New Regulation on the Affiliated Party Transactions and the Conflict of Interest Transaction

New Regulation on the Affiliated Party Transactions and the Conflict of Interest Transaction

Financial Services Authority (“OJK”) issued the Regulation No.42/POJK.04/2020 on the Affiliated Party Transactions and the Conflict of Interest Transactions (“POJK 42/2020”) on 2 July 2020. POJK 42/2020 revokes the Capital Markets and Financial Institutions Supervisory Agency (“BAPEPAM-LK”) regulation on the Affiliated Party Transactions and the Conflict of Interests in the Certain Transactions which was the attachment of the Decree of the Head of the BAPEPAM-LK No. KEP-412/BL/2009 (“Rule IX.E.1”).There are some differences in both regulations that should be noted by the publicly listed companies that will carry out an affiliated party transaction or a conflict of interest transaction.

POJK 42/2020 provides a broader scope for definition of the transactionsthat are considered asthe Affiliated Party Transaction.Rule IX.E.1stipulatescertain activities that can be categorized as an Affiliated Party Transaction. On the other hand, POJK 42/2020 stipulates that any activities and/or transactions that are conducted by the publicly listed companies or controlled companies can be categorized as the Affiliated Party Transactions. This new regulation does not limit the Affiliated Party Transaction to only specific transactions.POJK 42/2020 also adds the transactions entered by the publicly listed companies or controlled companies with the affiliates of its controller as the transaction that can be categorized as the Affiliated Party Transaction.

In conducting an Affiliated Party Transaction, the publicly listed companies shall have an adequate procedure to ensure that the Affiliated Party Transactions are carried out in accordance with the generally accepted business practices. The meaning of “adequate procedure” includes the procedure of comparing the terms and conditions of the equal transactions that are conducted by the parties who have no affiliation relationship. Entering into an arms-length agreement is one example of the condition that indicates a transaction is implemented in accordance with the provisions of generally accepted business practices. The publicly listed companies shall retain the documents relating to the procedure implementation in a time period in accordance with the prevailing laws and regulations.

Publicly listed companies that will carry out a particular Affiliated Party Transaction shall obtain the Independent Shareholders’ approval in the general meeting of shareholders of the publicly listed companies (the “GMS”). Those particular transactions are: (i) the Affiliated Party Transaction that fulfils the limit of the value of the material transaction that requires a GMS approval;  (ii) Affiliated Party Transaction that may potentially disrupt the business continuity of the Publicly Listed Companies; and/or (iii) Affiliated Party Transaction that based on the OJK’s consideration requires the Independent Shareholders’ approval. Under Rule IX.E.1, the Independent Shareholders’ approval was only required in the Conflict of Interest Transactions. Ifthe publicly listed companies carry out the Affiliated Party Transactions,which are the company’s business activities for the purpose of business revenue and carried out routinely, repeatedly and/or continuously, the publicly listed companies are not required to comply with certain obligations under.

By Marisa Purba