Legal Aspect of Distributorship Agreement in Indonesia

An appointment of a Distributor by a producer principal or supplier principal shall be based on an agreement. The agreement between the principal and the Distributor of goods and/or services produced abroad shall be legalized by a public notary and a statement letter obtained from the trading attaché of the Republic of Indonesia or officials of a representative office of the Republic of Indonesia in the principal’s country.

A principal may enter into an agreement only with 1 (one) sole distributor for the same type of goods and/or services of a brand in a certain marketing area for a specified period. A sole distributor is a national trading company securing an exclusive right from the principal based on an agreement as the only distributor in Indonesia in a certain marketing area.

Further, a principal may enter into agreements with 1 (one) or more than 1 (one) Distributor for the same type of goods and/or services of a brand in a certain marketing area but outside the marketing area of the sole distributor. In case the principal enters into agreements with more than 1 (one) Distributor, the principal shall stipulate the names of the appointed Distributors. Based on verbal confirmation with an official of the Ministry of Trade, multiple appointments for distributorship can only be conducted by a Distributor; not a sole distributor.

With respect to the distributorship agreement, MT Regulation 11/2006 requires that the following provisions be governed:

a.       Full names and addresses of the parties  entering into the agreement;

b.      Purposes and objectives of the agreement;

c.       Status of the distributorship;

d.      Types of  agreed goods and/or services;

e.       Marketing area;

f.       Rights and obligations of the parties;

g.      Authority;

h.      Period of the agreement;

i.        Methods of termination of the agreement;

j.        Methods of  settlement of disputes;

k.      Governing law; and

l.        Deadline of the settlement.

Further, any agreement that is made in other than the Indonesian language shall be translated into the Indonesian language by a sworn translator.

Article 22 paragraph (1) of MT Regulation 11/2006 stipulates that the agreement can be terminated based on mutual agreement of the parties and in accordance with the prevailing laws. Further, Article 22 paragraph (2) of MT Regulation 11/2006 stipulates that the agreement can be unilaterally terminated by any of the parties, in case  the (i) company is dissolved; (ii)  company  discontinues its business; (iii) distributorship right is transferred; (iv) company goes bankrupt; or (v) agreement is not extended.

With regard to the term of the agreement, MT Regulation 11/2006 is silent on this matter. However, based on our verbal confirmation with an  official of the Ministry of Trade, the term of the agreement may be agreed for more or less  2 (two) years. The term of the agreement will be reflected in the period of the STP. For instance, if the term of the agreement is only for 1 (one) year, then the period of STP shall be adjusted to 1 (one) year. However, if the term of the agreement is more than 2 (two) years, the period of the STP shall be given for only 2 (two) years, and it can be extended.  

In the case that termination as a Distributor is followed by the appointment of a sole distributor by the principal before the period of the STP expires, the sole distributor can be given an STP after a complete resolution has been achieved. If a complete resolution has not yet been achieved within 3 (three) months as from the date of termination of the agreement, while efforts to reach a resolution are still being made, the SPT is declared invalid and the principal can appoint a sole distributor.

Any dispute that arises between the parties in performing the agreement shall be resolved (i) in accordance with the provisions in the agreement; (ii) mutual consensus; (iii) arbitration; and (iv) in court in accordance with the governing laws.