Navigating legal minefields in Asean

Any prospective investor intending to set up a business in the region must be cautious of the issues and challenges that arise in relation to investing here.

THE 10 markets that make up Asean have captured the attention of investors globally for their immense growth potential. In 2014, Asean attracted close to US$136 billion in foreign direct investment (FDI), accounting for 11 per cent of global FDI inflows. Unlike in the past, positive reforms have been undertaken by the Asean member-states over the years, making it easier to do business in the region. However, any prospective investor intending to set up a business in Singapore or any Asean market must be cautious of the legal issues and challenges that arise in relation to investing in this region.


The first hurdle that prospective investors face in entering several Asean markets is that there may be restrictions on foreign investment or other forms of approvals required for foreigners to enter local markets.

For example, Indonesia's Presidential Regulations No 39 of 2014 limits the extent of foreign ownership permissible in various business sectors. While certain types of business activities may be carried out by entities that are entirely foreign-owned, others must be carried out only by entirely local-owned entities. Some types of business activities may be carried out by entities that are partially foreign-owned, with limits on the extent of foreign ownership varying depending on the type of business activity.

These rules may be liberalised as part of certain initiatives recently announced by the Indonesian government. The changes would lead to a relaxation in foreign ownership limits in certain business sectors and the opening-up of some other sectors to foreign ownership for the first time. These changes are expected to be implemented in late March or April 2016.

Apart from foreign ownership restrictions, potential investors must also be aware of approvals and licences needed from bodies such as the Indonesia Capital Investment Coordinating Board, or the Ministry of Law and Human Rights, as well as other sector-specific authorities.

Likewise, the Philippines has the Foreign Investment Act of 1991 which sets out a list of specified economic activities in which foreign investment is either prohibited or restricted to a maximum percentage of total ownership.

Foreign investors should plan an exit strategy for the worst-case scenario where a business sector they entered is subsequently closed to foreign investors.


This seemingly innocuous process could be tricky for the uninformed. Foreign investors may not realise that the choice of language for a contract may have serious consequences for the validity of the contract.

In Indonesia, for example, Law No 24 of 2009 of National Flag, Language, Emblem and Anthem requires that contracts involving an Indonesian party should be written in the Indonesian language. Read strictly, this requirement may apply regardless of whether the contracts are governed by Indonesian law or a foreign law.

The important takeaway here is that foreign investors must know the local regulations that govern certain types of contracts, and ensure that the execution of such contracts complies with all applicable laws and regulations.

Local insolvency and debt restructuring regimes could also affect the contracts foreign investors enter. Several Asean countries have in recent years implemented laws that allow companies to restructure their debts where a significant majority of their creditors agree, effectively binding the minority creditors who disagree with such a restructuring. In Indonesia, for example, it is possible to do this through a process known as PKPU. In Singapore, this can be done through a scheme of arrangement implemented under the Companies Act.

It is also possible in certain cases for a debtor in one country with a presence in another country to use the second country's restructuring processes to its advantage. This occurred recently in a case where PT Berlian Laju Tanker Tbk, an Indonesian company listed on the Singapore Exchange, implemented schemes of arrangement in relation to its subsidiaries in Singapore in conjunction with its own PKPU proceedings in Indonesia. Such cross-border debt restructurings could become more common in the future, as Singapore looks to introduce a new omnibus Insolvency Bill that facilitates them.


Foreign investors may be tripped up by local employment law issues such as restrictions on the hiring of foreigners. The employment of foreigners in several Asean markets has been a sensitive issue with political nuances. One recent development was the introduction of new manpower regulations by the Indonesian government which required a certain number of locals to be hired for every foreigner. Similar restrictions also apply in Singapore.

Employment law issues are not only restricted to the hiring of foreigners. In many cases, the employment of locals in Singapore and the Asean markets may not be as straightforward as one would think. It is important to consider the wide-ranging protections provided to the employees under local laws in the form of mandatory minimum wages, labour union protections, leave entitlements and restrictions on termination of employment. These requirements could vary from country to country.


Prospective investors in the Asean markets also need to consider at an early stage what their strategy would be in dealing with potential disputes with local counterparties.

Although reforms have been undertaken in many of the Asean countries to strengthen their judiciaries, litigating in a local court could be a daunting experience. An alternative approach which has been gaining traction is arbitration in a neutral jurisdiction. The Singapore International Arbitration Centre has done much to facilitate this, and the recently established Singapore International Commercial Court widens investors' dispute resolution options and will undoubtedly grow in importance in the future.


On Dec 31, 2015, Asean formally established the Asean Economic Community (AEC) which will potentially alter how businesses work in these markets. The AEC seeks to create a highly integrated and cohesive economy among the Asean countries, particularly through harmonising trade and investment laws.

The ongoing liberalisation of intra-Asean trade with the removal of almost all of import-export tariffs offers a glimpse of the transformation which may be brought about through the cooperation between the members. It is a positive step in the journey towards full economic integration.

  • The writer is the co-head of the Corporate Restructuring & Workouts team and is part of the Indonesia Group in Drew & Napier LLC
  • Disclaimer: The information provided in this article is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided

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