Five clauses we often rewrite in distribution agreements
Foreign manufacturers entering the Indonesian market frequently use standard cross-border distribution templates that fail to account for mandatory Indonesian commercial regulations. In our contract review practice, five provisions consistently require redrafting to prevent severe enforceability issues.
1. Termination without judicial intervention
Under Article 1266 of the Indonesian Civil Code, terminating an agreement requires a court order unless the parties explicitly waive this requirement. Standard boilerplates stating that a contract terminates automatically upon notice are insufficient unless the waiver of Article 1266 is explicitly articulated.
2. Exclusivity and registration with the Ministry of Trade
Appointing an exclusive distributor in Indonesia often triggers formal registration requirements under Minister of Trade regulations. Without careful drafting, foreign principals can find themselves unable to appoint alternate distributors even when commercial performance targets are breached.
Key provisions to audit:
- Explicit waiver of Article 1266 and 1267 of the Indonesian Civil Code
- Clear distinction between distributor appointment and agency registration
- Measurable minimum sales quotas tied to termination rights
- Currency specification under Bank Indonesia mandatory Rupiah rules
3. Language and governing law stipulations
While parties may agree on foreign governing law or international arbitration, agreements with Indonesian legal entities must comply with Law No. 24 of 2009 regarding bilingual execution. A failure to provide an authoritative Indonesian language text introduces material nullification risk before local courts.