Indonesia: The International Comparative Legal Guide To: Securitisation 2016

Last Updated: 6 June 2016
Article by Freddy Karyadi and Novario Asca Hutagalung

1 Receivables Contracts

1.1 Formalities. In order to create an enforceable debt obligation of the obligor to the seller: (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a receivable "contract" be deemed to exist as a result of the behaviour of the parties?

Generally, agreements in Indonesia can be made either in writing or verbally. However, for a debt that arises from a loan agreement, article 1756 of the Indonesian Civil Code ("ICC") stipulates that the payment of a debt shall only be limited to the amount stated in the agreement. Thus, receivables shall be made in an agreement in order to provide clarity. Further, pursuant to Article 1457 of the ICC, a sale and purchase is an agreement where one party binds itself to provide goods and the other party pays the agreed price. Article 1513 of the Indonesian Civil Code further stipulates that the main obligation of the buyer is to pay the purchase price in the place, and at the time, agreed in the agreement. If there is no agreement on the place and time of payment, Article 1514 of the Indonesian Civil Code further regulates that the buyer has to pay at the time of the handover of the goods (levering). Based on this, it can be concluded that for the sale and purchase, the payment for the good/services has to be made at the agreed time or at the time of the levering. Such payment cannot be made in instalments, since it has to be paid at the levering.

Invoices alone are sufficient to be deemed as a binding agreement, as long as the recipient of the invoices has made the payment to the issuer of the invoice. Hence, the recipient of the invoices is deemed to provide his consent to the invoices. Indonesian law also recognises the concept of consent by conduct under Article 1347 of the ICC, which stipulates that customary stipulation shall be deemed to be implied in the agreement, notwithstanding that these have not been expressed.

As previously explained, a receivables contract, the nature of which can be deemed as a debt or loan agreement, shall be made based on a binding agreement. Hence, it cannot be deemed to exist as a result of the behaviour of the parties. However, as for other agreements which entitle the seller to receive payment aside from the loan agreement, we believe that a contract might be deemed to exist as a result of the behaviour of the parties (please also refer to our explanation above in relation to Article 1347 of the ICC).

1.2 Consumer Protections. Do your jurisdiction's laws: (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?

Generally, there are no restrictions on interest on consumer credit, loans or other kinds of receivables. Parties may determine the interest rate mutually. However, note that in Indonesia a usury law (the "Woekerordonantie") is still in force. In addition, save for a credit card, Bank Indonesia limits the interest to a maximum of 2.95 per cent per month. Aside from the limitation of interest, Bank Indonesia (the Indonesian central bank) has imposed significant restrictions on new offshore financing arrangements entered into by non-banking institutions in Indonesia, as stipulated under BI Regulation No. 16/21/PBI/2014 on Prudential Principles in the Management of Offshore Borrowing for Non-Bank Institutions which revokes and replaces the BI Regulation on the same matters ("BI Regulation 16/2014"), which require Indonesian non-bank borrowers to satisfy certain minimum hedging and liquidity ratios in relation to their external indebtedness.

There is no statutory interest rate on late payments.

There are no noteworthy rights of consumers under the Consumer Protection Law with respect to the receivables that they owe.

1.3 Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?

Yes, additional requirements may apply to the sale or collection of government's assets. Article 46 of Law No. 1 of 2004 on State Treasury stipulates that any transfer of a government asset other than land and buildings shall obtain approval from the House of Representatives, the president, or the minister of finance. Such approval is determined based on the value of the asset. As for government assets other than land and buildings valued: (i) more than Rp100 billion shall obtain approval from the House of Representatives; (ii) Rp10 billion up to Rp100 billion shall obtain approval from the president; and (iii) below Rp10 billion shall obtain approval from the minister of finance.

2 Choice of Law – Receivables Contracts

2.1 No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in your jurisdiction that will determine the governing law of the contract?

Indonesia acknowledges the concept of the "most characteristic connection" in order to determine the governing law of a contract that does not stipulate a choice of law provision.

2.2 Base Case. If the seller and the obligor are both resident in your jurisdiction, and the transactions giving rise to the receivables and the payment of the receivables take place in your jurisdiction, and the seller and the obligor choose the law of your jurisdiction to govern the receivables contract, is there any reason why a court in your jurisdiction would not give effect to their choice of law?

No, there should be no reason.

2.3 Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in your jurisdiction but the obligor is not, or if the obligor is resident in your jurisdiction but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in your jurisdiction give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such as that between the seller and the obligor under the receivables contract?

Generally, an Indonesian court will recognise the parties' choice of law in an agreement. However, to the extent there is an Indonesian party, an Indonesian court has the right to invalidate the agreement if it is deemed to violate Indonesian law.

2.4 CISG. Is the United Nations Convention on the International Sale of Goods in effect in your jurisdiction?

No, it is not.

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Previously published by Global Legal Group

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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