“Legal Due Diligence in Capital Market is required to expose the complete material facts on the issuer or public company so that the investor (shareholders) can acquire a clear understanding of the company or transaction objects and the action that it is about to take.”
Corporate action is a term often used in Capital Market. In general, it refers to any activity that would bring material change to the company and affect its shareholders. In capital market, it is also used to refer to any strategic action of a listed public company or issuers that will bring an actual change to the securities issued by the company and thus affect the shareholders as well.
There are actions that people commonly considered as corporate actions, which are merger, consolidation, acquisition and spin off. Law No. 8 of 1995 and various OJK regulations mentioned even more actions, some explicitly referred to as corporate action while some others are not, such as:
1. Right Issue
An act of issuing more shares to the public with the subscription rights to buy additional securities in a company made to the company’s existing security holders.
2. Public Offering
An act of selling a company’s shares openly to the public.
3. Company Listing;
An act of registering a company’s shares on the list of stock that are officially trader on stock exchange.
4. Shares Dividend;
An act of distributing a company’s profits to the shareholders proportionally to their ownership of shares.
5. Shares Buyback.
An act of rebuying shares by the very own issuing company to reduce the number of outstanding shares on the market.
Further, Legal Due Diligence according to Indonesian Association of Capital Market Legal Consultants (HKHPM) professional standard is “an activity of examination (review) from legal perspective which conduct in diligence and precision manner by a legal consultants to a company or other transaction objects in accordance with the purpose of transaction, in order to obtain clear information and/or description or material facts that could describe company or transaction object real conditions.”
Legal Due Diligence in Capital Market is required to expose the complete material facts on the issuer or public company so that the investor (shareholders) can acquire a clear understanding of the company or transaction objects and the action that it is about to take.
The Needs for Legal Due Diligence in Capital Market
Legal Due diligence is required to acquire facts or material information that could give clear description regarding the entity and/or the transaction. It is required because it is necessary for the parties concerned to avoid any unwanted legal risk in the transaction because of incompliance or other event of default. However, Legal Due Diligence is explicitly required for a company before doing a certain corporate action. According to Indonesia Financial Service Authority (OJK) Regulation No. 66/POJK.04/2017, legal consultants have the role to exercise Legal Due Diligence (audit) and give Legal Opinion to a company that will do public offerings.
Author: Benedictus Giovanni / Arif Gaffar
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas e.g. capital market and financial services.
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