Written by: Raissa Yurizzahra Azaria Harris
Full Version: Volume VI)
In 2015, ASEAN states entered ASEAN Economic Community which resulted to the more competitive business. It is unavoidable effect for business entities that the free flow of goods and services may have significant impact to their business. Consequently, business entities look for alternative to strengthen their finance, secure the market shares, and develop their product. While some of the business entities start from internal measures such as increasing their capital, some also seek for external measures.
Under Indonesian legal system, there are some options for external measures which can be done such as merger, acquisition and consolidation. It shall be understood that these terms may differ depending on the state, for example under the legal system in Singapore and United States of America, both only use the term ‘merger’, and Japan has several terms that cover different method, including acquisition of a business.
The external measure which is extremely popular in the business practice is acquisition, which is defined as:
Any transaction in which a buyer (limited to a corporation) acquires all or part of the assets and business of a seller (also limited to a corporation) or all or part of the stock or other securities of the seller, where the transaction is closed between a willing buyer and a willing seller. Included within the general term of ‘acquisition’ are more specific forms of transactions such as merger, consolidation, an asset acquisition, and a stock acquisition.
Many business entities resort to merger and/or acquisition to develop and strengthen their company since it is deemed as having more impact rather than any internal measures. These business entities then rely to the prevailing laws and regulation in conducting merger and/or acquisition. The lack of legal certainty will therefore harm the business practice. It is unfortunate that the lack of legal certainty has emerged in Indonesia as there is no clear regulation on asset acquisition. Therefore, this writing is aimed to analyze the laws and regulations of asset acquisition under Indonesian law. Subsequently, Singaporean legal system is chosen since Singapore is deemed as the most developed country in South-East Asia and therefore will be used as comparative study.
The objective of this writing is to find a conclusive finding on the best practice of Singaporean legal system, and subsequently formulate recommendations for Indonesian legal system based on the finding. In order to achieve the objective, the Author compare the legal system of both states and try to identify the issue within Indonesian legal system that can be improved by learning from Singaporean legal system.
This writing uses normative approach which focuses on the reliance of the documents and legislations. Accordingly, the main data used in this writing is a primary legal material which is laws and regulations of each state. It relies on the regulations on acquisition, asset acquisition, company, monopoly and unfair competition. The analysis will be made based on the difference and similarities of the aforementioned regulations. The difference is beneficial to see the lack within Indonesian legal system that can be improved by adopting Singaporean legal system, while the similarities can be used to affirm the similar stance between the two states.
It is hoped that the analysis can result to the comprehensive conclusion that shows the gap between Indonesian and Singaporean legal system, and provide strategies and recommendation for the development of Indonesian legal system
3. Asset Acquisition under Indonesian Law
Under Indonesian legal system, there are numerous laws and regulations that define the term ‘acquisition’ itself, inter alia:
- Article 1 (11) of the Act No. 40 Year 2007 on Limited Liability Company;
- Article 1(3) of the Government Regulation No. 27 Year 1998 on Merger, Consolidation and Acquisition of Limited Liability Company;
- Article 1(4) of the Government Regulation No. 28 Year 1999 on Merger, Consolidation and Acquisition of Bank.
Most of the regulations use the term ‘takeover’ instead of ‘acquisition’, even though there are some regulations that use ‘acquisition’ such as the Government Regulation No. 28 Year 1999 on Merger, Consolidation and Acquisition of Bank. The difference of the term used, however, does not have any significant legal impact since it refers to the same legal action as defined in each laws and regulations. The problem occurs when the definition within the aforementioned laws and regulations limits the object of the acquisition. Article 1(3) of Government Regulation No. 27 Year 1998 on Merger, Consolidation and Acquisition of Limited Liability Company states that “Takeover is a legal action conducted by legal entity or individual to acquire either all or the majority of shares of a company that will result to the alteration of the company’s control.”
Therefore, as can be seen from the definition above that the acquisition is limited to the takeover of shares. The limitation of the object of acquisition is further emphasized under Article 125 (1) and (3) of Act No. 40 Year 2007 on Limited Liability Company which prescribes that acquisition shall be done by way of taking over the shares. While there is a comprehensive laws and regulations regarding acquisition of shares, the limitation of the object of acquisition may result to a vacuum of law as the trend is changing. Many entrepreneur now resort to acquisition that does not necessarily involve only shares, but rather they take over the asset of other company. The acquisition over asset of a company may have the same legal consequence of shares acquisition which is the transfer of control of a company to other legal entity and/or individual who acquire such asset. Here, the asset which is acquired is not limited to tangible asset but also intangible asset such as intellectual property rights. One of the asset acquisition case in Indonesia is the case of PT Medco Energi Internasional (LLC). Within this case, in 2015, PT Medco Energi Internasional (LLC) acquired the asset of a Swedish-based company, Lundin Indonesia Holding B.V, which operated in Indonesia. The asset acquired by PT Medco Energi Internasional (LLC) was a non-operator participation right in Lematang Block and operator participation right in South Sokang and Cendrawasih VII Block, along wih Joint Study agreement over Cendrawasih VIII Block.
Unfortunately, Indonesian legal system is lacking when it comes to the regulation on asset acquisition. Accordingly, it becomes a shortcoming of Indonesian legal system since it is as if this field is forgotten by the government, yet many business entities are aware of the practice of asset acquisition. In order to open possibility for the business entity to conduct asset acquisition, many legal scholar refers to Article 102 of Act No. 40 Year 2007 on Limited Liability Company as the legal basis for asset acquisition. While Article 102 of Act No. 40 Year 2007 on Limited Liability Company does not explicitly mention asset acquisition, its interpretation leads to the basis of asset acquisition.
Article 102 of Act No. 40 Year 2007 on Limited Liability Company:
(1) The Board of Directors shall be obliged to request the GMS approval to :
a. transfer the Company’s assets; or
b. secure the Company’s assets.
which constitutes of more than 50% (fifty percent) from the total net assets of the Company in 1 (one) transaction or more, either separate or inter-related.
(2) The transaction as referred to in paragraph (1) letter a shall be the transfer of the Company’s net assets which occurs within the period of 1 (one) accounting year or other longer period as stated in the articles of association of the Company.
(3) The provision as referred to in paragraph (1), shall not apply to the action to transfer or secure the Company’s assets, which is performed by the Board of Directors as the implementation of the Company’s business activities in accordance with the articles of association.
(4) The legal action as referred to in paragraph (1) shall remain binding for the Company even though without any approval from the GMS, as long as the other party has a good faith in conducting such legal action.
(5) The provision on quorum and/or the adoption of resolution of GMS as referred to in Article 89, shall apply mutatis mutandis for GMS resolution to approve the action of the Board of Directors as referred to in paragraph (1).
Pursuant to this article, it gives possibility to the transfer of company asset as long as it is in accordance with the authority given to the Board of Directors. As there is no procedural laws that regulate about the asset acquisition, then it is presumed to be the same as shares acquisition.
Komisi Pengawas Persaingan Usaha (’KPPU’) as a body which has authority to supervise and regulate the merger, acquisition and consolidation sets notification threshold for the entity who wish to conduct the said legal action. KPPU further recognizes the acquisition that involves asset as can be seen in KPPU Regulation No. 1 Year 2009 on Pre-Notification of Merger, Consolidation and Acquisition. It is stated under Article 4 that the party can give pre-notification if it fulfills the threshold, “[…] (c) asset acquisition or other transaction that result to the transfer of control effectively, (d) acquisition that results to the value of asset or sales or market shares fulfils the threshold prescribed under article 3.”
4. Asset Acquisition under Singaporean Law
Unlike Indonesia which uses the term merger, acquisition and consolidation that refers to different legal action. Singaporean legal system recognizes only the term ‘merger’ which can be used interchangeably with ‘acquisition’. Within its development, the merger and/or acquisition under Singaporean law is often referred as ‘Merger and Acquisition (M&A)’.
The regulation concerning merger under Singaporean legal system can be found in various laws and regulations, the main basis is Singapore Competition Act 2007. The definition of merger under Singaporean law is stated under Article 54 of Competition Act which is:
For the purposes of this Part, a merger occurs if —
(a) 2 or more undertakings, previously independent of one another, merge;
(b) one or more persons or other undertakings acquire direct or indirect control of the whole or part of one or more other undertakings; or
(c) the result of an acquisition by one undertaking (the first undertaking) of the assets (including goodwill), or a substantial part of the assets, of another undertaking (the second undertaking) is to place the first undertaking in a position to replace or substantially replace the second undertaking in the business or, as appropriate, the part concerned of the business in which that undertaking was engaged immediately before the acquisition.
Based on the above definition, Singapore does not limit the object of acquisition and thus open the possibility for asset acquisition. Subsequently, it recognizes two objects of acquisition namely shares and asset. There are, however, several difference between shares acquisition and shares acquisition under Singaporean law. First, asset acquisition allows a specified asset to be acquired, while in shares acquisition, all the entire company including its asset and liabilities will be acquired depending on the amount of shares bought. Second, there is a need to get consent of other party consent when conducting asset acquisition that involves licensing or distribution agreement. Third, under Singaporean law, in order to conduct asset acquisition, the party which buy the asset must be a local company or a foreign company that has been registered in Singapore. Fourth, asset acquisition is often deemed to be more complicated as it requires the transfer of ownership over the asset concerned.
Regardless the object of acquisition, all the acquisitions conducted within Singapore jurisdiction is observed by Competition Commission of Singapore (‘CCS’). The existence of CCS is important to avoid merger and/or acquisition that may lead to unfair competition and/or monopoly. Therefore, CCS has the authority to investigate, make decision and also to give sanction in accordance with Competition Act.
The significant difference between Singaporean and Indonesian legal system also lies on the obligation to give report. While Indonesian government requires the legal entity and/or individual that wish to conduct acquisition to file a report to the authority if it fulfils the threshold, Singapore government uses voluntary system. Here, Singapore law does not require the parties that involve in the merger and/or acquisition to give notification to CCS. Nonetheless, the party may conduct self-assessment and notify CCS accordingly only if there is concern that such merger and/or acquisition may be in breach of the prevailing laws and regulations.
There are several significant differences on the regulation regarding asset acquisition between Indonesian legal system and Singaporean legal system. The most significant and substantial difference lies on the definition itself. Indonesian legal system does not explicitly recognizes asset acquisition, therefore in order to look for its basis, there is a need to do an interpretation of the law. On the contrary, Singaporean legal system clearly acknowledges asset acquisition as one of the type of M&A. Subsequently, -unlike Singapore,- Indonesian legal system lacks in regulating the specific procedure and legal implementation of asset acquisition. This condition may lead to legal uncertainty, hence harming its practice and may inflict dispute between stakeholders.
Therefore, it is strongly recommended that Indonesia learns from Singapore (and other states that have comprehensive regulation on asset acquisition) to improve its legal regime. First, Indonesian legal system needs to give an explicit recognition toward asset acquisition, by way of, inter alia, giving precise definition and its procedural regulation. Second, recalling its different feature, Indonesia shall distinguish between asset acquisition and shares acquisition. Thus, learning from good practices of Singapore, there must be separate provisions between asset acquisition and shares acquisition. Third, in order to strengthen the law on monopoly and unfair competition, Indonesia must review the threshold of pre-notification for asset acquisition. The aim is to have the asset acquisition regulation in line with law on monopoly and unfair competition, therefore Indonesia can avoid asset acquisition practice that may lead to monopoly and unfair competition.