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.

BEST FIRMS

Asia Business Law Journal asked some of the top firms in Indonesia who they would recommend, excluding themselves, for work in various practice areas. here is a compilation of their responses.

BANKING & FINANCE:

Ginting & Reksodiputro; Dermawan & Co; Hadiputranto Hadinoto & Partners (HHP, local affiliate of Baker & McKenzie); Ginting & Reksodiputro (local affiliate of Allen & Overy); Ali Budiardjo Nugroho Reksodiputro (ABNR); Assegaf Hamzah & Partners.

CORPORATE & COMMERCIAL:

Makes & Partners; Melli Darsa & Co; Soemadipradja & Taher; HHP; Hiswara Bunjamin & Tandjung (an affiliate of Herbert Smith Freehills); ABNR.

DISPUTE RESOLUTION: Budidjaja & Associates; Assegaf, Hamzah & Partners; Hiswara Bunjamin Tanjung; Lubis Santosa & Maramis.

INTELLECTUAL PROPERTY:

Suryomurcito & Co; K&K Advocates; SKC Law; Biro Oktroi Roseno; HHP; Rouse & Co.

PROJECT FINANCE & INFRASTRUCTURE:

Lubis Gani Soerowidjojo; HHP; Melli Darsa & Associates; Widwayan & Partners.

TECHNOLOGY, MEDIA AND TELECOMS:

Christian Teo & Associates; HHP; Bahar & Partners; SSEK Legal Consultants.

 

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.

“Usually, the argument is related to the element of ‘good cause’ as stipulated in article 1320 of the Indonesian Civil Code,” explains Haryanto. “Under Indonesian contract law, a contract is valid if it has the element of mutual consent, legal capacity, certain object matter, and good cause. Despite the fact that a debtor has provided representation and warranties that all permits have been obtained to enter into the loan agreement, a bad faith debtor may use the fact that it has not obtained certain governmental permits when entering into the agreement to seek a court declaration that the loan agreement is null and void.

“Logically, it should be the bad faith debtor that must be ‘punished’ by the Indonesian court for violating the clause on representation and warranties. Unfortunately, for certain reasons, the court has ruled in favour of the bad faith debtor and caused losses to good faith creditors.

“There will always be loopholes that can be used by Indonesian lawyers to defend a bad faith debtor. Therefore, what the lawyers of the creditors can do is to anticipate all possible arguments that can be made by such a delinquent debtor. It is recommended for the creditors to engage the services of a law firm that not only has good corporate  lawyers, but also has a good litigation practice. The experienced litigators may provide good advice to their corporate lawyers in anticipating possible loopholes in a loan agreement.”

indonesia-stephanus-haryanto-managing-partner-adnan-kelana-haryanto-hermanto

The arguments of local laws making such arrangements illegal has been effective in the past, most recently this year in a court decision effectively disabling Standard Chartered Bank from recouping a US$1 billion loan to Borneo Lumbung Energi & Metal, one of the bank’s largest exposures to a single borrower.

Christine Herrera, a partner at Makes & Partners in Jakarta, says the idea that loan agreements are invalid if prior approval has not been obtained from the government, as pointed out in the above case, has led “many lenders [to] believe that this is a legal loophole and debtors can exploit it to escape from repayment obligations. As a result, many foreign lenders became more anxious about the certainty of their financing arrangements against local debtors.”

It’s just one example of the way a system can work against the biggest and best companies who ignore or, for whatever reason, fail to heed the advice of local expertise. And there is a knock-on effect, a cultural divide that impacts corporate counsel, as Yudhistira Setiawan, president of the Indonesian Association of Corporate Counsel, observes.

“As you may appreciate, there is an understanding or mindset in Indonesia that ‘there is no rule without exception’, and there is always room to ‘play’ – this is something that has been going on for years, since the Suharto era,” he says.

“Now with the spirit of the New Indonesia, the role of legal counsel in a company has to change or shift, as we have to perform our duties and responsibilities in compliance with prevailing regulations. However, the mindset of management at some Indonesian companies does not change fast, as it has been embedded for years, and inherited from their predecessors.

“Particularly when they have to face issues on anti-corruption and anti-bribery in order to, say, obtain a licence or permit from government authorities. This example happens every day in Indonesia and when a legal counsel steps in to give advice, many listen to us, but many do not, as they prioritize business rather than compliance.”

With business being a considerable priority for a moribund economy, Irfan Ghazali, a partner with Makes & Partners in Jakarta, says the government has been moving at double time to introduce policy programmes for which investors have been longing for years, under the auspices of Economic Deregulation Packages (EDPs). The first EDP was launched in September 2015, and since then there have been about 150 regulations either revised or currently under review, to support the objectives of these reforms.

“The EDPs also address the issue of streamlining business procedures and the investment red tape Indonesia is infamous for,” says Ghazali. “Indonesia’s investment co-ordinating board [BKPM] has been in charge of co-ordinating and ensuring the fastest possible way for investors to facilitate investment in the country.”

He says more recent EDPs have brought about more optimism for Indonesia’s investment landscape. “The 10th EDP in February 2016 revised the Indonesian Negative Investment List, which sets out applicable limitations on foreign ownership in each business sector/industry, while the 12th EDP, announced at the end of April 2016, specifically addresses the ranking of Indonesia in the World Bank’s Ease of Doing Business, focusing on simpler procedures for incorporating a company, acquiring basic licences, and simplifying dispute settlement process at the judiciary.”

You must be a subscriber to read this article, or you can register for free to enjoy the current issue.

该部分内容仅提供予《商法》订阅会员。你可以订阅去解锁所有内容。你也可以免费注册去浏览最新一期的内容。

“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,
Wiyono Partnership


“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.”

STEPHANUS HARYANTO,
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,
Hermawan Juniarto


BIG DEALS

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,
Leks&Co Lawyers


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