Despite economic challenges and an often precarious legal landscape for foreigners, Indonesia is making best efforts to rebuild itself and break ties with the past, writes John Church
To a great extent the future for Indonesia, Southeast Asia’s biggest fish and the most populous Muslim nation in the world, is being determined by its past. In an economic context, the more recent past has included global drops in commodity prices, led by oil, all of which has hit the nation hard and severely curbed merger and acquisition (M&A) activity.
Big and medium-sized energy miners have slowed production and in some cases ceased operations, a ripple that has swiftly propelled its way up the distribution and supply networks and in turn created a lively uptick in disputes and litigation work.
In a more historical context, too, the past is steering the future. Indonesia’s legal history is one of Dutch imperial genetics, with its adoption of civil law as opposed to the more frequently encountered common law systems that dominate the neighbourhood.
Past corruption, political nepotism and difficulties updating the civil code are among issues that colluded to bestow on Indonesia in February this year the dubious honour of being ranked “the second-most-complex place for multinationals to stay compliant with corporate regulation and legislation in 2015”, as per the TMF Group’s Global Benchmark Complexity Index.
Indonesia finished behind only Argentina on the index that ranks 95 countries according to regulatory and compliance regimes. It has occupied a position in the Index’s top 10 for the past three years, despite a more pro-business approach by government.
Many lawyers point to the antiquated civil law system inherited from Dutch colonialism for the frailties of the current system. There is one voice perhaps most apt for an introduction to Indonesia’s evolution of law.
“The main challenge is that there is a basic difference between the civil law system and the common law system. This is obvious,” Kartini Muljadi, senior partner and founder of Kartini Muljadi & Rekan, tells Asia Business Law Journal on a recent visit to her offices in Jakarta. Muljadi was a former judge of the Special District Court in Jakarta, mainly handling civil and commercial cases before founding one of the nation’s most prestigious corporate firms. She is one of Indonesia’s most distinguished commercial lawyers.
Muljadi says that, although most Indonesians avoid corruption, “There is corruption in the implementation of the Indonesian legal system by those implementing our legal systems. The proof of these are the corruption cases in several Indonesian courts.”
Illustrating her point is an anecdotal example from Stephanus Haryanto, managing partner at Adnan Kelana Haryanto & Hermanto in Jakarta. The former lecturer in legal studies says there are precedents where lenders lost their money because debtors acted in bad faith by using the court system, in this case to declare a loan agreement invalid.
“Our firm advised IIGF in providing government guarantees for four toll road projects, namely: the Batang-Semarang toll road, with an investment cost of about US$1.1 billion; the Pandaan-Malang toll road with an investment cost of about US$590 million; the Manado-Bitung toll road, with an investment cost of about US$500 million; and the Balikpapan-Samarinda toll road, with an investment cost of about US$990 million. These four projects are the first toll road projects to get government guarantees. It was a challenge to identify appropriate and relevant risks to be guaranteed, and the scope of guarantee.”
WIYONO SARI, FOUNDER,
“With litigation, we recently represented a big Indonesian pharmaceutical company against another multinational pharmaceutical company in South Jakarta District Court in a dispute related to wrongful interference with a contract. We won the case at the District Court level, and the case is now in the appeal stage with the Jakarta High Court.”
Adnan Kelana Haryanto & Hermanto
“We assisted the Ministry of Telecommunication, being the Government Contracting Agency (GCA) in the PPP transaction phase of the Palapa Ring Project. For the West and Central Packages, our assistance covered finalization and negotiation of the co-operation agreement, as well as assistance up until financial close of the project. For the East Package, aside from the above-mentioned assistance, we finalized the pre-feasibility study document, prepared the project’s feasibility and bankability, co-ordinated with the Indonesia Infrastructure Guarantee Fund (IIGF) in relation to government guarantee, and assisted the GCA to obtain required approval or licences and assistance to the procurement of an SPV.”
CORNEL JUNIARTO, SENIOR PARTNER,
We asked law firms in Jakarta to outline recent deals they were involved in that they thought were of interest. Here are some of their nominations.
“We represented Essential Scope to draft a shareholder agreement (SHA), share subscription agreement (SSA) and supplemental agreement. We also oversaw the compliance of condition precedents, under SHA, SSA and supplemental agreements until closing was reached. The transaction was essentially a combination of acquiring shares of the local company in Indonesia, and a huge plot of land in Deli Serdang, Medan, that will be used for a cemetery. The deal value is about 240 billion rupiah (US$18.1 million). The timeframe is about 12 months. Challenges were the co-ordination of closing, namely signing of deed of sale and purchase of land, and previous binding agreements that have been signed, and licensing issues identified by the local government.”
EDDY MAREK LEKS, CEO AND MANAGING PARTNER,
We handle an arbitration case at Singapore International Arbitration Centre for claiming us$2.5 million, representing our swiss client for their right based on a coal transaction which was delivered to the Philippine buyer. The defendant was an Indonesian company, and we won the case and started executing the award through Indonesian courts, but the timeframe became longer than we predicted because the process to get a court decision on the award took so long, and we could not enforce the award if we couldn’t get a court decision.
RENO ISKANDARSYAH, MANAGING PARTNER,
Iskandarsyah & Partners
“We recently were involved in a poultry cartel case, which is interesting to highlight as many protected sectors continue to be dominated by certain interests [families]. Having said that, Indonesia’s anti-monopoly law is among the more advanced laws in Asean, and the commission has been very active in pursuing monopolistic behaviour.”
HANIM HAMZAH, REGIONAL MANAGING PARTNER,
Roosdiono & Partners (a member of ZICOlaw)
“We initiated a Starbucks cease and desist warning letters programme that showed almost 80% success, handled by our associates and led by Kin Wah Chow, one of our foreign-registered lawyers, valued on an hourly basis far exceeding the standard set for the works, within the timeframe of one year, and with strong protection of the concentric circle marks and green colour of the marks, with the word marks of course having stronger protection against, for instance, STARMUGS or SETARBAK, etc.”
GUNAWAN SURYOMURCITO, MANAGING PARTNER,
Suryomurcito & Co
We advised FMO Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden, on the financial restructuring and upsizing of term facility financing to Jakarta Tank Terminal for its US$100 million tank terminal project. Norton Rose Fulbright acted for the senior lenders on the successful restructuring of their facilities to the Vopak terminal in the Port of Jakarta (Indonesia). The negotiations and documentation took place in record time in order to close before Christmas 2015. The financing was arranged mainly out of the Netherlands and Singapore. The terminal is operated in Jakarta.”
TASDIKIAH SIREGAR, PARTNER,
Norton Rose Fulbright and its associate firm TNB & Partners
“We have helped many foreign companies to set up new foreign investment companies and to expand the business of existing companies. We also carried out several acquisition transactions and or transfer of shares/transfer of assets, mostly foreign companies acquired shares and/or assets of Indonesian companies. This work usually includes legal due diligence, the scope of which may vary depending upon the structure the transactions.”
ROSETINI IBRAHIM, FOUNDING PARTNER,
Rosetini & Partners Law Firm
“The firm acted as legal counsel to Bentoel Internasional Investama in its issuance of new shares to existing shareholders by giving pre-emptive rights. The deal value was approximately US$980 million. This is the second-largest rights issue transaction in Indonesia to date. No local bank was involved, and Makes had to perform multiple roles in this transaction. The bank involved was Deutsche Bank (Singapore) and the accounting firm was PWC. The partner in charge of the deal was Iwan Setiawan. It was a very challenging deal for the team and we were very pleased with its success. The deal was concluded in June 2016.”
CHRISTINE HERRERA, FOREIGN LEGAL COUNSEL,
Makes & Partners Law Firm