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Digital contracting in Indonesian M&A

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published on 24 February | reading time approx. 4 minutes


The ongoing increase of Covid-19 cases in Indonesia since March 2020 raises concerns for everyone in the country and has been affecting numerous parts of business. Many companies in Indonesia are now working remotely and facing difficulties in executing documents or dealing with filing formalities. In current transaction practice, parties to a deal need to consider whether and to what extent the digital approach in document issuance is feasible in Indonesia. Below are some key aspects on using electronic signatures in Indonesia.



The Legal Basis for electronic signing includes:

  • General provisions of the Indonesian CIVIL CODE/Burgerlijk Wetboek;
  • Law No. 11 of 2008 as amended by Law No. 19 of 2016 concerning Electronic Information and Transaction;
  • Government Regulation No. 71 of 2019 concerning the Implementation of Electronic Transaction System.

   

Eligible documents

It can generally be said that documents allowed for electronic signatures are:

  • commercial agreements between corporate entities,
  • service agreements and
  • lease agreements, and other related documentation for residential and commercial real estate.


However, there are also a number of documents which are not allowed for electronic signatures. These include:

  • corporate documents (e.g., shareholders’ resolutions that are required to be stated in a notarial deed form);
  • documents that are directly signed in a notarial deed form (e.g., share acquisition deed) employment related documents;
  • employment related documents;
  • intellectual property rights transfer documents;
  • real estate transfer contracts and deeds as well as
  • any documents or agreements that have a statutory requirement of any notarization, legalization or stamping.


In general, it can be said that those documents that will be submitted to officials still require an original signature instead of an electronic one.


Form of contract

Contracts are generally valid in Indonesia if legally competent parties reach an agreement. This may be done verbally, electronically or in a physical paper document provided that the basic requirements of a contract under the Indonesian Civil Code are fulfilled. Comparable to many other jurisdictions, these basic requirements include

  • consent of the parties,
  • their legal capacity/competency to enter into the agreement,
  • specific subject of the contract, and
  • a lawful cause of the contract.


Parties of an agreement may conclude it through verbal, or written contracts. Further, since the enactment of the Electronic Information and Transaction Law, a contract concluded through electronic means would also be seen as valid. Hence, based on this Law, it appears that electronic signature is a concept generally recognised in Indonesia.


Requirement for e-signatures

Electronic signature is defined as a “signature containing electronic information attached, associated, or related to other electronic information which are used as verification and authentication tools”. Therefore, electronic signatures have a valid legal effect as long as certain requirements are fulfilled:

  • The production data (such as personal code, biometric code, cryptographic code, and/or other codes which are created as the information technology develops) of the electronic signature must be associated only with its signatory;
  • The creation data of the electronic signature need to show that it is only authorised by its signatory at the time of signing process;
  • Any changes to the electronic signatures which are made after the signing have to be traceable;
  • Also, any changes to any electronic information associated with such signature, which are made after the signing, need to be traceable;
  • It must be possible that certain methods are used to identify the signatories; and
  • These certain methods can be used to render evidence that the signatory has provided his approval of the associated electronic information.


Furthermore, a so-called electronic seal is also recognised by the Electronic Information and Transaction Law as a non-individual electronic signature which can represent a legal entity. There are two types of electronic signatures recognized in the implementing regulation, which are certified and uncertified electronic signatures.


Certified e-signatures

Certified electronic signatures have a stronger legal effect regarding security and authenticity. They also have an increased evidentiary value in court or other legal proceedings. To be considered as certified, the electronic signatures must meet the requirements of validity outlined above, and they must be issued by certified and registered Indonesian electronic certification providers who use certified developing tools. The certification and registration of these providers are governed and managed by the Indonesian Ministry of Communications and Informatics. The Ministry hence guarantees the authenticity of the electronic signatures. Currently, we see six certified and registered electronic certification providers in Indonesia, namely BSSN, Peruri, PrivyID, VIDA, Digisign and iOTENTIK. Further information on how to register and purchase the certified electronic signature services are available on the respective website.


Uncertified e-signatures

Examples of uncertified electronic signatures could be a scanned written signature, digital consent in form of clicks, and email signatures. Electronic signatures developed by foreign providers who are not registered in Indonesia are also considered as uncertified electronic signatures. For such an uncertified electronic signature, parties at a court proceeding would need to prove that the electronic signature arrangement can provide electronic records that are suitable as evidence. So they should also satisfactorily support the existence, authenticity and valid acceptance of a signed document. Therefore, it is easier to prove the authenticity of a certified electronic signature.


Enforcement aspects

Indonesia is now in a situation that electronic signatures are technically regulated, but most courts and government institutions in Indonesia still only accept documents with original signatures. In practice, Indonesian courts and authorities are rather reluctant to accept this concept. We have seen that many parties and government agencies in Indonesia still refer to and require manually signed hard copy documents. Therefore, contracts or documents that may be subject to dispute, should in practice ideally obtain a manual signature. Given that electronic signatures in Indonesia do not appear widely recognized yet, how can they anyway be of help during the current pandemic situation? There are some actions that might be considered. Electronic signatures can rather safely be used for executing documents that are only being used internally and are not going to be submitted to courts and government institutions in Indonesia. As said, using electronic signatures from certified providers in Indonesia have a better chance of acceptance. To be on the safer side here it can help to discuss with relevant notaries whether executing certain documents with electronic signatures seems possible (e.g., statement letter and power of attorney). We have seen that some Indonesian notaries are quite fine with the use of electronic signatures on statement letters from companies during the pandemic situation. But up to now there is no update from government authorities on the use of electronic signatures for submission or filing to authorities. The legal situation remains rather blur at the moment.


Conclusion

In summary, electronic signatures are recognized under Indonesian law as legally valid to be used in certain contracts. For this, the validity requirements for the contract as stipulated in the Civil Code and for the electronic signature under the implementing regulation of the Law on Electronic Information and Transaction need to be fulfilled. If the contract is governed by Indonesian law, we would recommend to use electronic signatures issued by Indonesian certified and registered electronic certification providers to have stronger evidentiary, security, and authenticity value. However, authorities still accept these forms of signature reluctantly or not at all. Consultation with notaries in charge can make sense in this situation to better anticipate acceptance in specific administrative scenarios. But, in the end current delays in administrative proceedings can so far often not be solved electronically. Anyway, we see a lot of legislative response to the corona crisis which might also affect the authorities’ approach to digital signatures.

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