DEVELOPING DIRECT INVESTORS INTO INDONESIAA COMPARATIVE STUDY TO UNDERSTAND THE INDONESIAN LAW OF GOOD GOVERNANCE IN CONTEXT OF DIRECTORS DUTIES IN THE PRUDENT INVESTMENT DECISION PROCESS.

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DEVELOPING DIRECT INVESTORS INTO INDONESIA: A COMPARATIVE STUDY TO UNDERSTAND THE INDONESIAN LAW OF GOOD GOVERNANCE IN CONTEXT

OF DIRECTORS DUTIES IN THE PRUDENT INVESTMENT DECISION PROCESS BY

Benjamin Halliwell, Ni Ketut Sipasti Dharmawan, Ni Nyoman Supariyani Bhalliwell123@gmail.com , arasswk@yahoo.com, anisupariyani@yahoo.com

Abstract

Encouraging foreign investors in the framework of investment activities into Indonesia is not mere-ly concerning compliance and construction of domestic law based on the notions of international law as well as BIT, but for the practical matter it is likely should consider various important ele-ments such as understanding the cultural, historic, geographic and demographic concerns of the In-donesian counter party and InIn-donesian institutions as well as contract. In the application of these notions in domestic law, is an imperative that cannot be overlooked in prudent investment decision making. In the Indonesian context, sound investment activities will develop with desired outcomes if there are exists not only a harmonization between the international legal construct and but an un-derstanding good corporate governance for the duties and responsibility of the Boards that build from a bottom up perspective. An adversarial, ring fencing approach to the construction of opera-tions in the light of Indonesian law will fail due to a failure to understand the intricacies of the polit-ical reality and customary responsibilities of its custodians. Based in fiduciary duty by statute, the interpretative measures of directors duties and their obligation to Indonesia, must be equally ad-dressed along with the commercial profit seeking operatives, in the mind of the director. The for-eign direct investment decision maker should ensure that the Director‟s representing the construc-tion of the associate capital undertake a deep engagement and understanding of the regional and cultural custom and it‟s local interplay with Indonesian law as an initial function of the investment and maintain that function as a critical operation of director duties over the term of the investment. At a minimum, the environment, social, political and local economic context should be assessed and where appropriate engaged. From the foreign investment perspective, we argue that this process will drive more efficient outcomes.

1. Introduction:

1.1 Research Background

Indonesia encourages foreign direct investment and has of recent years been a beneficiary of growth in foreign direct investment. Bilateral investment agreements are a common method of this transi-tion. Presently, Indonesia is not a party to any international convention for the enforcement of for-eign court judgments and the legal system‟s bias is to protect legal sovereignty. Indonesian law is thus a default position. Our contention is that as such the Indonesian law of good governance as viewed through the prism of directors duties is critical to advance the objective of direct foreign

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in-vestment.

Indonesia has a stated objective of accelerated economic growth of between 7-9% of gross domestic product growth each year to position itself as a top ten advanced economy globally by 2025 as op-posed to its present OECD ranking of 171. In context, according to the 2015 OECD economic sur-vey2, the country has a population of 249.9 M people, a GDP growth rate of 5.5% pa and an unem-ployment rate of 6.2% pa and an annual inflation rate of 6.4% pa.

Indonesia must attract foreign investment to meet it‟s economic development objectives. In this ambition at a macro economic perspective and recent data suggests that Indonesia is proving to be successful. Indonesia‟s Investment Coordinating Board suggests growth of 17.5% in foreign direct investment (FDI) in the fourth quarter (year-on-year) 2014.3 Thus growth has been driven by sec-torial targeting. It has been noted however that this,“is occurring without improvements to its in-vestment environment or competitiveness,4” citing matters such as to further restrict rather than open up the negative investment list, Daftar Negatif Investasi, announced by Badan Kordinasi Pe-nanaman Modal (BKPM) chair Mahendra Siregar in December 2013. Indonesia seeks foreign capi-tal however the modality of its transition into microeconomic efficiency is challenged by foreign perception of investment law surety.

Foreign capital seeks surety of its tenure. Prior to an interrogation of investment performance, it is incumbent upon capital investment decision makers to ensure that the enforceability, stability and certainty of rights and obligations of contract. Indonesia tolerates the objectification of law

Ministry of National Development Planning/ National Development Planning Agency, “Masterplan for Acceleration and Expansion of Indonesia Economic Development 2011-2025,” Coordinating Ministry for Economic Affairs 2011, 9-11.

OECD, “ OECD Economic Suverys: 2015,” OECD Surveys 2015, <https://data.oecd.org/indonesia.htm>. 3

Shiro Armstrong, Sjamsu Rahardja, “Survey of Recent Developments,” Bulletin of Indonesian Economic Studies, Vol. 50, No. 1, 2014: 3.

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ing to prudential governance of investment within the Indonesian economy. It has done so by seek-ing to harmonise investment and corporations law with international standards. Whilst the country has not ratified any international convention to give enforcement to foreign adjudication, companies may prefer non Indonesian law by agreement in contract, Article 1338(1) of the Indonesian Civil Code, a principle of freedom of contract. Bilateral investment treaties, nominating international legal convention are thus a common mode of contractual construction to attract private foreign capi-tal. Further, Indonesia is a member of the world trade organization (WTO) with its Annexes Intel-lectual Property, GATS and TRIMs is a signatory to many schedules providing protection to inter-national convention of notions such as investment activities.Interinter-national convention however is not law in Indonesia until it is ratified. Despite Article 1338 (1), Indonesian courts may apply Indone-sian law. Indonesia Law No.30 of 1999 concerning provides for Arbitration and Alternative Dis-pute Resolution as a preferred model for disDis-pute resolution over litigation, however a foreign arbi-tral award may only be enforced after recognition from an Indonesian court by the issue of an exe-quatur. There is thus a high degree of protectionist policy at play in Indonesia.

We will not consider the reason for this determination, but acknowledge that Indonesian macro economic policy understands that statistically, “the message to developing countries therefore is that succumbing to the obligations of BITS does have the desired payoff of higher FDI flow,5” trades against the protectionist policy armed by Indonesian law. Thus the limited functionality of the harmonisation of law in Indonesia provides an affective environment where Indonesian law is the probable default in contract surety, certainly in dispute resolution.

Beside the legal certainty both based on the compliance to the international treaty, BIT, or by con-tract, the important element to push the development of economic growth from the perspective of

Eric Neumayer, Laura Spess, “Do Bilateral Investment Treaties Increase Foreign Direct Investment to De-veloping Countries?,” World Development Vol. 33, No. 10, 2005, 1582.

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foreign investment is the existence of Good Corporate Governance (GCG), including GCG in order to Director running his role and duties.

An understanding of good governance, as promoted by Directors duties towards the shareholder and creditor of an investment is thus critical by there incumbents and is a key factor of the foreign in-vestment decision. This is highlighted as a key matters for bureaucracy reform in the Masterplan for Acceleration and Expansion of Indonesia Economic Development 2011-2025, citing, “Building a commitment to the implementation of good governance.6”

We will analyse the Indonesia directors duties facilitating foreign investment in Indonesian as by comparison to the model in Australia. Our context will be by considering the role of Directors du-ties role in good governance as a surety aspect of the investment decision making process.

1.2 Legal Issue:

As it mentioned above in this paper will be analyzed the issue concerning how the directors duties assuring good governance in Indonesian compared with Australian from the perspective of attract-ing foreign investment.

1.3. Purpose

The purpose of this research is to analyze the existence of good corporate governance principles under Indonesia investment law as well as Australian law especially for the role and the duties of the Directors in order to attract foreign investment capital in relation to improve the pa of Indone-sian economic growth.

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1.4. Methodology

This research employs the normative legal research by using statute approach, conceptual approach, analyze approach and case approach.

II. What is the legal framework for foreign investment into Indonesia? 2.1.International Standard

Indonesian law seeks to protect the sanctity of foreign capital diluting geographic risk by restricting compulsory acquisition to that being of market based compensation. Indonesia is developing a no-tion of being an attractive region in which to invest climbing global rankings of a place in which to invest.7.

Law No. 25 of 2007 regulates foreign investment into Indonesia. The investment laws require that the investment mechanism is by incorporation, one established with foreign capital is called a PMA company. The PMA company is identified in incorporation and liability laws, Law No 40 of 2007 and in investment law.

The new Indonesian investment law (Law No. 25 of 2007) actually exists as a compliance to inter-national obligation of Indonesia as being a member of WTO-TRIMs Agreement. In general the main principles of WTO such as non discrimination with the MFN and NT principles as well as transparency principles have already cover under the Indonesian investment Law. However, the de-velopment of Indonesian investment law established with long story from more domestic legal basis until complies to international obligation.

In the late 1980s, there was a significant increase in foreign direct investment throughout the world. However, some of the countries including Indonesia in general receiving foreign investment imposed numerous restrictions on that investment designed to protect and foster domestic

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tries, and to prevent the out flow of foreign exchange reserves. Those measures restrictions includ-ing local content requirements (which require that locally produced goods be purchased or used), manufacturing requirements (which require the domestic manufacturing of certain components), trade balancing requirements, domestic sales requirements, technology transfer requirements, ex-port performance requirements (which require the exex-port of a specified percentage of production volume), local equity restrictions, foreign exchange restrictions, remittance restrictions, licensing requirements, and employment restrictions, in fact it considered as violation of GATT Articles III and XI, and are therefore prohibited. An addition, finally Indonesia as well as other countries be-comes a member of WTO in 1994 where the nature of WTO Agreement adopted from GATT. As a result, therefore Indonesia should comply to International obligation in attracting foreign invest-ment especially as part of TRIMs Agreeinvest-ment then further known as liberalization era. Until the completion of the Uruguay Round negotiations, which produced a well-rounded Agreement on Trade-Related Investment Measures (hereinafter the "TRIMs Agreement"), the few international agreements providing disciplines for measures restricting foreign investment provided only limited guidance in terms of content and country coverage. Fortunately, TRIMs Agreement explicitly pro-vide the law for the member to comply with the National Treatment Principles as part of non dis-crimination system as underpin can carry out better atmosphere for future investment sector.

Another regime also provides international basis for better improvement of investment activities including the principles of good corporate governance is the OECD. The OECD Code on Liberali-zation of Capital Movements, for example, requires members to liberalize restrictions on direct in-vestment in a range of areas. The OECD Code, however, is limited by the numerous reservations made by each of the members. In addition, there are other international treaties, bilateral and multi-lateral, under which signatories extend most favoured nation treatment to direct investment. Only a few such treaties, however, provide national treatment for direct investment. The Asia Pacific Eco-nomic Cooperation Investment Principles adopted in November 1994 are general rules for invest-ment but they are non-binding.

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As a member of WTO-TRIMs Agreement, Indonesia has ratified the WTO-TRIMs Agreement in 1994 and its compliance to international obligation set up under investment law since 2007. There are some international standards such as: The National Treatment Principles, Transparency, Legal Certainty, as well as Accountability clearly exist under Article 3, Article 4, and Article 6 of the Law No. 25 of 2007.

Foreign direct investment must be approved by the Indonesian Government, generally, through the Badan Koordinasi Penanaman Modal (BKPM) a board that coordinates and monitors foreign direct investment, the notable exceptions being the in banking and finance and upstream oil and gas. The PMA must adhere to the various licensing regimes, depending on the nature of the business and the fiscal construction it's operations.

The common form of indirect foreign investment is through the Indonesian bourse and controlled by the Otoritas Jasa Keuangan (OJK). The effect of publicly listed entities and the foreign control issue is under discussion in Indonesia with Regulation 5/2013 under a state of review. Objectively, the BKPM holds a monitoring role as to the notion of such investment structures.

By understanding the new Indonesian investment law, currently it can be considered that Indonesia has not only complied to TRIMs but also it has respected and complied to good corporate gover-nance principles as developed by Organization for Economic Co-Operation And Development (OECD). As ruled on the basis of OECD Principles of Corporate Governance 2004, it can be un-derstood that corporation including investment capital corporation shell subject to principles of good corporate governance namely: Ensuring the Basis for an Effective Corporate Framework, The Right of Shareholders and Key Ownership Function, the Equitable Treatment of Shareholders, the Role of Stakeholders in Corporate Governance, Disclosure and Transparency, as well as the

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Re-sponsibilities of the Board.8 With regard to banking sector, the primary objective of corporate go-vernance should be safeguarding stakeholders‟ interest in conformity with public interest on a sus-tainable basis. Among stakeholders, particularly with respect to retail banks, shareholders‟ interest would be secondary to depositor‟ interest.9 .

In General the GCG is …the framework of rules, relationship, system and process within and by witch authority is exercised and control in corporation.10 In addition, foreign investors without doubt will invest their capital in the countries that ruling and implementing GCG principles consis-tently.11 By assessing the important role of GCG in order to attract foreign investment it can be considered that although Indonesia is not a member of OECD Convention, Indonesia has respect-ing and adoptrespect-ing the good corporate governance code imposed by OECD under investment Law (Law No. 25 of 2007), Indonesian Limited Liability Company Act (Law No. 40 of 2007) includ-ing corporate conduct for the Board of Director and other related laws more importantly at the fi-nancial matter and banking sector .

2.2 Bilateral investment treaties (BITs)

Bilateral Investment Treaties are a function of International law with the objective to pursue har-monisation of laws to an international standard, designed to provide key foreign investment deci-sion makers with legal certainty in the construction of enterprise. A persuasive ambition is for supply side ambition is to assure internationalisation of dispute resolution. On the demand side of capital, usually in developing economies, the BITs are a tool to encourage and compete for

OECD (2004), OECD Principles for Corporate Governance, OECD Publication Services, Paris, p. 17-24. 9

Basel Committee, 2015, Guidelines Corporate Governance Principles for Banks, BIS Publication (Bank for Interna-tional Settlement), p.3.

Tony Ciro, 2013, Corporation Law in Principles, Thomson Reuters (Professional) Australia Limited, p. 115. 11

Joni Emirzon, 2007 The Principles of Good Corporate Governance A New Paradigm in Indonesian Business Prac-tices Prinsip-Prinsip Good Corporate Governance Paradigma Baru Dalam Praktk Bisnis Indonesia), Genta Press, Yo-gyakarta Indonesia, p.43.

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vestment12 and establish the ground rules for trade relations whilst internal reform is taking place. The original construction of Bilateral investment treaties is Article 2(1)(a) of the Vienna Conven-tion on the Law of Treaties (VCLT) thatdefines them as an expressed international treatybetween States, governed by international law13. A key focus of the bilateral agreement is often concerns dispute resolution. In Indonesian dimension, the legal basis of BIT is stipulated under Article 6 (2) of the Law No. 25 of 2007.

Contracts may elect non-Indonesian law. Such a choice will ordinarily be honoured by Indonesian courts by function of Article 1338 (1) of he Indonesian Civil Code. Nevertheless, the court can ap-ply Indonesian law.

Indonesia is not a party to any international convention that allows enforcement of foreign court judgements, they are thus not enforceable in Indonesia. Indonesia, progressively, encourages arbi-tration in dispute resolution. Law No.30 of 1999 Arbiarbi-tration and Alternative Dispute Resolution provides for the principal, designed to reduce judicial burden and to provide finality in dispute.The benefit of this approach is that it reduces the intervention of courts, reduces the judicial burden and to assure arbitral award finality.

Indonesian arbitration Law does not follow the United Nations Commission on International Trade Law (UNCITRAL) Model Law. It is possible to exclude Indonesian jurisdiction join preference for foreign arbitration. However, Indonesian Arbitration Law only recognises a foreign arbitral award once an Indonesian court has recognised the award through the issue of „exequatur‟. Thus whilst

Mathius Busse, Jens Koniger and Peter Nunnenkamp, “FDI Promotion through bilateral investment trea-ties: more than a bit?” (2010) 146 (1) Review of World Economics 147, 148.

Tarcissio Gazzini, “Bilateral Investment Treaties” , International Investment Law. The Sources of Rights and Obligations (Brill, 2012) 99, 100-106.

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significant regulatory environment exists to support a foreign judgement in arbitration, enforcement faces a number of difficulties the most significant of which is the difficulty in Indonesian court pre-dictability.

The parties to the agreement define the scope and diversity of the clauses14.

Internationalisation of law brings along with it notions of bureaucratic advocacy as processes of dispute resolution given its nature. Whilst the intent and function maybe that a ruling, which has taken place in a third nation in an international tribunal, Indonesian law construction is such that the ability of enforcement is ultimately a function of diplomacy due to the failure to ratify ac-knowledgment of international arbitration ruling.

An analysis of that case Indonesia‟s preference to maintain legal sovereignty is not a mere nepotis-tic function, they herald back to matters of domesnepotis-tic perception of equity and an internal debate as to nationalism against provincial authority. Nation building structures will at time give way to such politics.

2.3 The cultural belief imperative

In preparation of this article the writers had the pleasure meet with Made Mangku Pastika, governor (the governor) of Bali15. During this discussion the governor made a profound statement as to local cultural relationship with economic development. He made two profound statements.

Todd Allee and Clint peinhardt “Evaluating Three Explanations for the Design of Bilateral Investment Treaties” (2014) 66(1) World Politics 47.

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The first was that the local governing structure is different to other Indonesian jurisdictions and ref-lective of the nuances of value systems of Bali and its over 1,000+ cultural villages. A Balinese governor must be Balinese.

The second statement related directly to economic development. The governor made the affirmative statement that any economic development will only progress in the context of the guiding local val-ue system of Tri Hita Karani and Rwa Bhineda. Tri Hita Karani guides that all have a responsibility to God, to good of (wo)man and to the environment. It is a tripartite system of equal weight and must be harmonised in action. Raw Bhineda in the understanding that opposites are a manifestation of themselves, everything has an equal and proportionate opposite. The governor made a statement proposed as fact, economic development that fails any of these cultural notions will not advance.

Indonesia is vast country, the worlds largest archipelago, it is made up of 17,000 islands occupying a total area of 1,904,569 square kilometres. Indonesia has the world 4th largest population. The country is vast and its community construction is complex.

The investment decision maker should understand the following about the corporation law in Indo-nesia:

a) Court proceedings can be lengthy;

b) It is not uncommon to find the statute in conflict; c) The judiciary has a high degree of discretion; and

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2.4 Bilateral agreements in context.

The matter of Churchill Mining Plc v. Republic of Indonesia ICSID Case No. & Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and ARB/12/14 and 12/40 provides some insight into this notion.

In context, Indonesia‟s Law No.4 of 2009 on Minerals and Coal Mining governs the law of mining. The licence based system came into effect in late 2009. These laws hold provision provisions stat-ing that old minstat-ing law will be managed under transitional provisions thus honourstat-ing previous go-verning law, contracts for works systems. The foreign investment consortia of East Kalimantan coal mine at the heart of this matter was legally constructed in 2007. In rejecting the Indonesian government‟s challenge to the jurisdiction of the International Centre for Settlement of Investment Disputes (ICSID), the media reported the following comments, “Coordinating Economic Minister Hatta Rajasa regretted the ICSID tribunal decision, and Industry Minister MS Hidayat called on lo-cal administrations to be more cautious16,” further, “The Indonesian Resources Studies (IRESS) said on Thursday that the government‟s decision to give local administrations the power to issue mining permits to both local and foreign investors as part of the decentralization policy several years had brought more harm than good to the country.17”

Churchill Mining Plc v. Republic of Indonesia ICSID Case No. & Planet Mining Pty Ltd v. Repub-lic of Indonesia, ICSID Case No. ARB/12/14 and ARB/12/14 and 12/40 is an example of the deli-cate nuisances in the gravitas in the value assigned to risk and its role in ordinary business. In this matter the international consortia stated grievance in the construction of property, or lack thereof given success in mining operations, opposed to the ideological and legal notion of the ownership of

Raras Cahyafitri and Ina Parlina, “RI risks loss in Churchill legal battle,” The Jakarta Post (online) February 27 2014,

<http://www.thejakartapost.com/news/2014/02/27/ri-risks-loss-churchill-legal-battle.html#sthash.qIZc4XGx.dpuf>.

Raras Cahyafitri, „Indonesia should learn from case: Analysts‟, Jakarta Post (online) 28 February 2014 <http://www.thejakartapost.com/news/2014/02/28/indonesia-should-learn-churchill-case-analysts.html>.

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land and a licensed right to use it, rightly a function of risk from the position of the Indonesian. In this matter the consortia of Churchill and Planet were stripped of effective ownership of a coal de-posit, proven by them to be globally significant in favour of Nusantra Group, a well-connected company controlled by presidential candidate Prabowo Subianto, after a gratuity of US$40 million had been paid. Nusantra Group made the case that the license to mine over the land had never been legal relinquished. After the Indonesian domestic challenge exhausted the Churchill and Planet con-sortia took the case to the ICSID claiming on US$2 Billion in damages18. Thus the perception from your conviction is a matter of objective analysis. The consortia are aggrieved based on a position of domestic nepotism and unfair legal administration upon asset seizure. The Indonesian perspective seems to be that the matter has been dealt with objectively through the Indonesian legal system and now the foreign consortia is seeking damages heinous to their perception of value19. According to the commend reported by Mr Amir Syamsudin (Law & Human Rights) in 2014, it can be assess-ing that in the adjudication case above, Indonesian government has a chance to succeed in the next trials regarding the merit of the case. The government has strong evidence that it has not violated the bilateral investment treaties, national law or international law. Letter on it can be understood that the optimism of Indonesian government is supported by facts that investment claims made by Churchill and Planet Mining Pty Ltd [Churchill‟s subsidiary] do not comply with and even violate the Indonesian laws,20”

It would be imprudent for thedecision maker of foreign direct investment into Indonesia to consider that Intentional convention will provide a sole basis in law as to the surety of the governing

Churchill Mining Plc v. Republic of Indonesia ICSID Case No. & Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and ARB/12/14 and 12/40.

19 ibid. 20

Raras Cahyafitri and Ina Parlina, “RI risks loss in Churchill legal battle,” The Jakarta Post (online) February 27 2014,

<http://www.thejakartapost.com/news/2014/02/27/ri-risks-loss-churchill-legal-battle.html#sthash.qIZc4XGx.dpuf>; Raras Cahyafitri, „Indonesia should learn from case: Analysts‟, Jakarta Post (online) 28 February 2014 <http://www.thejakartapost.com/news/2014/02/28/indonesia-should-learn-churchill-case-analysts.html>.

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ture of capital invested. Indonesian law is paramount. In recognition of this an understanding of Indonesian good governance as assessed by an analysis of directors duties to the investor (or credi-tor) should form part of the basis for prudent investment decision making. Our discussion will ref-erence against the Australian construction as a basis of comparison.

III. What are the duties of director in carry out good governance for investment capital?

3.1.How is the obligations process assured?

Directors of incorporated entities have dual role. The commercial role of improving the perfor-mance of the company and the legal requirement to comply with legal duties. The duties exist to protect the shareholder (creditor) form the risk of directors harming the company. Foreign direct investment into Indonesia must be constructed via a PMA company (Foreign Direct Investment Company) which is subject to Indonesian law.

In regard to the duty of PMA Company Director, the Law No. 25 of 2007 concerning Indonesian Investment Law is silent. However, it can be drawn the legal basis by assessing the Indonesian Company Law (Law No. 40 of 2007). Therefore, Law No 40 of 2007 maintains that Directors of a PMA company.

Law No 40 of 2007 maintains that Directors of a PMA company. Indonesian companies provide dual process for governance. The Board of Commissioners (Dewan Komisaris) supervises the per-formance of directors. The board of directors (Direksi) manage the companies operations and man-ages the commercial and legal responsibility of the company.

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A foreigner owned company may have foreign directors and commissioners. If so there are specific executive roles in the company that must be held by an Indonesian. The BKPM may recommend that at least one director is Indonesian21.

i) The Australian perspective.

The hallmark of the relationship between the director and investor (creditor) in Indonesian law is fiduciary duty. The fiduciary duty is significant but not the sole responsibility in the Australian law. The source of law for directors duties in Australia is general law and statutory law, Pt 2D.1 of the Corporations Law. They overlap.

The Australian Legislation22 codifies the duties owed by directors to investors, including legally constructed foreign investment. They are academically, these statutory duties are grouped as, a) The duty of care, skill and diligence, b) the duty to act in good faith and proper purpose and c) the duties of conflict of interest and disclosure.

The duties of care, skill and diligence describe the high standards to which the functions and exer-cise of powers of office and to prevent insolvent trading of the company, which is a requirement that must be viewed broadly. The source of law is contract law (if exists), general law and s180 (1) of he Corporations Act 2001 (Cth).

The duty of loyalty and good faith and proper purpose describes the high standard to which the di-rector must comply when exercising the discretions and power of office. The didi-rector has a fidu-ciary obligation not to take advantage of their special position. This includes dealing with the inter-est of the company as a whole, to avoid potential conflicts, to robustly use discretion as a matter allows and exercise power for proper purpose.

Widyawan & Partners, Allens, “Legal guide to investment is Indonesia, 2014,” Widyawan & Partners, Allens, 16.

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The duty to act in good faith and to us power for proper purpose in the interest of the company has its source in law principally in Equity, “fiduciary law,” and sections 181 and 184 of the Corpora-tions Act 2001 (Cth). The duty to use powers for proper purpose.

The duty to avoid conflicts of interest is strict. It is sourced in general law as a function of fiduciary law and ss 182 - 184 of the Corporations Act 2001 (Cth). The duty gives rise to disclosure obliga-tions depending on the status of the company.

The Australian Securities and Investments Commission (ASIC) holds the primary governing power as to the operation of law in good governance pertaining to Investment in Australia and holds en-forcement rights. This organisation works hand in glove with Australian Prudential Regulatory Au-thority (APRA) and to some degree the Australia Tax Office who complete the regulatory and en-forcement structure within the Australian economy.

ASIC has stated the following generalisations as to the requisite duties of a director: 1. Understand the business of the company;

2. Understand the financial position of the company; 3. Read the information provided;

4. Apply an enquiring mind;

5. A director's responsibility is not limited to his orher field of expertise;

6. There is a difference between an executive director and a non-executive director; 7. Directors cannot delegate their opinion where it is required;

8. Delegate responsibly;

9. Act honestly and do not use position for personal advantage; 10. Handle conflict of interests appropriately.23

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ASIC play an important role as model litigant in Australian corporations law.

On the face of it, these notions are evidentiary however the law pertaining to the question of grav-ity is a recurring theme in Australia. By no means has the governing investment environment proven to be perfectly robust, failure underlying the seminal cases below, at the least, are demon-strative. The critical observation in the Australian context is that the laws governing directors du-ties in the context of good governance, providing surety to investment is a) driven by a nationalis-tic agenda, b) under poignant judicial review and c) is presently weighted towards the rights of the investor.

The earnest and gravity to which directors must met these obligations has been a topical matter for courts. What is the requisite standard? The pendulum has oft swung between in an attempt to find a balance between facilitating entrepreneurial activity and protecting the investor (creditor). The ambition of the courts is often reviewed by legislation.

The Commonwealth Law Economic Reform Program first instigated in 1996, sought a series of economic development reforms informed by a conservative notion of high standards for Directors in their duties to care, skill and diligence to provide a basis for sound decision making and facilitat-ing entrepreneurial risk takfacilitat-ing. This was contracted in the light of soci-economic influence of the time.

Seminal to that notion was the business judgement rule of s 180 (2) (3) of the Corporations Law 2001 (Cth), The rule is said to offer directors and officers a safehar our from personal liability for breaches of the duty of care and diligence in relation to honest, informed and rational business

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judgments.24 The requirements of s 180 (2) must be made out and established and if so it will protect officers who have a ted on an informed basis without material personal interest and who have a rational belief that the decision is in the best interests of the corporation.25

In application, the courts have preferred a pattern of conservative application of the general law principals. Upon the development of the safe har our construction of s 180 (2) (3) in March 1998, after AWA Ltd v Daniels (1992) 10 ACLC 933, Kirby J described the legislation as Corporate anxiety,26 he elaborated, The challenge before lawmakers is to establish a regime which will pro-vide these checks and uphold such standards without unduly reducing the capacity of the compa-ny and its officers to perform the economic functions for which the corporation was established. We are talking of a delicate balance. In Australia, the point at which that balance is struck cannot ignore the recent examples of corporate failures which also evidenced the failures of the legal sys-tem and of the independent directors who should have vigilantly protected shareholders, their companies and the public from the devastating losses which occurred.27 The courts seem to lean towards the tightening of obligations of the duty albeit most recently there has been signs of cracks.

AWA Ltd v Daniels (1992) 10 ACLC 933 is a seminal case. It held an auditor and company directors had failed to lead a Corporation to the requisite standard of care when they did not act upon in-formation regarding the state of the company in an accountable and transparent fashion. The pviously held notion that liability of directors was limited to cases of gross negligence was

Greenhow, Annette, "The Statutory Business Judgment Rule: Putting the Wind into Directors' Sails" [1999] BondLawRw 3; (1999) 11(1) Bond Law Review 33.

25 Ibid. 26

The Hon Justice Michael Kirby AC CMG, “The Company Director: Past, Present and Future,” The Aus-tralian Institute of company directors Tasmanian Division Luncheon Address, Hobart, Tasmania, 31 March 298 at 20.

27 Ibid.

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je ted, Kirby J.28 This applied to non executive directors. This tone of a high standard was later ratified in Vines v Australian Securities & Investments Commission29.

There has since been many cases reaffirming the high standard. The Centro Case,” Australian Se-curities and Investments Commission v Healey [2011] FCA 717, made out breaches of s 180 of the Corporation Law Act 2001 (Cth) and considered the failure of directors and the chief financial of-ficer to accurate, compliant not misleading statements to market. The case brought forward by ASIC handed down civil a penalties to the directors and de o strates the necessity for directors to have sufficient financial literacy to be able to form an opinion that the financial report of the company accurately presents the financial position of the company.30 ASIC has stated it believes the Centro decision provides important guidance and direction on corporate accountability of di-rectors and management31. Middleton J recognised that the standard of assessment for non ex-ecutive directors is not wholly objective and that it must be balanced with the expectations of the public and the market as to adequate display of skill in the role. ASIC did not argue that the officer must know everything of the company but must have the requisite level of skill for a director to assure good governance of the company.

Daniels v Anderson32 is determinative as to the elements of directors diligence. The director can delegate the function of operations but not the obligation of the standard of care.

There has been a recent flag to give rise to the perception that the High Court maybe rebalancing or rebalancing the degree of standard of care. Forrest v ASIC; Fortesque v ASIC [2012] HCA39 the High Court made a determination in favour of the directors on technical matters based in good

ibid at 16. 29

Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1. 30

Belinda Gibson and Diane Brown, “ASIC’S expectations of Directors,” 35(1) UNSW Law Journal 254. 31

11-188MR Centro civil penalty proceedings; http://asic.gov.au/about-asic/media-centre/find-a-media-release/2011-releases/11-188mr-centro-civil-penalty-proceedings/.

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decision making in the ordinary course of business. It was an interesting swing back towards the subjective element, the nature of the actions, in the objective test33. More recently in Woodcroft-Brown v Timbercorp Securities Limited and Ors [2014] HCATrans 85 (11 April 2014) the High Court took a wider step toward liberalisation of the standard of the directors actions as to the standard of care. Whilst this case did not directly consider directors duties to care, skill and diligence specif-ically but it enlightened on requisite standards for directors duties. Considering directors obliga-tions in prospectus disclosure under Corporations Act s 1013C, sig ifi a t risks, in disallowing appeal, the High Court is showed that critically considers the circumstances around the failings of corporations prior to focussing fault on company directors.

The lessons from this discussion is the in the Australian context the law governing directors duties in good governance is an interplay between legislation and judicial review under the construction of responsible government. There is a formulated notion of requisite responsibility and the inter-pretative discussion is made objectively. Fiduciary duties are supplemented with codified law as-signed to provide surety of interpretation and jurisdictional harmonisation. Regulation is objec-tively managed and supplemented by model litigant that is proactive in guidance.

3.2 The Indonesian perspective

The principles of good corporate governance principles (GCG) actually has already stipulated under both Company and Investment Indonesian although it not directly mentioned as GCG. The Law No. 40 of 2007 regulate the national treatment, transparency, accountability as well as fairness under Article 44 (2), 50 (2), 53(2), 97(4) 101(1), 116 , 108 (1) 114(4), and 152(1). For banking sectoral GCG clearly stipulated such through PBI No. 8/14/PBI/2006 (The Central Bank of Indonesia No. 8/14/PBI/2006).

see Vines v Australian Securities & Investments Commission _{(2007) 62 ACSR 1;}ASIC v Rich [2009] NSWSC1229

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To encourage better GCG in investment sector in Indonesia between Indonesia and OECD has concluded a partnership framework (framework of Co-operation Agreement). Under “ Indonesia-OECD Policy dialogue on Corporate Governance” that clearly stipulated 6 main GCG principles for investment sector namely: Ensuring the Basis for an Effective Corporate Governance Frame-work, The rights of Shareholders and Key Ownership Function, The Equitable Treatment of Share-holders, The role of stakeholders in Corporate Governance, Disclosure and Transparency, The Re-sponsibilities of Board.34

IV. Conclusion

Lessons for decision makers of Foreign direct investment into Indonesia

4.1. Indonesian understands that to meet objectively economic goals its must attract foreign direct investment. It has political will and a great ambition for the prosperity of its people. In that notion Indonesia is as developing economy is open.

Indonesia is a young sovereignty hitting a myriad of ancient cultures. The country only officially having independence recognised in 1949. The legal construction of Foreign Direct Investment may seek comfort of construction in International law however the practical application means a sound understanding of the cultural, historic, geographic and demographic concerns of the Indonesian counter party and Indonesian institutions, the application of these notions in domestic law, is an im-perative that cannot be overlooked in prudent investment decision making.

OECD 2015, Indonesia dan OECD: Kemitraan yang Saling Menguntungkan, http://www.oecd.org/globalrelations/keypartners/Indonesia%20brochure%20Bah_web.pdf, h. 2.

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A Foreign investment decision maker who makes a unilateral assertion that construction and capital surety is merely protected by international harmonisation of law by way of contract, is likely to dis-cover that such assumption is founded on unsound ground. It is likely that local Indonesian law will frustrate this assertion.

Thus, in the Indonesian context, the hard edge of contract law, while more than evidentiary, re-quires to be supplemented by practical business diplomacy. Harmonisation of law pertaining to in-vestment is muted in the efficiency and it is very difficult to obtain final adjudication in any other context than Indonesian law. The community construction and the interplay of it‟s vertically sophis-ticated politics with law combined with the adjudicated nuisances of local or regional matters, re-quires a prudent investment decision maker to turn their mind to Indonesian good governance. This is so because the likely outcome of foreign direct investment is foreign investors or their representa-tives will act as directors in the Indonesian jurisdiction. Alternatively, it is incumbent on the pru-dent investment decision maker to factor these intricacies. Directors of Indonesian companies, in adherence to fulfilling their duties, are wise to understand the nuances of the process of law and adjudication in Indonesia. An adversarial, ring fencing approach to the construction of operations in the light of Indonesian law will fail due to a failure to understand the intricacies of the political reality and customary responsibilities of its custodians. Based in fiduciary duty by statute, the inter-pretative measures of directors duties and their obligation to Indonesia, must be equally addressed along with the commercial profit seeking operatives, in the mind of the director.

Indonesian law is concerned with protecting the rights of directors and in the context of good go-vernance. It is surround by objective process and clear directorial determination. It is in the adjudi-cation process that matters defer from the Australian experience. The debate is much for parochial of the regional experience and custom and thus determination can display sporadic outliers in find-ings. We make not ascertain to their validity suffice today thatchy are a reality. Practical, feet on the

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ground, advocacy and engagement with the construction of Indonesian Law of good governance as reflected by directors duties, will provide a more sound outcome for the surety of capital over obsti-nate or worse still belligerent assertion that holding the contract to intention determination in adju-dication is enough.

V. Recommendation

5.1 The foreign direct investment decision maker should ensure that the Director‟s representing the construction of the associate capital undertake a deep engagement and understanding of the regional and cultural custom and it‟s local interplay with Indonesian law as an initial function of the invest-ment and maintain that function as a critical operation of director duties over the term of the in-vestment. At a minimum, the environment, social, political and local economic context should be assessed and where appropriate engaed. The reason for this is 3 fold;

1) the practical element of investment most likely requires an administrative construction that will impose Indonesian corporate law obligations including directors duties on representative of the investor the ramifications of which cannot be completely understood by the Director without such an understanding;

2) contracts and or treaties nominating international adjudication will almost certainly require rati-fication by Indonesian law to gain effect in Indonesia, experience has proven this a difficult as-signment;

3) In Indonesia, this process is a function of good corporate citizenship. An understanding these laws the recommended context will inform and allow for prudent decision making that may protect the surety of capital by offering an ability to swiftly take action of matters of concern. In turn this will provide a greater basis for successful dispute resolution as foundations have been built into the administration of decision making respecting Indonesian custom.

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Bibliographie

1. Churchill Mining Plc v. Republic of Indonesia ICSID Case No. & Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and ARB/12/14 and 12/40.

2. Dodd, Bruce, “Director’s duties : the regulator's view,” ASIC BRIEF; 39 (11) December 2012: 26-28.

3. Eric Neumayer, Laura Spess, “Do Bilateral Investment Treaties Increase Foreign Direct In-vestment to Developing Countries?,” World Development Vol. 33, No. 10, 2005, 1582 4. Jan Hendrik Peters & Wisnu Wardana, Tri Hita Karana the Spirit of Bali, PT Gramedia,

Jakarta, 2013:6.

5. Legal battle,” The Jakarta Post (online) February 27 2014,

<http://www.thejakartapost.com/news/2014/02/27/ri-risks-loss-churchill-legal-battle.html#sthash.qIZc4XGx.dpuf>

6. Ministry of National Development Planning/ National Development Planning Agency, “ Master plan for Acceleration and Expansion of Indonesia Economic Development 2011-2025,” Coordinating Ministry for Economic Affairs 2011

7. OECD 2015, Indonesia dan OECD: Kemitraan yang Saling Menguntungkan, http://www.oecd.org/globalrelations/keypartners/Indonesia%20brochure%20Bah_web.pdf : 2.

8. OECD, “ OECD Economic Suverys: 2015,” OECD Surveys 2015, <https://data.oecd.org/indonesia.htm>

9. Raras Cahyafitri and Ina Parlina, “RI risks loss in Churchill

10.Raras Cahyafitri, „Indonesia should learn from case: Analysts’, Jakarta Post (online) 28 February 2014 <http://www.thejakartapost.com/news/2014/02/28/indonesia-should-learn-churchill-case-analysts.html>.

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11.Shiro Armstrong, Sjamsu Rahardja, “Survey of Recent Developments,” Bulletin of Indone-sian Economic Studies, Vol. 50, No. 1, 2014: 3

12.Government House , 8 December 2015

13.Widyawan & Partners, Allens, “Legal guide to investment is Indonesia, 2014,” Widyawan & Partners, Allens, 12.

14.WTO Agreement 15.TRIMs

16.OECD 17.ICSID

18.Law No. 40 0f 2007 concerning Indonesian Limited Liability Company 19.Law No. 25 of 2007 concerning Indonesian Investment Law

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decision making in the ordinary course of business. It was an interesting swing back towards the subjective element, the nature of the actions, in the objective test33. More recently in Woodcroft-Brown v Timbercorp Securities Limited and Ors [2014] HCATrans 85 (11 April 2014) the High Court took a wider step toward liberalisation of the standard of the directors actions as to the standard of care. Whilst this case did not directly consider directors duties to care, skill and diligence specif-ically but it enlightened on requisite standards for directors duties. Considering directors obliga-tions in prospectus disclosure under Corporations Act s 1013C, sig ifi a t risks, in disallowing appeal, the High Court is showed that critically considers the circumstances around the failings of corporations prior to focussing fault on company directors.

3.2 The Indonesian perspective

see Vines v Australian Securities & Investments Commission _{(2007) 62 ACSR 1;}ASIC v Rich [2009] NSWSC1229

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To encourage better GCG in investment sector in Indonesia between Indonesia and OECD has concluded a partnership framework (framework of Co-operation Agreement). Under “ Indonesia-OECD Policy dialogue on Corporate Governance” that clearly stipulated 6 main GCG principles for investment sector namely: Ensuring the Basis for an Effective Corporate Governance Frame-work, The rights of Shareholders and Key Ownership Function, The Equitable Treatment of Share-holders, The role of stakeholders in Corporate Governance, Disclosure and Transparency, The Re-sponsibilities of Board.34

IV. Conclusion

Lessons for decision makers of Foreign direct investment into Indonesia

OECD 2015, Indonesia dan OECD: Kemitraan yang Saling Menguntungkan, http://www.oecd.org/globalrelations/keypartners/Indonesia%20brochure%20Bah_web.pdf, h. 2.

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(4)

V. Recommendation

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Bibliographie

1. Churchill Mining Plc v. Republic of Indonesia ICSID Case No. & Planet Mining Pty Ltd v. Republic of Indonesia, ICSID Case No. ARB/12/14 and ARB/12/14 and 12/40.

2. Dodd, Bruce, “Director’s duties : the regulator's view,” ASIC BRIEF; 39 (11) December 2012: 26-28.

Jakarta, 2013:6.

5. Legal battle,” The Jakarta Post (online) February 27 2014,

<http://www.thejakartapost.com/news/2014/02/27/ri-risks-loss-churchill-legal-battle.html#sthash.qIZc4XGx.dpuf>

7. OECD 2015, Indonesia dan OECD: Kemitraan yang Saling Menguntungkan, http://www.oecd.org/globalrelations/keypartners/Indonesia%20brochure%20Bah_web.pdf : 2.

8. OECD, “ OECD Economic Suverys: 2015,” OECD Surveys 2015, <https://data.oecd.org/indonesia.htm>

9. Raras Cahyafitri and Ina Parlina, “RI risks loss in Churchill

10.Raras Cahyafitri, „Indonesia should learn from case: Analysts’, Jakarta Post (online) 28 February 2014 <http://www.thejakartapost.com/news/2014/02/28/indonesia-should-learn-churchill-case-analysts.html>.

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11.Shiro Armstrong, Sjamsu Rahardja, “Survey of Recent Developments,” Bulletin of Indone-sian Economic Studies, Vol. 50, No. 1, 2014: 3

12.Government House , 8 December 2015

13.Widyawan & Partners, Allens, “Legal guide to investment is Indonesia, 2014,” Widyawan & Partners, Allens, 12.

14.WTO Agreement 15.TRIMs

16.OECD 17.ICSID

18.Law No. 40 0f 2007 concerning Indonesian Limited Liability Company 19.Law No. 25 of 2007 concerning Indonesian Investment Law

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