“The definition of material fact is information or important and relevant fact on an event, incident or fact that may affect share price in share market and/or investor’s, prospective investor’s or any other person’s decision that have an interest on related fact.”
We recently encountered information regarding the correction of the Issuer Company Board of Director’s Meeting Resolution regarding the amount of interim dividend’s share for its shareholders. The correction it self will revise and decrease the value of interim dividend of the Company as stipulated at the previous Board of Director’s Meeting Resolution.
The correction mentioned above, has made the Indonesia Stock Exchange (Bursa Efek Indonesia – BEI) summon and ordered the Issuer to perform Incidental Public Expose. Moreover, there will be a probability that the Company may get fines or other sanction in accordance with the prevailing law in the capital market sector.
Which makes it more interesting, the previous Board of Director’s Meeting Resolution actually has been reported and announced in public in accordance with the principle of information disclosure as obliged in the capital market law. The first announcement (either direct or indirect) considered by some analyst is one of the reasons why company issuer share value has been significantly increased after the first announcement occurred.
Based on the information above, the topic regarding interim dividend and its relation to information disclosure (related with material facts), which is one of the main principles in capital market activities, has become an interesting discourse.
Before moving on to further elaboration, the most important thing on this topic is concerning the definition and the applicable regulation about dividend in Indonesia. Article 71 paragraph 2 of Law Number 40 of 2007 on Limited Liability Company (Undang-undang Perseroan Terbatas – UUPT) states that “All net earnings after deduction for reserve fund shall be distributed to the shareholders as dividends, except otherwise provided in the general meeting of shareholders.”
Article 71 paragraph 2 of UUPT also states that the use of net earnings, including the amount that will be reserved for reserve fund is determined by the general meeting of shareholders (GMS).
According to the explanation above, we can conclude that dividend is all net earnings of the Company (after the Company’s financial year is over) deducted by the Company’s tax obligation and reserve fund, which amount will be determined by the GMS.
Besides the definition of dividend that has been mentioned above (final dividend), UUPT also regulates and grants rights to the Company to distribute the dividend before the end of the Company’s financial year (interim or temporal dividend). The distribution of interim dividend is allowed as long as it has been regulated under the Article of Association. As for the final dividend has to be done by the GMS, the interim dividend can be done by the Resolution of Board of Director’s meeting that has been approved by the Board of Commissioners. However, UUPT also regulates the procedure and the responsible that must be carried out by the Director and Board of Commissioners regarding the negative implication of interim dividend distribution.
So, what if a Company -that is happened to be an Issuer at the same time- plans to distribute interim dividend? The answer is the applicable regulations and principles in Indonesia capital market law will bind that Company.
The main principles existed in capital market in Indonesia are disclosure, equity and independency. Those principles aim to protect public interests (in this case investors).
The Indonesian capital market law specifically regulates about information disclosure (related with material fact). The definition of material fact is information or important and relevant fact on an event, incident or fact that may affect share prices in share market and/or investor’s, prospective investor’s or any other person’s decision that have an interest on related fact.
Financial Services Authority of The Republic of Indonesia (Otoritas Jasa Keuangan – OJK) Regulation Number 31/POJK.04/2015 concerning Disclosure of the Information or Material Facts by The Issuer or Public Company states that the distribution of interim dividend is one of material facts that should be reported and announced no later than the end of the working day of the 2nd (second) after the presence of information or material.
According to the explanation above, it is important for an Issuer Company (particularly its Director and Board of Commissioners), to conduct a wise and prudent approach before stipulating policy concerning interim dividend. As for the Company will not only be bind by the responsible on UUPT, but also the Law Number 8 of 1995 on Capital Market (Undang-undang Pasar Modal – UUPM) and its implementing regulation. This aims to avoid false or misleading information as what have been stated by the Article 93 of UUPM, “All persons are prohibited from making, by any means, a statement and giving material information that is false or misleading and that affects the price of Securities on a Securities Exchange, if at the time of making such statement or giving such information:
a. The person knows or should have known that such material information was false or misleading; or
b. The person has failed to exercise due care in determining the truth of such statement or information.”
Author: Arif Gaffar
Gaffar & Co.
Gaffar & Co. is an Indonesian Boutique Law Firm that focused on commercial law Area includes capital market, finance and merger & acquisition.
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