When a company decides to expand its business, a credit from banks or any other lending institutions could be one of the best solutions. The loan is being taken due to the urgency to widen the range of the company’s activity or execute the strategic planning that has been made. The banks will not give the loan without a warranty that they can get the money back. As commercial entities, banks need to protect their own interest and require the borrower to give them security or collateral, besides assessing the financial capacity of the borrower.
Here is the issue, sometimes, a company does not have enough assets can be made as collateral. This would make them not get the money, and the business plan would be ruined. To avoid this, involving a third party could be considered to solve the problem. A third party, which is also a company, could present as a guarantor for the loan being taken by another company. In practice, it is common for a holding company to stand as guarantor for its subsidiary’s debt. This scheme is known as “Corporate Guarantee”.
Does such scheme exist in the Indonesian legal framework? This needs to be checked since it is important to ensure that a company truly complies with the law. If we look at the Indonesian Civil Code (hereafter referred to as the Code), there is no explicit provision pertaining to Corporate Guarantee. But, there is Chapter XVIII concerning debt guarantees, consisting of Article 1820 to 1850 of the Code. This particular chapter is divided into several parts. They are: i) the nature of a guarantee; ii) consequences of the guarantee between the creditor and the guarantor; iii) consequences of a guarantee between the debtor and the guarantor, and between the guarantors themselves; and iv) the nullification of the guarantees. Yet, those articles might not satisfy the ongoing search. Apart from being too general, it is possibly not what we are looking for. It seems like the provisions are talking about a guarantee given by a natural person (natuurlijkpersoon), and not a corporation. So, it is likely a Personal Guarantee, not a corporate one.
A question arises, whether those provisions can apply to a corporate guarantee or not. At least, two simple indications could help us to make it clear. First, it is important to note that the Code itself does not distinguish between personal and corporate guarantees. This particular chapter is placed in Book III, and there is no other chapter concerning debt guarantees in Book III or even three other books of the Code.
Second, there is nowhere in the entire chapter that explicitly says the provisions only apply to a natural person. The title being used is “Concerning Debt Guarantees”, without making it specific for a natural person or a company. The chapter uses terms “the guarantor”, “the debtor”, and “the creditor” to refer to the subjects, indicating an inclusive use. Therefore, we can conclude that those articles can apply to the corporate guarantees. It is the same principles of debt guarantees, but with a legal entity (rechtspersoon) as the subject, and not a natural person. Different legal subject, for the same scheme.
Now it is clear that we have a legal basis to do a corporate guarantee. But, unlike a natural person with full authority over himself to decide or to do something, a corporation does not work like that. Yes, the board of directors is the one who runs the company, but the shareholders have their ownership over the company and expect that the company can benefit them.
The board of directors must ensure that every corporate action it takes will not get it into trouble in the future. Therefore, the Code alone is not enough to address this. Other relevant regulations must be examined. Aside from the Code, Law No. 40/2007 concerning Limited Liability Company (hereafter referred to as Law No. 40/2007) should be taken into account. Article 102 of Law No. 40/2007 stipulates certain activities that need approval from the General Meeting of Shareholders (hereafter referred to as GMS), one of which is GMS’ approval when the company’s assets are made into collateral. The assets referred to constitute more than 50% (fifty percent) of the total net assets of the company in one transaction or more.
Apart from Law 40/2007, implementing regulations also deserve attention. Providing a corporate guarantee can be classified as a material transaction if it meets certain value limits regulated in Article 3 of Financial Services Authority Regulation (hereafter referred to as POJK) No. 17/POJK.04/2020. Therefore, it carries other obligations that need to be fulfilled as regulated in Article 6 of POJK No. 17/POJK.04/2020. A public company that is planning to do a material transaction is required to hire an appraiser to determine the fair value of the objects of the material transaction and assess the fairness of the transaction itself. The company is also required to announce an information disclosure of each material transaction to the public. The same information disclosure is also sent to the Financial Services Authority by including the supporting documents.
In conclusion, under the Indonesian legal framework, when a company provides a corporate guarantee, it should comply with the provisions of debt guarantees in the Civil Code as the primary legal basis. Along with that, certain obligations stipulated in Law 40/2007 and POJK No. 17/POJK.04/2020 also need to be fulfilled.
