With the world facing its biggest challenge of the century so far, and probably its greatest challenge since World War II, businesses are asking how they should best respond to the impact of the COVID-19 crisis. This article answers the FAQs that businesses are asking with regard to contracts, force majeure and shareholders' duties.

What happens if a commercial contract comes under stress due to COVID-19?

For parties that are experiencing difficulty in performing a contract, the first thing that they need to do is carefully check the contract to see if there is anything in it that specifically addresses the problem that they face. Parties should also communicate the problem to their counterparty. If the difficulty could result in a party being unable to perform all or part of the contract, they should notify their counterparty of this at the earliest possible opportunity. In addition, if a party's difficulty in performing a contract results in its counterparty or a third party experiencing losses, it should apply mitigation measures as quickly as possible to limit such losses and the extent of its liability.

Conversely, should a party believe or suspect that its counterparty may experience difficulties in performing their side of the contract, it should promptly contact them to enquire about this. Depending on the seriousness of the situation, parties may need to consider agreeing to a change in the delivery date or the method of performance. In extreme situations, a party might also need to consider ending the contract by serving a written notice of termination on its counterparty (should this be commercially preferable and legally permissible with regard to the specific circumstances). Parties should make efforts to mitigate any losses that may accrue to third parties as a result of their counterparty's non-performance of a contract.

Is COVID-19 a valid ground for declaring force majeure?

The Civil Code and other legislation provide some guidance as to situations that would fall within the meaning of force majeure, but give no clear definition of the term 'force majeure'. Therefore, parties will have to review specific clauses on force majeure in the contract and identify if there is any clarification or requirement that must be satisfied in order to define or establish force majeure.

That said, since the COVID-19 outbreak has been declared a global pandemic by the World Health Organisation and a national disaster by the Indonesian government, it is likely that:

  • common definitions of force majeure will cover the COVID-19 outbreak; and
  • any cancellation, delay, non-performance or form of default occurring or resulting from one of the parties failing to fulfil their obligations under the contract due to COVID-19 could be justified without constituting a breach of contract (provided that the action under the first bullet point is also taken).

Can a contract be unilaterally terminated due to COVID-19?

This depends on the contract. Assuming that a contract stipulates that force majeure is a ground for termination, it is likely that COVID-19 could be used as a basis to terminate a contract.

How can shareholders meet their duties during COVID-19?

Private companies can hold shareholders' meeting by teleconference, video conference or another electronic means that enables all required persons to fully participate.

As for issuers and public companies, the Financial Services Authority has issued a directive that allows annual meetings in 2020 to be pushed back from 30 June 2020 (the usual deadline) to 31 August 2020 (at the latest). Shareholders will also be permitted to electronically provide their authorisations via a system to be provided by the Indonesian Central Securities Depository. It is expected that this system will be ready for operation by the end of April 2020.

In addition, the deadline for the filing by issuers and public companies of financial statements has been pushed back to 31 May 2020 from 31 March 2020, while the deadline for the filing of annual reports has been postponed to 30 June 2020 from 30 April 2020. Similarly, audit committee appraisal reports on audited financial statements may be submitted by 31 August 2020 instead of 30 June 2020.