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OJK Revises Rules on Material Transactions and Changes of Business Activities by Public Companies in Indonesia

A new OJK regulation broadens the definition of a material transaction and introduces new triggering thresholds for materiality, independent shareholder approval requirements, and broader coverage for changes to the business activities of a public company.

On 20 April 2020 Indonesia’s financial services authority (Otoritas Jasa Keuangan or OJK) issued a long-awaited revised regulation on material transactions and change of business activities – OJK Rule No. 17/POJK.04/2020 on Material Transactions and Change of Business Activities (Regulation 17). The new regulation, which came into effect on 21 April 2020, will replace the 2011 Bapepam-LK Rule No. IX.E.2 on the same subject (Rule IX.E.2).

The key changes under Regulation 17, and their potential impact on public companies, are discussed below. The changes generally come into force on 21 October 2020.


Broader Definition of Material Transactions

Regulation 17 includes a broader non-exhaustive list of transactions that can now be categorised as material transactions. This means that any transaction by a public company, even if not mentioned in Regulation 17, could arguably be subject to this regulation. In contrast, Rule IX.E.2 prescribed only limited types of transactions that could be deemed to be material.

New examples of material transactions introduced by Regulation 17 include:

  • utilising corporate assets or an operating segment (business division)
  • obtaining, disposing of or utilising services
  • assigning the lending or borrowing of funds.

Both Regulation 17 and Rule IX.E.2 define a “Material Transaction” as one transaction or a series of transactions that meet a certain materiality threshold. Regulation 17 now includes examples of the linkage between transactions that will cause them to be considered to constitute a series of transactions. These include (i) a situation where one transaction is conditional upon the other transaction, and (ii) acquiring or disposing of securities of a company (resulting in a change of control in such company) in stages. In practice, those types of transactions have typically been treated by OJK as a linked series, but this has now been legally formalised in the new regulation.

The general requirements under Regulation 17 to apply where a Material Transaction is proposed are as follows:

  • an independent appraiser to determine the fair value of the object of the transaction and/or the fairness of the transaction
  • public disclosure
  • submission of supporting documents to OJK
  • prior approval from the shareholders for transactions that meet the materiality threshold.

New Materiality Threshold for Certain Transactions and Conditions

Regulation 17 generally applies a similar materiality threshold to that found in Rule IX.E.2, namely, any transaction valued at 20% or more of a public company’s equity.

Regulation 17 applies the following materiality threshold for the disposal or purchase of any company or operating segment (business division):

  • the transaction value is at least 20% of the public company’s equity;
  • the total value of the assets that are the object of the transaction is at least 20% of the public company’s total assets;
  • the net profit generated from the object of the transaction is at least 20% of the public company’s net profit; or
  • the operating revenue derived from the object of the transaction is at least 20% of the public company’s operating revenue.

If the disposal or purchase of any company or operating segment (business division) is conducted by a public company with negative equity, the materiality threshold to be applied falls to at least 10% of the public company’s total assets.

To calculate the materiality of a transaction, the public company must refer to its audited annual financial statement, reviewed quarterly financial statement or other audited interim financial statement. The maximum period between the accounts date used for calculating materiality of the transaction and the date of the general meeting shareholders (GMS) (or the date of the Material Transaction for transactions which do not require a GMS) approving the material transaction is 12 months.

Requirement for Shareholders’ Approval

As previously, prior approval by the public company’s GMS is required for any material transaction whose value exceeds 50% of the company’s equity. However, Regulation 17 also requires GMS approval for the following transactions:

  • disposal or purchase of any company or operating segment (business division) by a public company having negative equity where the value of the transaction exceeds 25% of its total assets
  • any Material Transaction where the independent appraiser declares a non-affiliated Material Transaction to be “unfair.”

If a Material Transaction does not take place within 12 months after obtaining GMS approval, the public company must explain this delay to the shareholders in the next GMS and disclose this in the annual report. This disclosure requirement was not previously found in Rule IX.E.2.

Requirement for Independent Shareholders’ Approval

Regulation 17 requires public companies to obtain prior approval from a general meeting of independent shareholders (GMIS) for any of the following transactions:

  1. any Material Transaction which requires prior GMS approval and constitutes an affiliated party transaction;
  2. any Material Transaction deemed to be a conflict-of-interest transaction. This is also in line with the Bapepam-LK rule on affiliated party and conflict-of-interest transactions; or
  3. any Material Transaction with the potential to disrupt business continuity. Although there is no specific guideline for assessing this condition, Regulation 17 illustrates the point by reference to any transaction which may cause (i) a reduction of at least 80% in the operating revenue of the public company, or (ii) the public company to experience a loss on a proforma basis.

These new requirements, particularly point (1), may materially affect the assessment of a future Material Transaction that is also an affiliated party transaction. Public companies may be more reluctant to conduct Material Transactions with affiliates if they require approval from a GMIS since convening a GMIS tends be challenging for public companies in practice. In some cases, companies had to convene a second and third GMIS to meet the required quorum and attendance of independent shareholders, which could affect the timing of the transaction.

Under OJK Regulation No. 15/POJK.04/2020 on Planning and Organisation of General Meetings of Shareholders of Public Companies, “independent shareholders” are defined as shareholders who:

  1. do not have a personal economic interest in certain transactions;
  2. are not members of the board of directors and board of commissioners, substantial shareholders or controlling shareholders of the public company; and
  3. are not affiliates of any person mentioned in point (2).

Disclosure Requirement

For a Material Transaction that does not require prior GMS approval, Regulation 17 now requires information about the transaction to be disclosed within two business days after the date of the Material Transaction (see discussion below). Under Rule IX.E.2, this disclosure was required after the date of execution of the transaction agreement.

Regulation 17 now defines the “date of the Material Transaction” as the date on which an agreement is executed which (i) is final and binding, and (ii) gives rise to rights and obligations for the transacting parties. From the examples provided in Regulation 17, it appears that OJK means that the “date of the Material Transaction” should be the date on which the transaction documents become unconditional – in other words, upon fulfilment of the conditions precedent in a conditional agreement.

Before Regulation 17, public companies have tended in practice to make the Material Transaction disclosure within two business days after the closing of the transaction, rather than following execution of the conditional agreement. This is intended to avoid any premature announcement affecting share prices while there is still a risk that the Material Transaction may not close due to unfulfilled conditions precedent. Regulation 17 appears to support this practice by requiring the announcement to be made once there is certainty that the Material Transaction will close. However, it remains unclear how OJK will interpret this definition in the future, particularly for agreements where the conditions precedent include the absence of adverse material changes.

Further, Regulation 17 now requires public companies to disclose all Material Transactions in their annual reports. This was not required under Rule IX.E.2.

Exemptions under Regulation 17

Regulation 17 applies exemptions from some of the requirements for certain types of Material Transaction. These exemptions are set out in the following table.

Exempted Requirements
Key Points
Exemption from independent appraisal and prior GMS approval

Note: The company nevertheless still needs to make a public disclosure of the Material Transaction and submit supporting documents to OJK.
Certain Material Transactions can rely on this exemption. These are generally the same as those provided under Rule IX.E.2.
However, Regulation 17 removes previous Rule IX.E.2 exemptions for certain types of Material Transactions:
issuance of non-equity securities through a public offering
corporate guarantee to secure obligations of a 99% owned subsidiary
Material Transactions which have been properly disclosed in the IPO prospectus
Material Transactions involving assets that are directly related to the production process or core business activities.
Point (a) above may cause timing and pricing issues for a public company intending to undertake a public offering of bonds, since this is now subject to Material Transaction requirements. As the value of a public offering of bonds often exceeds 50% of the company’s equity, the timing of the GMS approval may need to be clarified with OJK, in order to determine whether GMS approval is required (a) prior to first submission of the registration statement to OJK or (b) later, during the registration statement process. This timing issue also applies to public disclosure where prior GMS approval is not required.
Regulation 17 now exempts the following types of Material Transactions:
a Material Transaction between a public financial institution and its subsidiary engaging in sharia financial services in order to develop the subsidiary’s business
Internal restructuring by a public company that is directly or indirectly owned by the government
a Material Transaction conducted through an auction process in which the public company is a participant. Under Rule IX.E.2, this type of transaction required prior approval from the GMS.
Exemption from independent appraisal, public disclosure, submission of supporting documents to OJK and prior GMS approval
Core Business Activities
A Material Transaction which constitutes “business activities” can rely on this exemption. Regulation 17 defines “business activities” as business activities that are stated in the public company’s articles of association and that have been conducted by the company. To benefit from this exemption, the business activities must be conducted to generate revenues, regularly, repeatedly or continuously. An example of these exempted business activities would be the incurring of normal operational costs such as for the purchase of raw materials.
These exempted transactions only need to be disclosed in the annual report or financial statement.
Public Financial Institutions
Regulation 17 provides new exemptions from the Material Transaction requirements for public financial institutions under certain conditions determined by OJK. However, Regulation 17 does not include any guidance on what these conditions might be, or how OJK will apply them.
This type of transaction only needs to be reported to OJK within two business days after the date of the Material Transaction, and to be disclosed in the company’s annual report.


Under Regulation 17, changes to a public company’s business activities include the following examples (which are broader than those found in Rule IX.E.2):

  1. addition of business activities to the line of business set out in the articles of association
  2. commencement of business activities covered by the articles of association but not previously conducted
  3. reduction in the business activities currently conducted by the company
  4. changes to all business activities conducted by the company.

As mentioned above, Regulation 17 defines “business activities” as business activities that are stated in the public company’s articles of association and that have been conducted by the company. Previously, Rule IX.E.2 only covered changes to the main business activities listed in the articles of association. The introduction of point (b) above by OJK is driven by the common practice of companies including a broad range of activities in their articles of association but not actually conducting all of them.

Regulation 17 sets out similar requirements for changes to business activities to those under Rule IX.E.2. In general, a change of business activities will require: (i) prior GMS approval, (ii) a feasibility study by an independent appraiser, (iii) public disclosure concurrently with the GMS announcement, and (iv) submission of supporting documents to OJK at the latest on the date of the announcement of the GMS.


Dilution of Share Ownership in Subsidiary

Dilution of a public company’s shareholding in a material subsidiary may be subject to Regulation 17 if:

  • the dilution (i) is caused by a capital increase by the subsidiary, and (ii) results in the subsidiary no longer being consolidated with the public company; and
  • total assets, net profit or operating revenue of the subsidiary amount to at least 20% of those of the public company.

This new provision answers a common question in practice as to whether the dilution of a shareholding should be considered to constitute a Material Transaction under Rule IX.E.2, since the company is not actually undertaking any transaction.

Media Used for Announcements

Regulation 17 no longer requires that a Material Transaction be announced in a newspaper with national circulation. The announcement can now be made on the company’s website and the IDX website.

Administrative Sanctions

OJK is authorised to apply various administrative sanctions for violations of certain provisions of Regulation 17. These range from a written warning to a fine, restriction of business activities, revocation of business licence, and cancellation of approval and registration. Rule IX.E.2 previously only empowered OJK to impose sanctions but did not specify the type.


Regulation 17 comes into effect on 21 October 2020, except for (i) the exemptions for public financial institutions under certain conditions, as determined by OJK, and (ii) the administrative sanctions. These two provisions come into effect immediately (ie, as of 21 April 2020).

In line with this transitional period, Rule IX.E.2 will be revoked on 21 October 2020. Consequently, Rule IX.E.2 will continue to apply to Material Transactions and changes in business activities until that date.


Regulation 17 contains more stringent and nuanced requirements for public companies intending to conduct Material Transactions or change their business activities. It also encompasses various developments in practice during the nine years since Rule IX.E.2 was first introduced.

However, various practical questions will arise once Regulation 17 comes into force for Material Transactions, as the regulation introduces several key changes and new concepts that may affect a company’s decision on whether to undertake a Material Transaction. In particular, companies will need to be careful in changing or commencing new business activities, even when these activities are already included in their articles of association.

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We would be pleased to discuss how these new OJK regulations might affect your business and proposed public company transactions.

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