Bentoel vs Bentoel -- Corporate battle hots up

Bentoel vs Bentoel -- Corporate battle hots up

By Winahyo Soekanto

DENPASAR (JP): The conflict pitting PT Bentoel Prima (BP), a
producer of various cigarettes, and PT Bentoel International
Investama Tbk (BINI), the majority shareholder controlling 75
percent of shares, has reached a point of no return.

Bentoel International is insisting that the Bentoel Prima
board of directors convene an extraordinary meeting of
shareholders to, among other things, replace its president
director. Media reports have said Bentoel International wants the
president director to be replaced because of declining corporate
performance.

The board of directors has been fighting the motion tooth and
nail, citing that when Bentoel International took over the
majority share, it agreed it would not replace the current
management.

Bentoel International earlier also requested that the local
district court allow the extraordinary meeting to be convened.
The court has turned this down.

Furthermore, Bentoel International has also filed an appeal to
the Supreme Court but the Bentoel Prima board of directors has
hired noted lawyer Todung Mulya Lubis to fight against this
appeal.

This case is unique because it looks as if the majority
shareholders can not protect their own interests in running the
normal business course.

This situation is the reverse of what was set out in Law No.
1/1995 on limited liability companies. The law has replaced
Articles 36 up to Article 56 of the Code of Commerce (Statute
Book No. 23/1847), and includes in its mission the protection of
minority shareholders against the domination of majority
shareholders (See, among others, Article 66 paragraph 2, Article
85 paragraph 3 and Article 98 paragraph 2).

In this particular conflict, the majority shareholder has
found resistance from the management -- a unique situation
because it is usually the majority shareholders who can force on
the management any decisions on how to run the company.

As it happens, Bentoel International finds itself in an
awkward position as Bentoel Prima employees have also staged a
protest against an extraordinary meeting of shareholders.

By now we can see a number of material issues underlying this
Bentoel versus Bentoel conflict: (1) the procedure for convening
an extraordinary meeting of shareholders, as regulated in Law No.
1/1995 on limited liability companies, (2) the substance of the
extraordinary meeting requested and (3) the tripartite
relationship involving Bentoel as a debtor, the shareholders and
the creditors.

Regarding the first issue, Bentoel International has complied
with the procedure for convening an extraordinary meeting as
stipulated in the 1995 law, up to their filing the request to the
district court for a permit to convene the meeting.

The law also stipulates that a request for a meeting can be
made even by one shareholder or more as long as he or they
represent a minimum of 10 percent of the shares (this is actually
for the protection of the minority shareholders).

This request and its reasons may be written in a letter, which
must be sent by registered mail. If, after a passage of 30 days,
the board of directors or the board of commissioners still
ignores the request, the party making the request for the meeting
may ask the district court to give a decision allowing the
meeting to be convened.

It is regulated in Article 67 paragraph 2 that the district
court may decide on the format, the content and the period
related to the convening of the meeting, as well as to appoint
the chairman of the meeting. The decision to be made by the
district court on the granting of this permit is the first and
last decision of an official agency.

This is a good procedure because the district court can then
ensure that an extraordinary meeting of shareholders will be
convened.

If it is feared that the majority shareholders will act as
they wish and harm the interests of the board of directors, the
minority shareholders and even the company, this law has a
provision as protection against this possibility.

Regarding the discharge of a board of directors, they must be
allowed to defend themselves in the extraordinary meeting, which
must be held at the latest 30 days after the date of discharge
(see, among others, Article 92).

Minority shareholders are also allowed facilities to defend
their interests, as can be seen in among others, Article 55.

This article stipulates that every shareholder is entitled to
ask the company that their shares be purchased at proper prices.
This avenue can be pursued if they disagree with the company's
acts, which are deemed to be harming to shareholders or the
company; for example when it sells, pledges or exchanges most or
all of its assets.

As for the agenda of the meeting, said to include the
replacement of the president director, it must be drawn up with
the reasons transparently made known to all shareholders, who
must also find the agenda to be fair, proper and appropriate.

To an observer without access to the document of the Rp 300
billion share transaction, which gave Bentoel International
control over 75 percent of the total shares, the deal is somewhat
strange.

Especially considering that there is no strong reason why
Bentoel International has agreed to accept a provision
stipulating that it would have no representatives either in the
management of the company or on its board of commissioners, the
members of which are still Rajawali Corporation's men.

It would be more sensible, perhaps, to see Bentoel
International not represented on the board of directors and have
their men on the board of commissioners.

As it is understood, the board of commissioners enjoys
substantial power as they can suspend any member of the board of
directors from office, convene an extraordinary meeting of
shareholders and exercise all the authority vested in the board
of directors. Unfortunately, all this is impossible for Bentoel
International to do because it has yet to be represented on the
board of commissioners.

Now the third material issue. To the best of this writer's
knowledge, Bentoel successfully restructured its debts to
domestic and foreign banks before the economic crisis hit the
country, an indication that the company's financial condition was
improving then.

Later, the company showed great aggressiveness in marketing
its products, a condition which must be acknowledged as an
achievement on the part of Rajawali Corporation. It was also this
achievement that made Bentoel International and also, reportedly,
George Soros, interested in investing in Bentoel.

Clearly, therefore, the Bentoel case is quite different from
cases involving companies now taken over by the Indonesian Bank
Restructuring Agency (IBRA). In these latter cases, IBRA directly
controls the shares in the companies concerned, including also
the outcome of a debt-to-equity swap.

In view of the debt restructuring agreement that Bentoel made
prior to the onset of the economic crisis, it is not in IBRA's
immediate interest to be directly involved in the day-to-day
management of Bentoel.

In light of this, it seems too naive and simplistic for the
board of directors of Bentoel to believe that their replacement
would lead to an immediate withdrawal of Bentoel's Rp 400 billion
restructured debts -- the result of years of negotiations with
creditors -- and later to the collapse of the company.

The reasons given for the board of directors' rejection of
their replacement are (1) the company's performance is improving;
(2) the company's activities concern the lives of tens of
thousands of people and (3) Bentoel is one of the largest
taxpayers.

Is it sensible that all this will be at stake simply because
the board of directors is replaced?

I believe, therefore, that the district court has interfered
too much with the company's affairs. It must be remembered that a
limited liability company is essentially a civil association and
a capital association. In light of this definition, will the
decision made by a district court chairman be beneficial to the
settlement of the Bentoel case?

This decision has given rise to a new legal problem. Article
67, Paragraph 4 stipulates that a decision made by a district
court chairman is the first and last decision made by an official
agency. Obviously, it is not subject to an appeal from a higher
court of law.

Therefore, a procedural reason must not be used to prevent a
discussion of the gist of the problem. This matter should not
encourage investors to associate, using a limited liability
company as their instrument. As a matter of fact, a limited
liability company is a model that better protects public
interests.

Last but not least, the extraordinary meeting of shareholders
should be convened because Law No. 1/1995 stipulates and arranges
the protection of all parties belonging to this limited liability
company. Anyway, this is but a normal business course.

The writer is a lawyer based in Denpasar.