“Regarding to Capital Market and Public Companies sector in Indonesia, there are additional requirements for legal consultants to be eligible to conduct LDD as required by The Indonesian Financial Services Authority (“OJK”).
Legal Due Diligence (“LDD”) can be seen as a procedure for mitigating risk. The risk referred to is closely related to the transaction to be carried out by the parties. LDD objectives is to comprehensively identify company or transaction object condition pursuant to the prevailing law and regulations, so it can be use as an instrument to guide it stakeholders to reduce risk, assist decision-making based on a comprehensive information from Indonesian legal perspective.
LDD in Indonesia usually conducted by a certified legal consultant which possess practice license by the Indonesian Bar Association, however, regarding to Capital Market and Public Companies sector in Indonesia, there are additional requirements for legal consultants to be eligible to conduct LDD as required by The Indonesian Financial Services Authority (“OJK”).
Definition of LDD on Capital Market
The definition related to LDD is contained in the Appendix to the Decision of the Capital Market Legal Consultants Association or Himpunan Konsultan Hukum Pasar Modal (“HKHPM”) No. Kep.03/HKHPM/XI/2021 concerning Forms of Legal Consultant Services (“HKHPM Decree”).
“LDD is an activity through legal examination carried out by a Legal Consultant against a company or object of a transaction in accordance with the purpose of the transaction, to obtain related information including Material Information or Facts that may describe the condition of a company or transaction object from a legal perspective.”
Legal Consultant Requirement for LDD
Based on OJK’s Regulation Number 66/POJK.04/2017 on Legal Consultants Conducting Activities in the Capital Market, Legal Consultant can carry out LDD in the Capital Markets sectors by examining information related to material facts or material information which produce a legal opinion. To provide LDD services, Legal Consultants must comply with the requirements from OJK, among others:
- Indonesian citizen;
- Have an accredited Bachelor of Laws degree;
- Registered member of HKHPM;
- Have participated in the Professional Education program with a minimum amount of 30 professional credit units organized by HKHPM;
- Participated in Basic Education and passed the Education Exam held by HKHPM;
Example of LDD Field in Capital Market Sector
LDD on Commercial Paper Issuance or Surat Berharga Komersial (“SBK”)
Legal Consultants can carry out LDD in the context of issuing commercial securities only for Non-bank corporations and divided in 3 (three) stages, namely: the company status inspection stage, the requirements inspection stage, and the value inspection stage.
a. Inspection Stage of Company’s Status
The inspection stage of the company’s status is a confirmation, namely being listed as an issuer on the Indonesia Stock Exchange or having issued bonds and/or sukuk listed on the IDX, or not being listed as an issuer or public company. At this stage, the legal consultant is obliged to confirm the corporate requirements that can issue SBK related to the company namely:
- Operated for a short 3 (years) or has a guarantor or guarantor if it is less than 3 (three) years;
- The company has equity of at least IDR 50,000,000,000 (fifty billion Rupiah); and
- Generate net profit for the last 1 (one) year.
b. The Requirements Inspection Stage
Related to the stages of inspection of requirements, the Legal Consultants will carry out inspection for companies covering:
- Owned a financial report that has received Unmodified Fair Income or Wajar Tanpa Modifikasi (“WTM”) consecutively from a public accountant registered with Bank Indonesia for the last 3 (three) years or since the Non-Bank Corporation operates for Non-Bank Corporations which operates less than 3 (three) years;
- Never experienced a default in the last 3 (three) years up to the date of filing an application for registration for the issuance of SBK or have never experienced a default for Non-Bank Corporations operating for less than 3 (three) years;
- Non-Bank Corporations that have experienced default may issue SBK at least 3 (three) years after the date of settlement of default statement as long as the settlement is done fairly;
- Conducted management with a good track record;
- Owned guidelines for the application of prudential principles and risk management;
- Meet the administrative requirements set by Bank of Indonesia; and
- Owned a tenor of 1 (one) month, 3 (three) months, 6 (six) months, 9 (nine) months, or 12 (twelve) months.
After confirmation, the Legal Consultant examines the promissory note issued by the company as a requirement for SBK issuance.
c. Value Inspection Stage
At the value inspection stage, the credit score is a confirmation of the value of the SBK to be issued, which is at least IDR 10,000,000,000 (ten billion Rupiah), USD 1,000,000 (one million United States dollars), or in a foreign currency equivalent thereto.
Prior to starting this stage, the Legal Consultant is required to convey to the Client the list of supporting documents required in the LDD regarding SBK Issuance. Submission of a list of supporting documents is submitted at the time the work agreement is made. In the agreement, the Legal Consultant must include a clause on the client’s obligation to submit supporting documents.
LDD for Debt Securities and/or Sukuk or Efek Bersifat Utang Dan/Atau Sukuk (“EBUS”) Without Going Through a Public Offering
Based on the Financial Services Authority Regulation No. 30/POJK.04/2019 of 2019 concerning the Issuance of Debt Securities and/or Sukuk Done Through a Public Offering, Legal Consultants conducted LDD to issuers which are: Issuers or public companies, business entities or legal entities in Indonesia other than companies public, supranational institutions; or collective investment contracts that can issue debt securities.
LDD regarding EBUS is carried out by taking into account:
a. Rating of debt securities issued without going through a public offering;
b. Monitoring agency agreements
c. Other agreements relating to the issuance of debt securities issued without going through a public offering
d. Purpose of use of funds; and/or
e. Guarantee agreement.
Author: Naomi Catherine Felencia
Gaffar & Co., an Indonesian Boutique Law Firm specializing and focusing on commercial law areas e.g. Capital Market & Financial Services.
For further queries and information, contact us:
+62 811 877 216 | info@gaffarcolaw.com | www.gaffarcolaw.com
