Company Dissolution in Indonesia: The How’s and The Why’s

Introduction

The goal of starting a company is to be profitable. However, this is not always achievable for some companies. When a company keeps losing money, the shareholders can think of two options: improve and restructure management, or dissolve the company altogether. Closing a company is considerably more cost-effective rather than keeping it dormant or inactive.

Closing a Company: 4 Reasons Why

• Write off tax responsibilities — Dormant companies still have to file tax reports every year. By closing a company, you can cancel the company Tax ID or NPWP so you don’t have to do that anymore.
• Avoid continuous losses — You can be free from the obligation to pay the company’s operating expenses by dissolving it.
• Disburse company assets into cash — When a company is being dissolved, asset liquidation will be carried out. Liquidating or selling the company assets becomes much easier.
• Move on and start a new business — Once the company has been dissolved, you can focus on doing other things.

A company can be dissolved based on the following reasons:

• resolution of the General Meeting of Shareholders (GMS);
• the period of establishment as stipulated by the Deed of Incorporation has ended;
• court order;
• bankruptcy based on a court decision;
• revocation of the company’s business license.

In this article, we will focus on one in which the shareholders wish to dissolve the company themselves and further discuss the company dissolution process in Indonesia.

Procedures: How To Closing a Company in Indonesia

Stage 1: Company Dissolution Proposal
The Board of Directors, the Board of Commissioners or Shareholders may propose to dissolve the company at the GMS. The decision of the GMS will depend on the provisions of the decision-making quorum, which are stipulated in the Deed of Incorporation. Generally, the dissolution can be carried out if three-quarters of the quorum is in the agreement unless it is stipulated differently in the Deed of Incorporation.

Stage 2: Appointment of Liquidator
In the GMS, Shareholders will have to appoint a liquidator, usually the Director. Some companies appoint lawyers to act as liquidators in common practices to avoid any conflict of interest.

Stage 3: Announcement of Dissolution
The liquidator must make an announcement regarding the dissolution within 30 days after the deed of dissolution in newspapers and the State Gazette to notify creditors regarding the dissolution of the company, and report to the Ministry of Law and Human Rights to record the liquidation process in the company register.

Creditors will have 60 days to submit claims after the announcement. The liquidator has the right to accept or reject the bill. Note that in the event the liquidator fails to provide notifications, the liquidator is jointly and severally liable with the company for losses suffered by third parties.

Stage 4: Asset Division
In this stage, the liquidator is obliged to take the following actions: 

• record and collect the assets and debts of the company;
• hold a second GMS to ratify the distribution of assets from the liquidation with the approval of the Ministry of Law and Human Rights,
• Arrange and make payments to creditors (if any);
• Distribute the remaining assets to shareholders;

Stage 5: Responsibility Relief of Liquidator
A third GMS will be held to relieve the liquidator’s responsibilities. The Liquidator is obliged to announce the results of the liquidation process in newspapers and notify the Minister no later than 30 days. The Minister will announce the termination of the company’s legal status in the State Gazette and remove the company name from the company register.

Generally, the process of closing a company can take approximately 5-12 months depending on the complexity of the company.

Closing Thoughts

Closing a company is a long and exhilarating process and we will help you in every step of the way along the process. If you have any concerns related to the company dissolution in Indonesia that is not discussed in this article, please reach out to us at anita@permitindo.com or by filling up the contact form.  

References

Company Law No 40/2007

Photo by Laura Davidson

Any questions? Contact us!