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Monday, May 9, 2016

Mergers & Acquisitions in Indonesia – The Basic

mergers & acquisition in Indonesia
INTRODUCTION

Mergers and acquisitions (M&A) in Indonesia sometimes could be simple but they also have the potential to involve complex regulations and approvals. In general, mergers and acquisitions in Indonesia are governed by the following laws and regulations:

  1. Law No. 40 of 2007 regarding Limited Liability Company (“Company Law”) and its implementing regulation, i.e. Government Regulation No. 27 of 1998 regarding Mergers, Consolidations, and Acquisitions of Limited Liability Companies (“PP 27”). 
  2. Law No. 1999 regarding Prohibition of Monopoly and Unfair Business Competition (“Anti-Monopoly Law”) and its implementing regulation. 
  3. Law No. 25 of 2007 regarding Capital Investment and its implementing regulation, i.e. Presidential Regulation No. 39 of 2014 regarding List of Business Fields that are Closed to Investment and Business Fields that are Conditionally Open for Investment, Regulations from Investment Coordinating Board (Badan Koordinasi Penanaman ModalBKPM) (if the mergers and acquisitions involve foreign investment). 
  4. Law No. 8 of 1995 regarding the Capital Market, and Regulations from Financial Services Authority (Otoritas Jasa KeuanganOJK) (if the mergers and acquisitions involve public listed company). 
  5. Law No. 13 of 2003 regarding Manpower (“Labor Law”). 
  6. Tax laws and regulations. 
  7. Industry-specific laws and regulations, particularly in regulated industries such as banking, insurance, plantation, mining, and telecommunications.

MERGERS

Company Law defines a merger as a legal act executed by one or more companies to merge with another company which has existed previously and the merging company will then be dissolved.


The Company Law provides the following general procedures concerning the merger of companies:
  1. The Boards of Directors of the merging and surviving companies must prepare a merger plan.
  2. The merger plan then must be approved by the Board of Commissioners of each of the merging companies.
  3. Each of the merging companies, no later than 30 days prior to the date of the General Meeting of Shareholders (“GMS”), must:
    • announce the merger plan summary in one Indonesian national newspaper (the announcement shall also contain a notification that relevant party may obtain the plan of merger in the company’s office, as of the announcement date to the date of the GMS); and
    • announce the merger in writing to the employees of each company.
  4. Following the announcement in newspaper, creditors of each merging companies may submit an objection to each of the merging companies within 14 days after the announcement. The merger cannot be completed until the objections of the creditors have been resolved.
  5. Execution of GMS to approve the merger plan.
  6. The merger plan which has been approved by the GMS then must be restated in a Deed of Merger drawn up by a public notary.
  7. Obtain Ministry of Law and Human Rights approval or notification regarding the amendments to the Articles of Association of the company (as the case may be).
  8. In the event the Merger is not followed with the amendment of articles of association, the copy of Deed of Merger shall be submitted to the Minister to be registered in the Company Registry.
  9. The surviving company shall announce the result of the merger in one national newspaper or more, within the latest period of 30 (thirty) days as of the effective date of the merger.

ACQUISITIONS

There are two types of acquisitions in Indonesia, i.e. (i) shares acquisitions; and (ii) asset acquisitions.

This article only elaborates the shares acquisition. Company Law defines shares acquisition as a legal act conducted by a legal entity or individuals to acquire all or a majority of a company’s shares, whether existing or newly issued, which may result in change of control to such company.

I. General procedures for an acquisition of existing shares conducted through the Board of Directors of the target company or acquisition of new shares:
  1. The Boards of Directors of the target company and the acquiring company must prepare an acquisition plan.
  2. The acquisition plan then must be approved by the Board of Commissioners of each of the target company and the acquiring company.
  3. The target company and the acquiring company, no later than 30 days prior to the date of the General Meeting of Shareholders (“GMS”), must:
    • announce the acquisition plan summary in one Indonesian national newspaper (the announcement shall also contain a notification that relevant party may obtain the plan of acquisition in the company’s office, as of the announcement date to the date of the GMS); and
    • announce the acquisition in writing to the employees of each company.
  4. Following the announcement in newspaper, creditors of the target company and the acquiring company may submit an objection to each company respectively within 14 days after the announcement. The acquisition cannot be completed until the objections of the creditors have been resolved.
  5. Execution of GMS to approve the acquisition plan.
  6. The acquisition plan which has been approved by the GMS then must be restated in a Deed of Acquisition drawn up by a public notary.
  7. Obtain Ministry of Law and Human Rights approval or notification regarding the amendments to the Articles of Association of the company (as the case may be).
  8. The acquired company shall announce the result of the acquisition in one national newspaper or more, within the latest period of 30 (thirty) days as of the effective date of the acquisition.
II. General procedures for an acquisition of existing shares conducted directly by the shareholders (the most commonly used – without the need for an acquisition plan):
  1. The target company and the acquiring company, no later than 30 days prior to the date of the General Meeting of Shareholders (“GMS”), must:
    • announce the acquisition summary in one Indonesian national newspaper; and
    • announce the acquisition in writing to the employees of each company.
  2. Following the announcement in newspaper, creditors of the target company and the acquiring company may submit an objection to each company respectively within 14 days after the announcement. The acquisition cannot be completed until the objections of the creditors have been resolved.
  3. Execution of GMS to approve the acquisition.
  4. Execution of Shares Sales and Purchase Agreement (in the form of notary deed).
  5. The GMS then must be restated in a Deed of Acquisition drawn up by a public notary.
  6. Obtain Ministry of Law and Human Rights approval or notification regarding the amendments to the Articles of Association of the company (as the case may be).
  7. The acquired company shall announce the result of the acquisition in one national newspaper or more, within the latest period of 30 (thirty) days as of the effective date of the acquisition.

GOVERNMENT APPROVALS 

I. Investment Coordinating Board (Badan Koordinasi Penanaman Modal – “BKPM”) 

Approvals are required from BKPM in relation to shareholders composition change in a foreign investment company in Indonesia or when a foreign company is going to acquire shares in a local Indonesian company. In general, if the mergers and acquisitions involve foreign parties, accordingly BKPM’s approval is required.

Not all business fields are ‘open’ to foreign investment. Under the Presidential Regulation No. 39 of 2014 (the "Negative List") (and may, at the time of writing, be revised again) business sectors are either completely ‘closed to’ investment or ‘conditionally open’ (meaning that they are subject to foreign ownership limits or require special arrangements).

Business sectors that are not mentioned in the Negative List are, in theory, considered completely open to investment from non-Indonesian investors (can be owned 100% by foreigners). However, we consider that it would be prudent to re-confirm this with BKPM.

II. Financial Services Authority (Otoritas Jasa Keuangan – “OJK”)

Approvals are required from OJK if the mergers and acquisitions involve public listed company, insurance company, bank, finance company or any other company which is regulated by the OJK.

If a company is, by law, regulated by the OJK, and such company ‘s shareholder involves foreign investment, accordingly BKPM approval is not required.

III. Ministry of Law and Human Rights.

Limited liability companies wishing to amend their articles of association need to notify or obtain the approval of the Ministry of Law and Human Rights (depending on the amendments made).

Please note that all shareholders resolution must be restated into a notary deed within 30 days of the shareholders resolution date and be filed with the Ministry of Law and Human Rights within a further period of 30 days (otherwise, the shareholders resolution is deemed invalid by virtue the Company Law).

IV. Other Government Agencies

Approvals or recommendation from the industry regulator or local government may also be relevant, depending on the nature of the target’s business, e.g., telecommunications, broadcasting, plantation, mining, oil & gas.

EMPLOYMENT ISSUES

In general, employees do not have a direct say in a merger or an acquisition. However, an underlying policy of the Labor Law is that employees in Indonesia should have a choice of which employer they work for, therefore, if the merger and/or acquisition results in the change of control in the target company, the employees will be entitled to request for a termination and receive severance package from the company. The components of the severance package are severance payment, service appreciation payment, and compensation payment, which amounts are regulated under the Labor Law or the Company Regulation or the Collective Labor Agreement.

Please note that article 61 (3) of Labor Law provides: “In the event of a transfer of ownership of an enterprise, the new entrepreneur [who now owns the enterprise] shall bear the responsibility of fulfilling the entitlements of the worker affected by the transfer unless otherwise stated in the transfer agreement, which must not reduce the entitlements of the worker”.

ANTI-MONOPOLY & UNFAIR BUSINESS COMPETITION ISSUES 

In Indonesia, the government agency that supervises, scrutinizes, monitor and regulates anti-monopoly & unfair business competition issues is called the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or “KPPU”).

Notification to KPPU regarding merger or acquisition transaction is only mandatory when the transaction is not conducted between affiliated companies and the value of assets or the value of sales of the companies involving in the merger or acquisition transaction exceeds a certain amount:

  1. if the consolidated national assets of the companies are more than Rp. 2.5 trillion; 
  2. if the consolidated national turnover (sales) of the companies are more than Rp. 5 trillion; and/or 
  3. if the consolidated national assets of the companies are more than Rp. 20 trillion, for banking corporations. 
The before mentioned notification must be submitted to the KPPU no later than 30 business days as of the date on which a merger or acquisition becomes effective. Failing to comply with this requirement may result in a sanction of an administrative fine of Rp. 1 billion per day of delay, provided that the maximum amount of the total administrative fine is Rp. 25 billion.

The KPPU also provides a chance for the business entities to conduct a pre-consultation to the KPPU prior to performing merger or acquisition if the transaction is complex and may potentially result in breach of the Anti-Monopoly Law and its implementing regulations.



Tuesday, February 9, 2016

New Regulation: Individual Foreigners Can Purchase Landed House in Indonesia

The Indonesian Government issued Government Regulation No. 103 of 2015 on House Ownership of Foreigners Residing in Indonesia (the “GR103“) which came into force on December 28, 2015. 

The GR103 means that expats can now buy either a landed house or an apartment in Indonesia under certain requirements and conditions.

Key Points

Important points in GR103 are as follows:
  • Foreigners who hold a legal stay permit (diplomatic stay permit, official stay permit, residence stay permit, limited stay permit or permanent stay permit) who give benefit, conduct business, work or invest in Indonesia, may own landed house/apartment unit in Indonesia. 
  • The foreigner will own the house under the so-called ‘right of use’ category (in Indonesian: hak pakai). Please note that the right of use is not a freehold title. 
  • The foreigner can buy and own the house under right of use (hak pakai) for an initial period of 30 years. The right of use (hak pakai) can be extended for an additional 20 years and further renewed for 30 years (therefore ownership can reach a total of 80 years). 
  • Houses/Apartments owned by a foreigner in Indonesia may be passed by virtue of inheritance. However, if the heir is a foreigner, such heir must also have a legal stay permit in Indonesia. 
  • If the foreigner leaves Indonesia to reside in another country, then the foreigner must sell their houses/apartments to a qualifying person within a year after departing from Indonesia. 
  • Indonesian citizens marrying foreigners can own title over land as long as the title to the land is not part of the joint marital property. This must be evidenced by a prenuptial agreement in a form of notary deed. 
  • Further provisions concerning the procedures for granting, releasing, or transferring the ownership of a house or residence by a foreigner will be further stipulated in regulations to be issued by the National Land Authority.

By: tnrlawfirm

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