POJK 40/POJK.05/2020; Written Order for Settlement of Problems of Non-Bank Financial Institution

OJK has right to issue a written order for non-bank financial institution/ Lembaga Jasa Keuangan Non-Bank (“LJKNB”) to force them to Merge, Consolidate, Acquire, or integrate (“M&A”) with other LJKNB due to the financial problems effected by Pandemic Covid-19.

OJK Regulation No. 40/POJK.05/2020 on Written Order for Settlement of Problems of Non-Bank Financial Institution (“POJK 40/2020”) regulates regarding mandatory order of takeover for the financially problematic financial institution. This regulation was issued on 15 June 2020 to further implement Article 23 paragraph (2) of Government Regulation in Lieu of Law No. 1 of 2020 on State Financial Policy and Stability of Financial Systems for the Management of Corona Virus Disease 2019 (Covid-19) and/or Encounter the Threat to National Economy and/or Stability of Financial Systems. The regulation is effective, starting from 18 June 2020 and did not revoke other regulations at all. Below is the highlight of this regulation.

Written Order

OJK could issue a written order to non-bank financial institution / Lembaga Jasa Keuangan Non-Bank (“LJKNB”) to force them to Merge, Consolidate, Acquire, or integrate (“M&A”) with other LJKNB. LJKNB in this regulation includes insurance company, reinsurance company, and financing company, both the general and sharia one. OJK separated the LJKNB which has to do the M&A (absorbed/taken over) and those which will receive the M&A (surviving/takeover). LJKNB which will be taken over are:

  1. those who have soundness rate of composite 1, 2, 3 or those which minimum solvability rate or own capital to paid-up capital ratio still conforms to as required by the regulation but according to OJK’s assessment is not capable of surviving; and/or
  2. those who have soundness rate of composite 4 or 5 or those which minimum solvability rate or own capital to paid-up capital ratio is below the regulation requirement; and/or
  3. those which shareholders are not capable of raising its paid-up capital to remedy its soundness rate.

On the other hand, LJKNB which qualifies to receive the M&A is those who have soundness rate of composite 1,2 or 3 or those which minimum solvability rate or own capital to paid-up capital ratio is as required by the regulation and according to OJK’s assessment is capable of surviving.

This written order is mandatory, and the related LJKNB has to carry out the order immediately. The draft for M&A and the whole process must be reported to OJK. The M&A process shall refer to the specific relevant regulations with the following added details:

  1. on top of public announcement in a newspaper, the draft plan should be made available in LJKNB website as well;
  2. the required General Meeting of Shareholders (GMS) for the process could be carried out online without physically meeting, but still in the territory of the Republic of Indonesia;
  3. the clarification for assessment of fit and proper test for the main party of the LJKNB post- M&A and the submission of required documents and letter to OJK could also be done online.

The conversion of shares for the takeover shall be agreed between the related LJKNB, however in the event, no agreement could be achieved, it shall be decided with rational assessment by the LJKNB which received the M&A.  

Exemption

Concerning the M&A, OJK could give some exemptions regarding the following matters:

  1. time limit to adjust foreign shares ownership;
  2. time limit to change sole shares ownership;
  3. the fit and proper test for controlling shareholders;
  4. adjustment of soundness rate; and/or
  5. relaxation of business license and/or product report obligation;

However, there’s no further explanation regarding how much of exemption OJK would give. Additionally, LJKNB, which is a public company (.tbk) could also be exempted from obligation related to the transparency principle based on approval from OJK.

Sanctions

OJK could give the following sanctions to infringement of this regulation:

  1. written warning;
  2. limitation of business activity; and/or
  3. revocation of business license

In the event the LJKNB has been given the above sanctions but still didn’t do any remedy, OJK shall put a prohibition to occupy the position shareholders, controller, director, commissioner, or any other equal position in other LJKNB for the next 10 years.

Author: Benedictus Giovanni

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

For further queries and information, please contact us:

+62- 21 50806536  | +62 – 811 877 216 |  info@gaffarcolaw.com | www.gaffarcolaw.com

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