The Merger of Indonesian Companies

Talk about establishing company in Indonesia, there is a legal action of companies that is often heard, namely Merger. The Indonesian company law has several general procedures for the merger of companies as follows:

1. The Boards of Directors of the merging and surviving companies must prepare a merger plan which should contain at least the following information:

  • The names and domiciles of the companies which are merging;
  • The reason and explanations from the Board of Directors for the merging of the companies and the requirements for the merger;
  • The procedures for valuation and conversion of shares of the dissolving company into the shares of the surviving company;
  • The draft amendments to the Article of Association of the surviving company, if any;
  • The financial statements (comprising at least the balance sheet of the proceeding financial year consolidated with the balance sheet of the previous financial years, profit and loss statement from the relevant financial years, cash flow statement, and equity movement report including notes on the financial statements) covering three financial years of both the dissolving company and the surviving company;
  • The plan for the continuity or termination of the business activities of the merging companies;
  • The pro-forma balance sheet of the surviving company prepared in accordance with prevailing Indonesian GAAP (generally accepted accounting principles;
  • The method for settling the status, rights, and obligations of members of the Board of Directors, the Board of Commissioners, and employees of the merging companies;
  • The method for settling rights and obligations of the merging companies to third parties;
  • The method for settling the rights of shareholders who disagree with the merger plan;
  • The name of the member of the Board of Directors and the Board of Commissioners of the surviving company, including details of salary, remuneration, and compensation;
  • The estimated timeline for completing the merger;
  • A report on the condition, development, and results achieved by each of the merging companies;
  • The main line of business of the merging companies; and
  • Details of the problems encountered during the current financial year of both the dissolving and surviving companies.

2. The Board of Directors of each of the merging companies must then submit the merger proposal to the Board of Commissioners for approval.

3. The Board of Directors of each of the merging companies must then convene a GMS to approve the merger plan in accordance with the Articles of Association and the New Company Law.

The quorum for the GMS is at least three-quarters of the total issued voting shares and voting is based on the affirmative votes of at least three-quarters of the total votes cast at the GMS, unless the Articles of Association provide for higher quorum and voting requirements.

For any adjourned meeting (in the event of an initial inquire meeting), the quorum is two-thirds of the total issued voting shares and voting is based on the affirmative votes of at least three-quarters of the total votes cast at the meeting, unless the Articles of Association provide for higher quorum and voting requirements.

4. The New Company Law also requires the Board of Directors of each of the merging companies, no later than 30 days prior to the date of notice of the GMS, to:

  • announce a summary of the merger plan in at least one Indonesian national newspaper; and
  • announce the merger in writing to the employees of each company.

The announcement must also state that the stakeholders of the company may obtain a summary of the merger plan from the offices of the merging companies as of the date of the announcement until the date of the GMS. The New Company Law further provides that the merger of the companies must take into account the interests of each of the dissolving and surviving entities, minority shareholders, employees, creditors, business partners, the public and fair business competition.

5. Following the announcement, each of the creditors of the merging companies may file a claim to each of the merging companies within 14 days after the announcement. If there is an objection that cannot be settled before the date of the GMS, that objection must be presented at the GMS for resolution.

The merger cannot be completed until the objections of the creditors have been resolved.

6. A merger plan that has been approved by the GMS must be restated in a Deed of Merger drawn up in Indonesian before a Notary.

7. A copy of the Deed of Merger must be attached by the surviving entity to the application for approval by the MOLHR of the amendments to the Articles of Association or the notification amendments to the Articles of Association as the case may be.

Amendments to the Articles of Association as a result of a merger are effective as of (i) the date of the MOLHR’s approval, or (ii) a later date as stipulated in the MOLHR’s approval, or (iii) the date of receipt of the notification of the amendments to the Articles of Association by the MOLHR, or (iv) a later date as stipulated in the Deed of Merger.

If there are no amendments to the Articles of Association, a copy of the Deed of Merger must be submitted to the MOLHR to be recorded in the Company Registry.

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