Companies Want to Get Funding from Abroad? Here Are the Requirements

PERTANYAAN

What is the procedure for a non-bank foreign investment company (let's call it foreign investment company A) to obtain funding from abroad? What are the requirements of foreign investment company A before receiving funding from overseas? What is the legal basis? Are there any sanctions if the conditions are not met by foreign investment company A?

INTISARI JAWABAN

In principle, an FDI LLC can receive funding from creditors abroad by first conducting corporate actions. Then, FDI LLC must also carry out obligations related to Foreign Exchange Traffic and Foreign Loans activities, and apply the prudential principle in managing non-bank corporate Foreign Loans.

What does the full legal basis say?

Please read the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of Perusahaan Ingin Mendapatkan Pembiayaan dari Luar Negeri? Ini Syaratnya, written by Dicky Mirdiyan, S.H., LL.M. from Hutauruk Mirdiyan Roem & Partners, was published on Tuesday, 4 July 2023.

This article is an update of the article entitled Two Ways to Get Funding from Abroad, written by Leonardus Agatha P., S.H. / Abraham Adeputra P. Lambe,S.H.,M.H. from ANR Law Firm and was published on Monday, 22 September 2014.

All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

Legal Basis of Foreign Direct Investment

Before answering your question, we should first understand the definition of Foreign Direct Investment ("FDI"), or in Bahasa Indonesia known as Penanaman Modal Asing, which is an investing activity to do business within the territory of the Republic of Indonesia which is undertaken by foreign investors, either by fully using foreign capital or in the form of joint venture with domestic investors.[1] Furthermore, a foreign investor is a foreign individual (foreigner or Warga Negara Asing), foreign corporation, and /or foreign government conducting investment within the territory of the Republic of Indonesia.[2] Based on this definition, foreign investment company A is a Limited Liability Company ("LLC") or in Bahasa Indonesia known as Perseroan Terbatas, that conducts investment activities for business activities in the territory of Indonesia carried out by foreign investors either alone or jointly with domestic investors.

Also read: New! This is the rule for establishing FDI LLC in Indonesia

Legal Basis of Foreign Loans

Then, based on your question, we assume that FDI LLC A will receive funding from overseas creditors through a Financing Agreement. Therefore, we will explain the definition of Foreign Loans or Utang Luar Negeri, from this point onwards referred to as ULN, which are loans of Residents to non-residents in foreign currencies and/or Rupiah, including financing based on Sharia principles.[3]

Moreover, residents are persons, legal entities, or other entities, who are domiciled or planning to be domiciled in Indonesia for at least 1 year, including representatives and diplomatic staff of the Republic of Indonesia abroad.[4] Based on these provisions, financing from foreign creditors received by FDI LLC A as a legal entity that is assumed to have been domiciled in Indonesia for at least 1 year, can be classified as ULN.

Furthermore, the provisions regarding Foreign Loans or ULN in general are regulated by Article 3 section (1) Presidential Decree 59/1972 as follows:

State Enterprises, Regional Enterprises and Private Companies may only be justified to accept foreign credit offers if it is not accompanied by mandatory guarantees from the Government of the Republic of Indonesia, including Bank Indonesia and other State-owned banks, for repayment and/or not resulting in any obligation for the Government of the Republic of Indonesia as a result of the relevant acceptance of foreign credit.

Based on the article above, it can be understood that basically, FDI LLC A as a private company can receive Foreign Loans from foreign creditors as long as there is no requirement for guarantees from the Government of Indonesia, including Bank Indonesia and other state-owned banks, for repayment and/or does not create any obligations for the Government of Indonesia as a result of receiving foreign credit.

Requirements for FDI LLC A Before Accepting Foreign Loans

Before FDI LLC A receives Foreign Loans from foreign creditors, based on our practice, FDI LLC A should first consider taking the corporate actions required in the deed of establishment or articles of association of FDI LLC and Law 40/2007 and its amendments, so that the acceptance of Foreign Loans from foreign creditors can be carried out properly and can be legally accounted for.

In general, there are 2 corporate actions that need to be taken by FDI LLC before receiving Foreign Loans from foreign creditors, namely:

1. Board of Commissioners Approval

The deed of establishment or articles of association of an FDI LLC may stipulate the granting of authority to the Board of Commissioners to grant approval or assistance to the Board of Directors in carrying out certain legal actions.[5] According to Yahya Harahap, the granting of approval by the Board of Commissioners to the Board of Directors has the following purposes and methods:[6]

1. the granting of approval by the Board of Commissioners to the Board of Directors is carried out in writing;
2. the granting of written approval to the Board of Directors in carrying out certain legal acts, is not general for all types of legal acts;
3. the granting of approval by the Board of Commissioners to the Board of Directors is not in the context of carrying out supervisory or advisory duties; and
4. if the deed of establishment (articles of association) provides for the granting of authority to the Board of Commissioners to grant approval to the Board of Directors, it is advisable to specify the conditions for granting such approval.

Based on our practice, generally, the deed of establishment or articles of association of an FDI LLC regulates the action of the Board of Directors in the form of borrowing money on behalf of the FDI LLC and must be done with the approval of the Board of Commissioners. Therefore, if the deed of establishment of FDI LLC A requires the Board of Directors of FDI LLC A to obtain prior approval from the Board of Commissioners before receiving ULN from foreign creditors, then the Board of Directors of FDI LLC A must obtain approval from the Board of Commissioners of FDI LLC A first before agreeing and signing the Financing Agreement to receive ULN from foreign creditors.

2. General Meeting of Shareholders and Circular Resolution of the Shareholders of FDI LLC

Basically, FDI LLC may conduct other General Meeting of Shareholders ("GMS") (in practice called extraordinary GMS) held at any time based on the need for the interests of the company,[7] which in this case generally also includes the receiving of Foreign Loans from foreign creditors. The holding of an extraordinary GMS needs to be approved by the Board of Commissioners of FDI LLC, then, the Board of Directors of FDI LLC organizes an extraordinary GMS preceded by a GMS invitation, and may be held at the request of:[8]

1. 1 shareholder or more who jointly represent 1/10 of the total number of shares with voting right or more, unless the articles of association set out a smaller number; or
2. the Board of Commissioners.

It is also important to note by FDI LLC A, that extraordinary GMS can be held to approve the acceptance of ULN from foreign creditors, extraordinary GMS must be attended by more than ½ of the total number of shares with voting rights present or represented unless the law and/or the articles of association of FDI LLC A determine a larger quorum.[9] Furthermore, resolution of the extraordinary GMS to approve the acceptance of ULN from foreign creditors must be adopted based upon deliberation for consensus.[10]

In addition to the extraordinary GMS, shareholders of FDI LLC can also make decisions outside the binding GMS to accept ULN from foreign creditors, provided that all shareholders with voting rights agree in writing by signing the proposal to accept the agreed Foreign Loans.[11] Decision-making outside the GMS in our practice is known as a circular decision.

Obligations of FDI LLC in Managing Foreign Loans

The obligations that need to be fulfilled by FDI LLC also include obligations related to Foreign Exchange Traffic (Lalu Lintas Devisa/ "LLD") and the application of the prudential principle. The following is the explanation.

1. Foreign Exchange Traffic Activities

Foreign Exchange Traffic is the movement of financial assets and liabilities between residents and non-residents including the movement of foreign financial assets and liabilities between residents.[12] Based on this definition, the Foreign Loans that will be received by FDI LLC A from foreign creditors are part of Foreign Exchange Traffic. Therefore, FDI LLC A as a party conducting Foreign Exchange Traffic activities must fulfill the requirements related to Foreign Exchange Traffic as stipulated in BI Regulation 17/23/2015.

For example, based on Article 13 section (1) BI Regulation 17/23/2015, every withdrawal of Foreign Exchanged Sourced from Offshore Loans (Devisa Utang Luar Negeri/ "DULN") must be received by FDI LLC A as an ULN Debtor through a Foreign Exchange Bank. Then, FDI LLC A as a ULN Debtor who receives DULN must submit accurate information on the receipt of DULN to the Foreign Exchange Bank, and must report the DULN received to Bank Indonesia.[13]

For your information, if ULN Debtors violate the obligations as referred to in Article 13 section (1) BI Regulation 17/23/2015, he/she shall be subject to an administrative sanction in the form of fines of 0.25% of each value of the ULN withdrawal which is not received through a Foreign Exchange Bank, with a maximum nominal of IDR 50 million.[14] In addition, ULN Debtors can also be subject to an administrative sanction in the form of a written reprimand; and/or notification to the relevant creditor abroad; and/or the authorized agency.[15]

2. The Application of Prudential Principles

In addition to fulfilling obligations in Foreign Exchange Traffic activities, FDI LLC A must also fulfill requirements related to the application of the prudential principle in managing non-bank corporate Foreign Loans. According to Article 2 section (2) BI Regulation 16/21/2014, the prudential principles shall encompass the fulfillment of:

1. 1. the Hedging Ratio;
   2. the Liquidity Ratio; and
   3. the Credit Rating.        

You can read the full explanation of the prudential principle in the Foreign Loans of non-bank corporations in Article 2 to Article 5 BI Regulation 16/21/2014.

If FDI LLC A as a non-bank corporation violates the obligation to fulfill the prudential principles, FDI LLC A may be subject to administrative sanctions in the form of a written reprimand.[16] Furthermore, Bank Indonesia will convey information regarding the imposition of administrative sanctions to relevant parties, among others:[17]

1. relevant international creditors;
2. the Ministry of State-Owned Enterprises (Badan Usaha Milik Negara/ “BUMN”), for BUMN corporations;
3. the Ministry of Finance c.q. the Directorate-General of Tax;
4. the Financial Services Authority (Otoritas Jasa Keuangan/ “OJK”); and/or
5. the Indonesia Stock Exchange (Bursa Efek Indonesia/ “BEI”), for public corporations which are listed on the BEI.

Based on the explanation above, it can be concluded that FDI LLC A needs to take corporate action first, either in the form of the Board of Commissioners' approval of the legal actions of the Board of Directors or the GMS or circular resolution of the shareholders of FDI LLC A before receiving Foreign Loans or ULN from foreign creditors. Then, the implementation of the GMS by FDI LLC A in order to approve the acceptance of ULN is important, so that the acceptance of ULN can be carried out properly and can be accounted for under the law. In addition, FDI LLC A must also fulfill the requirements related to Foreign Exchange Traffic and apply the prudential principles in managing non-bank corporate Foreign Loans.

Dynamic regulatory developments often challenge you in fulfilling your company's legal obligations. Keep up to date with the latest legal obligations with Hukumonline's Artificial Intelligence-based legal compliance monitoring platform, Regulatory Compliance System (RCS). Click here to learn more.

These are the answers we can provide, we hope you will find them useful.

Legal Basis:

1. Law Number 24 of 1999 on Foreign Exchange Traffic and Exchange Rate System;
2. Law Number 25 of 2007 on Investment;
3. Law Number 40 of 2007 on Limited-Liability Companies;
4.  Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation which has been enacted into law under Law Number 6 of 2023;
5. Decree of the President Number 59 of 1972 on the Acceptance of Foreign Credit as amended by Decree of the President Number 15 of 1991 on Acceptance of Foreign Loans and Issuance of Bank Guarantees for Acceptance of Foreign Loans by State-Owned Banks and Regional Development Banks Established as Foreign Exchange Banks;
6. Regulation of Bank Indonesia Number 16/21/PBI/2014 of 2014 on the Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank Corporations as amended by Regulation of Bank Indonesia Number 18/4/PBI/2016 of 2016 on the Amendment to Regulation of Bank Indonesia Number 16/21/PBI/2014 on the Implementation of Prudential Principles in the Management of Foreign Loans Of Non-Bank Corporations;
7. Regulation of Bank Indonesia Number 17/23/PBI/2015 of 2015 on the Amendment to Regulation of Bank Indonesia Number 16/10/PBI/2014 on Receiving of Foreign Exchange Export Proceeds and Withdrawing of Foreign Exchange Sourced From Offshore Loans.

Reference:

M. Yahya Harahap. Hukum Perseroan Terbatas. Jakarta: Sinar Grafika, 2016.

---

[1] Article 1 number 3 Law Number 25 of 2007 on Investment (“Law 25/2007”).

[2] Article 1 number 6 Law 25/2007.

[3] Article 1 number 1 Regulation of Bank Indonesia Number 16/21/PBI/2014 of 2014 on the Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank Corporations (“BI Regulation 16/21/2014”).

[4] Article 1 number 3 Law Number 24 of 1999 on Foreign Exchange Traffic and Exchange Rate System (“Law 24/1999”).

[5] Article 117 section (1) Law Number 40 of 2007 on Limited-Liability Companies (“Law 40/2007”).

[6] M. Yahya Harahap. Hukum Perseroan Terbatas. Jakarta: Sinar Grafika, 2016, p. 467.

[7] Article 78 section (4) Law 40/2007.

[8] Article 79 section (1) and section (2) Law 40/2007.

[9] Article 86 section (1) Law 40/2007.

[10] Article 87 section (1) Law 40/2007

[11] Article 91 Law 40/2007.

[12] Article 1 number 1 Law 24/1999.

[13] Article 13 section (2) and (3) Regulation of Bank Indonesia Number 17/23/PBI/2015 of 2015 on the Amendment to Regulation of Bank Indonesia Number 16/10/PBI/2014 on Receiving of Foreign Exchange Export Proceeds and Withdrawing of Foreign Exchange Sourced From Offshore Loans (“BI Regulation 17/23/2015”).

[14] Article 21 section (1) BI Regulation 17/23/2015.

[15] Article 21 section (2) BI Regulation 17/23/2015.

[16] Article 12 section (1) BI Regulation 16/21/2014.

[17] Article 12 section (2) BI Regulation 16/21/2014.