INDONESIA Law and Practice Contributed by: Maria Sagrado, Frederick Simanjuntak and Stephanie Kandou, Makarim & Taira S.
Furthermore, Indonesian company law states that a claim relating to a principal debt against the company can be converted into equity if, among other things, it results from the enforcement of a guarantee pro- vided by the company for a third-party’s loan, and the company has actually received a benefit in the form of money or goods that can be valued in money. Although this provision mainly applies to debt-to- equity swaps, it implies that a corporate guarantee can only be given if there is a corporate benefit for the company. A guarantee for an offshore loan must be reported to Bank Indonesia. Specifically, the guarantor must report foreign exchange flow activities, including the position and changes in offshore financial obligations. This requirement applies to both individual and cor- porate guarantors. If the guarantor is a publicly listed company or con- trolled by a publicly listed company, certain regulatory formalities must be followed to allow them to provide a corporate guarantee. 5.4 Restrictions on the Target In the case of a target being acquired, there are no explicit restrictions under Indonesian law preventing the target from granting guarantees, security or finan- cial assistance for the acquisition of its own shares. However, the granting of guarantees, security or finan- cial assistance for the acquisition of its own shares must provide a corporate benefit to the target. 5.5 Other Restrictions The granting of security by an Indonesian corpo- rate entity generally requires corporate approvals in accordance with its articles of association and Indonesian company law. These approvals may vary depending on the type and value of the security. Additionally, the authors highlight that financing involving Indonesian state-owned enterprises may be subject to the World Bank Negative Pledge (WBNP), which prohibits a borrower from creating liens or encumbrances on its assets without providing the same security to the original lender. WBNP applies when the following conditions are met: (i) there is an element of ownership or control by the Indonesian
government or Indonesian state-owned enterprises or their subsidiaries, directly or indirectly over the assets, and (ii) the project loan is not denominated in Indo- nesian rupiah. For individuals in a marital relationship, unless a pre- nuptial agreement is in place (whether before or after marriage), all assets acquired by the couple are con- sidered joint marital asset. Consequently, when one spouse seeks to grant security over any asset, spous- al consent is required. Failure to obtain this approval can result in the non-consenting spouse challenging the validity of the security during execution, arguing that the encumbrance was made without the neces- sary approvals to bind the marital assets. 5.6 Release of Typical Forms of Security Although, in principle, a security interest ceases when the relevant debt secured has been paid, expired, or rendered null and void, depending on the types of col- lateral, certain formalities must be followed to release specific types of security. For mortgage security, the lender must provide a release letter, which serves as the basis for requesting the security’s release from the appropriate authorities (eg, the National Land Agen- cy). In the case of fiduciary security, the party holding the security is responsible for notifying the Fiduciary Registration Office by submitting a release letter. The Fiduciary Registration Office will then delete the fidu- ciary security from the Fiduciary Register Book and issue a written statement confirming that the Fiduciary Registration Certificate is no longer valid. For assets secured by a pledge, the pledge can be released by terminating the pledge agreement once the borrower fulfils their obligations and the pledged asset must be returned to the borrower. In the case of a pledge over shares, the lender must notify the company of the release so that the Board of Directors can update the shareholders’ register to remove the annotation indicating the pledged shares. If the share certificate for the pledged shares is under the possession of the lender, it must also be returned to the borrower. 5.7 Rules Governing the Priority of Competing Security Interests Holders of mortgages, fiduciary securities, hypothec and pledges have priority over other creditors. In the event of a borrower’s bankruptcy, lenders hold-
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