s participation.
4. Transaction of financial service institution (publicly-listed company) that control the sharia financial company.
5. Transaction of restructuring the state-owned enterprise (“Badan Usaha Milik Negara” or “BUMN”)
6. Financial service institution (publicly-listed company) that conducted affiliation transaction with a specific condition.  
Obligation of approval of Independent Shareholders (Affiliation Transaction)N/AIn the matters of:
1.  The value of Affiliation Transaction is fulfilled the material transaction’s limitation value.
2.  Affiliation Transaction which potentially disrupts the publicly-listed company’s business continuity.
3.  Conducting Affiliation Transaction that required independent shareholders’ approval based on OJK’s consideration.  
Excepted from the information disclosure and Independent Shareholders’ approval on RUPS (Conflict Interest Transaction), keep report to OJK. The provisions remain the same with modification and additional provisions on:
1.     Transaction between:
a.  A publicly-listed company with a controlled company, at least the shares owned by 99% (paid-up capital).
b.  Fellow controlled companies that at least the shares owned 99% by the said publicly-listed company.
c.  A controlled company with a company that shares owned 99% by the controlled company.
2.  Transaction of financial service institution (publicly-listed company) that control the sharia financial company.
3.  Transaction of restructuring the state-owned enterprise (“Badan Usaha Milik Negara” or “BUMN”)
4.  Financial service institution (publicly-listed company) that conducted a conflict of interest transaction with a specific condition.  
Obligation for publicly-listed company or controlled company for conducting the Conflict of Interest’s procedure  N/AConducting transaction other than Affiliation Transaction and Conflict of Interest Transaction but can potentially disrupt the publicly-listed company’s business continuity.        
Sanction Bapepam-LK has authority to impose some sanctions for those who violate and causes a violation of the provisions in the regulation.OJK has authority to impose some administrative sanctions which are concise of:  

a. Written warning/caution.
b. Fines.
c. Limitation of business activities.
d. Suspension of business activities.
e. Revocation of business license.
f. Cancellation of approval.
g. Cancellation of registration.

Author: Kristalia Andiani Puteri

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include capital market and financial services.

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