By: Dezan Shira & Associates
Editor: Ellena Brunetti
Since the adoption of its new investment law in 2007, promoting an investors-friendly investment climate, The State of Indonesia has progressively become a new playground for foreign investors willing to expand their activities in ASEAN.To do so, according to the Article 5(2) of the said Law and its implementing regulations, foreign investors can perform a foreign investment in Indonesia by establishing a limited liability company (also known as “ Penamanan Modal Asing”, which is often abbreviated as “ PMA” , and stands for limited liability company with foreign direct investment). A company is a PMA as long as any of the shares are owned by foreigners. Investors can also, if they only want to test the market, use another form of foreign investment, aka representative office (“Kantor Perwakilan Perusahaan Asing” abbreviated KPPA), but currently, PMA remains the most common vehicle for foreign investment in Indonesia.
However, several reasons can lead the company to be close down, amongst which, failure of the company to carry on business, lack of profits, inability to get along between shareholder or to pay its debts, or even corporate restructuring of the group to which the company belongs.
Thus, in this article, we will focus on the deregistration ( heard as the whole process of closure of the company) of PMA, by offering a guide to the option available to close down a company in Indonesia.
Difference Between Dissolution of RO and PMA
The process of closing down a company is referred to as “liquidation” in common terms. However, companies can be liquidated either by “De-registration” or “Winding Up“. Although both the procedures will result in the dissolution of a company, the processes are significantly different.
In order to fully understand the procedure to be followed in order to close down a company in Indonesia, a distinction must be made between the representative office and the PMA. Indeed, in order to end the existence of a RO, a simple de-registration in itself will be needed, while to close down a PMA, it will be needed not only to deregister the company, but also, previously to that, to go through what is called liquidation. Put simply, liquidation refers to the cessation of a company’s operations and the sale of its assets to pay outstanding debts to creditors. The company will be de-registered and cease to exist following the completion of the liquidation process.
Cases Leading to Dissolution
According to the Article 142, paragraph 1 of the Company Law, liquidation of the company occurs if one of the following cases is met:
- Based on a resolution of the GMS (General Meeting of Shareholders) – In other words, voluntary winding-up
- Due to the expiry of the company, as prescribed in the articles of association;
- Based on a court order (because of any non-compliance with the law)
- Due to a revoked bankruptcy statement, etc.; or
- Due to the revocation of the company’s business permit, so that the company is obliged to conduct liquidation according to prevailing regulations.
In this article, we will focus mainly on the first case expose above that is the voluntary deregistration of a company wanted by the shareholders themselves via a General Meeting of Shareholders, through mutual consensus.
According to the Article 144 of the Indonesian Company Law, the General Meeting of Shareholder concerning the ending of the company can be held based on the proposal from the Board of Directors, Board of Commissioners or 1 or more shareholder representing at least one-tenth from the total number of shares with voting right.
Article 89, paragraph 1 of the Company law stipulates that such a consensus is presumed to be reached, and thus, the liquidation of the company approved, if two conditions are met. First, regarding the quorum, at least ¾ of the total shares issued with voting rights must be present or represented, except if the company’s articles of association stipulates a higher quorum. Second, a qualified majority must be reached: the resolutions resulting of this vote will be considered as valid if more than three-fourths of the total votes are in favor of the dissolution .
Stages to be Followed for the Closure of the Company by Winding-up
Once the decision of closing down a company has been taken by the GMS, the procedure to do so involves a certain number of formal steps. To put it simply, the deregistration process is the registration process done in the reverse order. It should be noted that during the liquidation stage, each outgoing letter of the Company must bear the wording “in liquidation” following the company name.
Step 1 – Designation of a Liquidator
The shareholders must appoint a liquidator. In case no liquidator is appointed in the GMS, it is the Board of Directors that will act as liquidator. During the liquidation period, only the liquidator is allowed to perform any legal actions on behalf of the company.
Step 2 – Publication of the Dissolution
According to the article 147 of the Company law, the liquidator has to notify, within thirty days from the date of winding up of the company, all creditors on the dissolution of the company by means of an announcement of the company’s dissolution in the newspaper and the State Gazette of the Republic of Indonesia.
Pursuant to the article 147 (3) of Company Law, from the date of announcement, the said creditors can submit their claims within a period of sixty days.
Step 3 – Settlement of claims and accounts receivables
As stated in the article 149 of the Company law, The liquidator must settle Company’s assets during the liquidation, and make sure all rights and obligations of the Company to third parties are settled. To do so, he will establish plan for division of the assets resulting from the liquidation. This plan will then be published in the Gazette. According to this plan, he will then pay the creditors, and eventually, pay to shareholders the remainder of the assets resulting from the liquidation.
Creditors may submit an objection to the plan for division of the assets resulting from the liquidation within a period of sixty days.
Step 4 – General Meeting of Shareholders concerning Approval of Liquidator’s Duty and Effectiveness the liquidation of the Company
This step must be taken very seriously, as the company dissolution does not cause the Company to lose its status as a legal entity until the liquidation is completed and the liquidator’s accountability has been accepted by the GMS or the court.
Final step – Tax Deregistration and Deregistration within the MOLHR
Where the RO registration process would in general conclude with a tax registration, the deregistration process begins with a tax deregistration conducted with tax authorities. Investors must be aware that, as long as their company isn’t properly shut down and dissolved from a legal point of view, they stay liable to the tax authority.
Also, according to Article 152 of the Company Law, the liquidator must report to the MOLHR(Ministry of Law and Human Rights, formerly the Ministry of Justice) and announce the final outcome on the liquidation process in a newspaper at least 30 days from the date of the General Meeting of Shareholders approving the liquidator’s duties have been properly fulfilled. As a consequence, MOLHR will register and delete the Company’s name from the Company Registry and will announce it in State Gazette of the Republic of Indonesia.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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