New Regulation On The Material Transactions And The Business Activities Alterations

New Regulation On The Material Transactions And The Business Activities Alterations

Nacounsels – On 20 April 2020, the Financial Services Authority (“OJK”) issued the Regulation of the OJK No. 17/POJK.04/2020 on the Material Transactions and the Business Activities Alterations (“POJK 17/2020”) replacing and updating the Capital Markets and Financial Institutions Supervisory Agency (“BAPEPAM-LK”) regulation on the Material Transactions and the Main Business Activities Alterations which was known as BAPEPAM-LK Regulation No. IX.E.2 which was the attachment of the Decree of the Head of the BAPEPAM-LK No. KEP-614/BL/2011 (“Rule IX.E.2”). OJK expects that the new regulation will provide more protections to the public shareholder interests and improve the quality of the disclosure of information of the publicly listed companies. POJK 17/2020 also provides clarity on several provisions which previously may not be written in the regulation, however, implemented in practice.

Under POJK 17/2020, any transactions, as opposed to only certain transactions set out in Rule IX.E.2, of the publicly listed companies that reach the materiality thresholds, must be performed in compliance with the new rule. A transaction will be categorized as Material Transaction if the transaction has a value of 20% or more of the publicly listed company’s equity. For acquiring or disposing of a company or an operation segment, the materiality threshold shall be determined by not only comparing the transaction value with the equity of the publicly listed companies but also by comparing the total assets, net profit or revenue between the target and the publicly listed companies and all of them shall be at least 20%. For the publicly listed company with negative equity, the materiality threshold shall be at least 10% of the total assets of the company. The material transaction value shall be calculated based on: (i) an audited annual financial statements; (ii) a quarterly financial statements whether limited reviewed or audited; and (iii) an interim audited financial statements other than the quarterly financial statements.

The publicly listed companies must comply with the following requirement when performing the Material Transactions: (i) hire an appraiser to determine the fair value of the object and/or the fairness of the transaction; (ii) disclose the information on the transactions to the public; (iii) file the disclosure of information and its supporting documents to OJK; and (iv) report the implementation of the transaction in the annual report. For any transactions (i) that are more than 50% of the materiality thresholds; (ii) of the company with negative equity, which are more than 25% of the materiality threshold; or (iii) that declared unfair by the appraiser, must obtain prior approval of the General Meeting of Shareholders of the publicly listed company (the “GMS”).

POJK 17/2020 provides further elaboration on the timing of the disclosure of information to the public and the submission of the disclosure of information to OJK. The regulation stipulates that the announcement and submission shall be made at least two business days after the date of the Material Transaction that is not subject to the GMS approval. The elucidation of the regulation defines “the date of the Material Transaction” as the date of the signing of the agreement, such agreement fulfils the following conditions: (i) becoming final and binding; and (ii) creating rights and obligations of the parties. To add more elaboration, the elucidation also provides examples of the date of the Material Transaction, which both suggest that the requirement to announce and submit the disclosure of information occur after the completion of the conditions precedent rather than after the signing of the conditional agreement itself. We note that “the date of the Material Transaction” is also being used in determining the period of time between the valuation date by the appraiser and the date of the Material Transaction, the validity of the financial statements to determine the Material Transaction value and the validity of the latest financial reports of the target company. If the foregoing elucidation of “the date of the Material Transaction” applies to those other provisions, it will provide a shorter period for the publicly listed company to perform the Material Transaction.

A publicly listed company whose shareholding is diluted due to the increase of the capital of its controlled subsidiary that causing such subsidiary is no longer be consolidated with the publicly listed company must comply with the provisions under this new regulation. However, this requirement only applies if the total assets, net profit or revenue of the consolidated subsidiary divided by the total assets, net profit or revenue of the publicly listed company, respectively is at least 20%.

Most of the provisions under POJK 17/2020 shall become effective as of six months after 21 April 2020. Rule IX.E.2 shall be revoked and no longer valid after such effective date.

 By Marisa Purba