OVERVIEW OF THE DISCLOSURE RULES IMPOSED ON LISTED AND PUBLIC CORPORATIONS UNDER THE INDONESIAN SECURITIES REGULATORY FRAMEWORK

By: I Gusti Ngurah Oka Anantajaya.,SH.,LL.M

Why Disclosure?

Disclosure plays an important role in the capital market and information is deemed as vital for investors as information provides investor with the possibility of making decisions for their investments. Furthermore disclosures are important for smaller investors due to the fact that they are not as sophisticated as larger investors who posses many advantageous positions compare to their counterpart. Investors may First, obtain the information indirectly through the recommendation of various securities market intermediaries. Investors who do not read disclosures especially for the smaller ones may nonetheless learn its content and implications indirectly through securities market intermediaries (Choi and Pritchard, 2003). It can be said brokers will read the firms disclosed information and also make an analysis towards the information which will enable the brokers to provide advice or recommendation to their clients (Choi and Pritchard, 2003). Finally the investors will benefit from the disclosures as the information will be incorporated into the stock market price. So disclosures have a vital part not only for investors in coming to a decision with regards to their investments but also to enable intermediaries or brokers to analyze the information in order to come into a price which reflects the information provided especially when it comes to material events.

Disclosures Rules for Listed Corporations under Indonesian Securities Regulation

In the year 1995 Indonesia introduced Law Number 8 Year 1995 concerning Capital Market which provides for a certain legal grounds for capital market activities in Indonesia after many years of legal uncertainty. The 1995 Capital Market Act and also BAPEPAM-LK regulations provides legal grounds for requiring companies to conduct disclosures at certain periods and also periodically. Article 86 of the 1995 Capital Market Act mandates public companies and companies that has earned a registration statement to submit periodical report and incidental report (for material events) to BAPEPAM-LK.  BAPEPAM-LK as Indonesia`s securities regulatory agency (which is equivalent to the SEC in the United States) issued several regulations concerning disclosures that must be done either periodically or incidentally. Furthermore it also defines what information can be deem as material as stated under BAPEPAM-LK Rule X.K.1.

Immediate Disclosures in relation to Material Events

BAPEPAM-LK Rule X.K.1 mandates corporations to submit any information to BAPEPAM-LK that contains material facts which has the possibility to affect share price within 2 days after the occurrence of the material event. Not only corporations are under the obligation to submit to BAPEPAM-LK but also inform it to the public immediately. Basically this can be considered as an equivalent to Form 8-K of the Disclosure Requirements under the United States Securities Regulation. Information that BAPEPAM-LK considers as material are information or material fact that may affect the price of securities or investors` decision that may consist of, amongst others:

a.       M&A, Consolidation, or establishment of a Joint Venture

b.      A stock split or distribution of stock dividends

c.       An unusual dividend

d.      An acquisition or loss of an important contract

e.       A significant new product or innovation

f.        A change of control or significant change in management of the company

g.       A call for the purchase or redemption of debt securities

h.      A sale of a material amount of securities to the public or in a limited manner

i.         A purchase, or loss from the sale, of a material asset

j.         An important labor dispute

k.       Any important litigation against the company and/or its board members

l.         An offer to purchase securities of another company

m.    The replacement of the company`s trust agent; and

n.      A change in the company`s fiscal year.

In addition to the disclosure requirements set by BAPEPAM-LK above, the Indonesian Stock Exchange also requires listed companies to disclose material information that must also be submitted to the stock exchange. The Indonesian stock exchange issued Rule I-E which adds the definition of what kind of event can be deemed as material that must be released immediately. Those events include but are not limited to:

a.       Matters considered as material as defined above under BAPEPAM-LK Rule X.K.1

b.      Conflict of interest transaction;

c.       Material transaction and the change of the line of the business;

d.      Tender offer by a certain party on the company`s listed share;

e.       Information regarding merger or consolidation plan;

f.        Share splitting, allotment of share dividend, cash dividend, bonus share and increasing capital;

g.       Effort of shares offer of listed company to certain party through a road show;

h.      Discontinuation of part or all of the operation activities of the company, and or subsidiary and or business segment caused by non routine activity;

i.         Freezing of listed company`s principal product or encountering a condition potentially leading to the freezing of the listed company`s product;

j.          Statement of being unable to pay the loan interest and or principal loan or accept a statement from a creditor stating that listed company is in default;

k.       Filling for bankruptcy or suspension of debt payment (PKPU);

l.         The changed of the use of fund resulting from a public offering;

m.    The  occurrence of a material incident, information or fact that is in potential in influencing business to the existence and or an ability to obtain the listed company`s profit;

n.      Other matters which appropriately can be deemed potential in influencing the price and/or investment decision of the investor. 

For details on the Indonesian Stock Exchange Rule I-E, please click on the following link:  http://www.idx.co.id/Portals/0/StaticData/Regulation/ListingRegulation/en-US/I-E_Disclosure_ENG.pdf

Periodical Information Disclosures

Indonesian securities regulation mandates Periodical Disclosures under BAPEPAM-LK Rule X.K.6 concerning the Obligation to Submit Annual Report for Issuer or Public Companies and also Rule X.K.2 concerning the Obligation to Submit Financial Statements which divides Financial Statements into two kinds such as Annual Financial Statements and Semi Annual Financial Statements.

            With regards to Periodical Reports submission, Indonesia makes it mandatory for corporations to file annual report to BAPEPAM-LK. Under Rule X.K.6, corporations listed in the Indonesian Stock Exchange must submit annual report (laporan tahunan) to BAPEPAM-LK no later than four months after the annual report date. Should the annual report has already been made available to shareholders before four months after the annual report date, then the annual report must be submitted to BAPEPAM-LK at the same date with the date of availability to shareholders. In addition annual report must be made available to shareholders at the same time with the shareholders meeting invitation.

            Annual report must include General Provision, Summary of important financial data, Board of Commissioners and Directors Report, Company Profile, Management Discussion and Analysis, Corporate Governance, Director Liability on Financial Statement, Audited Financial Statement and Signature of Board Members.

            In terms of Financial Statements, Indonesia makes it mandatory for corporations to submit periodical financial report (laporan keuangan berkala) to BAPEPAM-LK which consists of Annual Financial Statements (Laporan Keuangan Tahunan) and Semi-Annual Financial Statements (Laporan Keuangan Tengah Tahunan) to BAPEPAM-LK. In submitting Financial Statements BAPEPAM-LK Rule VIII.G.11 makes it mandatory for the President Director and also the Director in charge of accountancy and financial matters of the corporation to submit a statement letter to BAPEPAM-LK stating that they are accountable on the preparation and the presentation of the financial statements of the corporations.

Furthermore with regards to the preparation of the financial statements, Indonesian Securities Regulation under BAPEPAM-LK Rule VIII.G.11 makes it mandatory for corporation to present financial statements and also consolidated financial statements in accordance with the Indonesian GAAP or known as Standar Akuntansi Indonesia set by the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia).

For periodical reports requirements in the Indonesian Stock Exchange, please click on the following: http://www.idx.co.id/Portals/0/StaticData/Regulation/ListingRegulation/en-US/I-E_Disclosure_ENG.pdf

Disclosures by Shareholders

Indonesian securities regulation mandates certain shareholders to disclose their holdings to the public due to their high position in the corporation. Under BAPEPAM-LK Rule X.M.1, Directors or Commissioners of Public Companies must file a report to BAPEPAM-LK of their stock ownership and every change of the stock of the corporation no later than 10 days following the transaction regardless of how much shares increase and how much they own. The purpose of this requirement is to prevent any insider dealings that could be done by the Board members as they are the first ones who could obtain any information before the public in general. The obligation to disclose also applies to every shareholders who posses 5% or more subscribed shares.

Sanctions for failing to disclose the truth

The 1995 Capital Market Act provides criminal sanctions for parties who fail to disclose the truth when it comes to disclosure of material information.  Article 90 of the 1995 Capital Market Act criminalizes parties during a securities transaction that falsely stated material information or fails to disclose Material Information so that statements are misleading with respects to the conditions at the time, at either with the intent to obtain a benefit or to avoid a loss, either for himself or for another person, or with the intent of influencing another person to buy or sell securities.

            Furthermore Article 93 of the Act also prohibits person from making, by any means, a statement and material information that is false or misleading and that affects the price of securities on a securities exchange, if at the time of making such statement or giving such information:

a.       The person knows or should have known that such material information was false or misleading; or

b.      The person has failed to exercise due care in determining the truth of such statement or information.

In terms of the sanctions, the 1995 Capital Market Acts sets an imprisonment of a maximum of ten years and a maximum fine of fifteen billion Rupiah for violations of Article 90 and 93.