Consolidation of Limited Liability Company

Article 1 paragraph (10) of Law Number 40 of 2007 on Limited Liability Company (“Company Law”), regulates a definition of consolidation, as follows:

Consolidation means a legal action taken by two or more Companies to consolidate themselves by means of establishing a new Company which by operation law obtains the assets and liabilities of the consolidating Companies and the consolidating Companies’ status as legal entities cease by operation of law.”

From the definition of consolidation Company above, it can be concluded that the consolidating company is expired by operation of law, and according to the Article 122 paragraph (2) of Company Law, the expiry of the Company shall occur without any prior liquidation. The termination of consolidating company is dissolved since the date of a deed of establishment Company resulting consolidation has been approved by the Minister.

Article 122 paragraph (3) of Company Law mentions that in the event of the expiry of the Company that occurs without any prior liquidation, then:

  1. The assets and liabilities of the consolidating Company shall pass in law to the target Company or the consolidated Company;
  2. Shareholders of the consolidating Company shall by operation of law become shareholders of the target or consolidated Company;
  3. The consolidating Company shall expire by operation of law since the consolidation comes into effect.

The procedures of consolidation are:

1. A draft of Consolidation

The Board of Directors (“BOD”) of the consolidating Company shall compile a draft of consolidation as set out in Article 123 paragraph (3) of Company Law. Under Article 124 of Company Law, the statement set forth in Article 123 of Company Law on draft of merger, is also valid for consolidation.

2. General Meeting of Shareholders (“GMS”) Resolution

After the draft of consolidation is approved through resolution from the Board of Commissioners in each company, the draft of consolidation is submitted to GMS to obtain the resolution. GMS resolution of consolidation is lawful if it complies with Article 87 paragraph (1) and Article 89 of Company Law which are based on deliberation for consensus and approved at least ¾ (three quarters) of the number of casted votes, unless the article of association stipulates a larger attendance quorum and/or provisions on condition for adopting a resolution of GMS.

The legal actions of consolidation shall consider the interests of:

  1. the Company, minority shareholders, the Company’s employees;
  2. creditors and other business partners of the company; and
  3. the public and fair business competition.

According to Article 126 paragraph (2) of Company Law, shareholders who do not agree with a GMS resolution of consolidation may only use their rights as set out in Article 62 of Company Law. Shareholders who do not agree with the consolidation are entitled to ask the Company that their shares may be bought according to Company’s fair price of shares as set out in Elucidation of Article 123 paragraph (2) Letter c and Article 125 paragraph (6) Letter d of Company Law. The respective right as contemplated above does not stop the process of consolidation.

3. Announcement of Summary Plan

Article 127 paragraph (2) of Company Law regulates that BOD of Company is required to announce summary of plan in at least 1 (one) Newspaper and to announce in writing to employee of Company which will conduct consolidation within maximum period of time of 30 days prior to notice of GMS. Aforementioned announcement must also include notice that interested parties may obtain plan of consolidation at the office of Company from the date of announcement until the date of convening of GMS.

Article 33 paragraph (1) of Government Regulation Number 27 of 1998 on Merger, Consolidation and Acquisition of Limited Liability Company (“GR 27/1998”) regulates that BOD who will perform consolidation shall provide summary of plan to creditors by registered letter within maximum period of time of 30 (thirty) days prior to invitation of GMS.

4. Submission of Creditor Objection

Creditors may submit objections to the Company within maximum period of time of 14 (fourteen) days after announcement on consolidation in accordance with aforementioned plan (Article 127 paragraph (4) of Company Law). If within the aforementioned period creditors do not submit the objections, the creditors are deemed to have approved the consolidation. In the event objection of creditor is not settled by the BOD up to and including date of convening of GMS, the objection must be delivered to GMS to be solved. If the objection cannot be solved, consolidation cannot be implemented.

5. Preparing a Deed of Acquisition Before a Notary

According to Article 128 paragraph (1) of Company Law, draft of consolidation which has already been approved by GMS must be set forth in a deed of consolidation which is made before a notary in Indonesian language. The deed of consolidation will be used as the basis to prepare the deed of establishment Company as a result of consolidation.

6. Notification to Minister

Copy of the deed of consolidation must be attached in an application to get a decision from the Minister concerning legalization of legal entity as a result of consolidation.

 7. Announcement of Result of Consolidation

Under Article 133 paragraph (1) of Company Law, BOD of target Company is required to announce the result of consolidation in 1 (one) or more Newspapers within maximum period of time of 30 (thirty) days calculated from effective date of consolidation.

Sofie Widyana P.


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