Mechanism and Procedure of Sale and Purchase of Assets under Law Number 40 of 2007

1. Sales of Assets of the Company
Mechanism and Procedure of Sale and Purchase
of Assets under Law Number 40 of 2007
Eddy Leks, S.H., ACIArb

2. Assets Vs Shares
Assets Shares
• Only purchase the assets of the • Can purchase some of the shares
company, can be specific, some of or all of the shares of the
the assets, or all of the assets company
• All the liabilities by the company • All the rights and liabilities will
rests on the company and will not be assigned to the new
be taken over by the purchaser shareholder
• The transaction is between the • The transaction is between the
selling company and the buyer selling shareholder and the buyer
• Mechanism of purchase is simpler • Mechanism of purchase is not
simple
www.lekslawyer.com

3. Plan for Acquisition
• Negotiation
• Agree on commercial and legal terms
• Prepare an agreement for the sale and purchase of
assets
• Signing of agreement between seller and buyer
• Agreement can be a direct sale and purchase
agreement or a conditional sale and purchase
agreement
www.lekslawyer.com

4. Plan for Acqusition – Cont’d
• Agreement with due diligence clause. The
prospective buyer has the right to perform a due
diligence prior to the purchase of the assets of the
company.
• Agreement without due diligence clause. The
prospective buyer does not have the right to
perform a due diligence prior to the purchase of
the assets of the company.
www.lekslawyer.com

5. Agreement with Due Diligence
• There are certain period to perform a due diligence
• For assets, the due diligence shall consist on the
examination of ownership of assets and its
registration, licenses of assets, compliance in relation
to the operational of assets i.e. environment,
agreement between the seller with the third party that
has interest or is related with the assets e.g. agreement
with the bank to know whether the assets have been
pledged, agreement with the suppliers, agreement
with the lessees, insurance, tax obligations in relation
to the assets, and litigation search. A lawyer must also
review company’s Articles of Association
www.lekslawyer.com

6. Agreement with Due Diligence –
Cont’d
• The due diligence result will be submitted to the
prospective purchaser to be reviewed. The issues
found based on the due diligence report must be
rectified by the seller (unless agreed otherwise, if
the purchase is on “as is where is” basis)
• If it is not rectified, then the prospective buyer
may deduct the payment of the assets as the value
of rectification list, as set out in the conditional
sale and purchase agreement
www.lekslawyer.com

7. Agreement without Due Diligence
• The prospective buyer obtains the full
representations and warranties from the seller in
terms of the assets
• If any discrepancies found in the future, then the
buyer can file a claim on breach of contract or on
unlawful act to the seller or even file a criminal
report
www.lekslawyer.com

8. Due Diligence vs Without Due Diligence
Due Diligence Without Due Diligence
• The prospective buyer • The prospective buyer
is aware on the only takes what has
condition of assets been represented by
• Less risky the seller
• Takes time • High risk
• More expensive • Fast
• Cheaper
www.lekslawyer.com

9. Article 102 paragraph (1) of Company Law
Board of Directors shall seek GMS approval for:
• Assignment of Company assets; or
• Making security for debt Company assets;
which constitute more than 50% of Companies’ net assets in 1
(one) or more separate or inter-related transactions.
Elucidation:
“Company assets” means all moveable and immovable
tangible and intangible goods belonging to the Company.
“In 1 (one) or more separate or inter-related transactions”
means one or more transactions which cumulatively result in
the passing of the 50% threshold. The evaluation of more than
50% of net assets shall be based on the book value according
to the most recent balance sheet ratified by the GMS.
www.lekslawyer.com

10. Article 102 paragraph (2)
The transactions contemplated in paragraph (1) letter a
are transactions assigning Company net assets which
occur in a period of 1 (one) financial year or a longer
period provided for in the Company’s articles of
association.
Elucidation:
Unlike transactions for the assignment of assets,
transactions securing Company assets for debts as
contemplated in paragraph (1) letter b are not limited in
time but attention must be given to the amount of
Company assets still secured within a particular period.
www.lekslawyer.com

11. Article 102 paragraph (3)
The provisions of paragraph (1) shall not apply to
actions assigning or using as security Company
assets as operation of the Company’s business in
accordance with its articles of association.
Elucidation:
“Actions assigning or using as security Company
assets” means for example the sale of houses by a
real estate business, the sale of interbank negotiable
instruments and the sale of inventory by distribution
or trading companies.
www.lekslawyer.com

12. Article 102 paragraph (4)
The legal actions contemplated in paragraph (1)
which do not have GMS approval shall still bind the
Company in so far as the other party in the legal
action are acting in good faith.
www.lekslawyer.com

13. Article 102 paragraph (5)
The provisions on quorum and/or provisions
concerning adoption of GMS resolutions
contemplated in Article 89 shall apply mutatis
mutandis to GMS resolutions for approving the
actions of the Board of Directors contemplated in
paragraph (1).
www.lekslawyer.com

14. Article 89
GMS to approve mergers, consolidations, acquisitions,
or demergers, to file applications for the Company to be
declared bankrupt or extensions of its period of
incorporation, and to wind up the Company may only be
held if in the meeting at least ¾ of the total number of
shares with voting rights are present or represented in the
GMS and the resolutions shall be lawful if approved by
at least ¾ of the number of votes cast, unless the articles
of association specify a quorum to be present and/or
provisions concerning the requirements for adoption of
GMS resolutions which are higher.
www.lekslawyer.com

15. How to know that the GMS is legitimate?
• The procedure is right according to the company
law and its articles of association
• The minutes of GMS is signed by the Chairman
and at least one shareholder appointed by and
from GMS’ participants
• If the minutes is made by the Notary, then the
signing by the Chairman and one shareholder is
not required
• If the resolutions are made in lieu of meeting, then
all shareholders must approve them in writing
www.lekslawyer.com

16. Shareholders’ Resolutions in lieu of
meeting (Circular)
Article 91
Shareholders may also adopt binding resolutions outside GMS
provided that all shareholders with voting rights approve them in
writing by signing the proposal concerned.
Elucidation:
“Adopt resolutions outside GMS” means what is known in practice
as circular resolutions. Such resolutions shall be adopted without a
GMS being held physically, but the resolutions shall be adopted by
means of sending in writing the proposal to be resolved upon to all
shareholders and the proposal shall be approved in writing by all of
the shareholders.
“Binding resolutions” means resolutions which have the same legal
force as GMS resolutions.
www.lekslawyer.com

17. Good Faith - What is Good Faith?
According to Black’s Law Dictionary, good faith
means a state of mind consisting in:
• Honesty in belief or purpose;
• Faithfulness to one’s duty or obligation;
• Observance of reasonable commercial standards
of fair dealing in a given trade or business, or
• Absence of intent to defraud or to seek
unconscionable advantage.
www.lekslawyer.com

18. Good Faith – Cont’d
• What is the legal consequence if the buyer who
acquired the asset did not do in good faith?
• Then, it means that the exception of Article 102
paragraph (4) does not apply
• Meaning, the selling of assets is against the law
i.e. Company law
• Consequence, the transaction is null and void
(vide Article 1335 jo. 1337 Indonesian Civil
Code)
www.lekslawyer.com

19. Article 1335 and 1337 Indonesian
Civil Code
Article 1335
An agreement without any reason, or that has been
made on a false or forbidden reason, shall have no
effect.
Article 1337
A cause is forbidden, if it is forbidden by the law, or
if in contrary to good morals or public order.
www.lekslawyer.com

20. Things to Examine before Completion
• Approval to the Company to sell the assets in
accordance with the company law and its AOA i.e.
GMS, BOD resolutions, BOC approval
• Approval from the government instances e.g. BPN
approval for the transfer of land more than
5000m2
• Compliance in relation to the certain sector e.g.
Hotel, hospital, etc
• Compliance in relation to company’s business
activity and company’s asset licenses
• Asset licenses
www.lekslawyer.com

21. Completion or Closing
• Completion of due diligence
• Full payment of purchase price
• Hand over of assets together with its related legal
documents including licenses
www.lekslawyer.com

22. THANK YOU
www.lekslawyer.com