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Indonesia’s financial services authority has responded to the need for a legal basis for public companies to hold “electronic” general meetings of shareholders (e-GMOS) during the COVID-19 pandemic.
Following the launch of e-proxy and e-voting platforms by the Indonesian Central Securities Depository (Kustodian Sentral Efek Indonesia or KSEI) in early April (which we discuss here), Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) has now published Regulation No. 15/POJK.04/2020 on the Planning and Organisation of General Meetings of Shareholders of Public Companies (New GMOS Regulation), which replaces Regulation No. 32/POJK.04/2014 as amended by Regulation No. 10/POJK.04/2017.
One of the key changes under the New GMOS Regulation is the inclusion of provisions on holding “electronic” general meetings of shareholders (e-GMOS). OJK has also issued implementing guidelines on convening an e-GMOS, through Regulation 16/POJK.04/2020 on Implementation of Electronic General Meetings of Shareholders of Public Companies (e-GMOS Regulation). Both of these regulations came into effect on 21 April 2020.
We summarise here both the key changes and the principal guidelines for convening e-GMOS.
KEY CHANGES UNDER NEW GMOS REGULATION
While the New GMOS Regulation restates most of the provisions in the previous GMOS regulation, it also introduces two notable changes:
- Public companies are now required to provide an alternative mechanism for granting proxy power to attend and vote by electronic means in a GMOS (as discussed below).
- Indonesian Stock Exchange (IDX)-listed companies are no longer required to publish newspaper announcements. Instead, they must use the facilities of an e-GMOS provider to make the necessary announcements on the e-GMOS provider’s website.
Through this regulation, OJK now has a clear legal basis to extend the deadline for holding the annual GMOS under certain circumstances.
The New GMOS Regulation helpfully clarifies some previously unregulated practices for holding a GMOS, which up to now have relied on unwritten OJK policy. The new rules cover:
- implementation of general meetings of independent shareholders (including meetings approving private placement by public companies);
- more transparent step-by-step procedures for organising GMOS upon a written request by registered mail from (i) one or more shareholders jointly representing at least 10% of the issued and paid-up shares with voting rights (unless the articles of association of the company set a lower threshold) or (ii) the company’s board of commissioners;
- how to determine which shareholders are eligible to attend a second, third or reconvened GMOS; and
- the minimum attendance and voting quorums for a GMOS approving either a change to its core business or a material transaction (unless the asset transfer concerns over 50% of the public company’s net assets, which leads to higher thresholds).
PRINCIPAL GUIDELINES FOR CONVENING E-GMOS
OJK now further regulates how to plan and organise an e-GMOS, and the requirements for e-GMOS service providers. E-GMOS can be implemented through an e-GMOS system provided either by an e-GMOS service provider such as KSEI, with its eASY.KSEI system, or by the public company itself. Only KSEI and Indonesian legal entities registered with OJK can be e-GMOS services providers. E-GMOS systems developed by service providers (other than eaSY.KSEI, developed by KSEI) that are registered with OJK and developed by the public companies themselves must connect with KSEI’s central custodian system. An e-GMOS can only use one approved system each time it is held.
E-GMOS service providers and public companies that develop an e-GMOS system are required to do the following:
1. register as an electronic system organiser with the Indonesian Ministry of Communication and Information Technology (MOCIT);
2. apply standard operating procedures for using the system (subject to OJK approval);
3. ensure the system is secure and reliable;
4. record all their data processing activities;
5. retain all data on e-GMOS implementation; and
6. bear any losses arising from their mistakes and omissions in providing and organising e-GMOS.
The agenda for an e-GMOS must be notified in advance to OJK (and the IDX), and a GMOS announcement and invitation must be made. When implementing an e-GMOS, the company concerned must still convene a physical meeting, attended by at least the chair of the meeting, one director and/or commissioner, and appropriate supporting professionals (eg, public notary, share registrar, consultants). This physical meeting requirement can, however, be exempted in certain circumstances determined by the Government, or with approval from OJK.
The company can also limit the number of shareholders physically attending the meeting (including their proxies), on a “first in-first served” basis. However, while the number of attendees can be limited, the regulation confirms that attendance by shareholders or their proxies by electronic means through an e-GMOS system will be deemed the same as physically attending the meeting, and will counts towards the quorum.
PROXIES AND VOTING
Shareholders can opt to authorise a proxy to attend and/or vote at an e-GMOS on their behalf. This proxy power may be granted by electronic means through the e-GMOS system, which must be done at least one business day before the GMOS is held.
A shareholder may cast votes in the e-GMOS from the date of the GMOS invitation until the meeting is opened. A shareholder casting votes before the GMOS is held will be considered as validly attending the meeting itself. On its face, it would appear that attendance at the GMOS is not required if the shareholder has cast a vote beforehand. A shareholder may still change or withdraw previously cast votes up until the time the chairperson counts the votes.
The minutes of an e-GMOS must be put in notarial deed form by a public notary registered with OJK, but are not required to have been signed by the meeting participants in advance.
Companies and any other parties violating these regulations may face civil sanctions ranging from a written warning or a fine to licence revocation and cancellation of approval or registration, as well as other penalties at OJK’s discretion. These other penalties may include delaying the GMOS and publicising the penalties being imposed, which is typically done through a media release.
AMENDING ARTICLES OF ASSOCIATION
In order to adopt the provisions contained in the New GMOS Regulation on holding GMOS, all public companies are required to amend their articles of association accordingly. OJK has set a deadline of October 2022 for them to do so. Until that time, they must still comply with all of the guidelines contained in the New GMOS Regulation.
We note that the articles of association of public companies may contain certain provisions and arrangements relating to the management of the company, the rights of certain types of shareholders and the quorum for meetings, which are typically set out in a shareholder agreement or similar agreement. In some cases, however, we have seen such an approach challenged. When amending the pertinent articles, the respective positions of these parties and the arrangements set out in their agreements will require careful review to ensure that the terms of the agreement are not inadvertently breached, and that the amended articles of association still align with the agreement.
While the recently launched eASY.KSEI e-GMOS platform was not deemed ready for use at any GMOS called before 21 April 2020, the New GMOS Regulation requires all public companies to immediately implement an alternative mechanism for e-proxies and e-voting in their GMOS. Practically speaking, it is difficult to imagine how this requirement can be met without a platform being available for holding e-GMOS.
It is also unclear whether, in such circumstances, public companies holding GMOS without facilitating proxies and voting by electronic means could be seen as violating the OJK regulations. A further question also arises as to whether such a GMOS would be deemed to be legally defective, potentially making resolutions passed at the GMOS null and void.
Considering the transitional issues raised above, while there is currently no platform available for holding e-GMOS, public companies will need to make their own assessments to determine how best to proceed with their GMOS.
We would of course be happy to discuss how these new OJK regulations may affect your company.