Six Reasons for Company Dissolution and How to Do It in Indonesia
There comes a time when your company will cease to exist. For whatever reason it may be, you need to be prepared for the things you should do to handle this. You should be able to see this coming as an entrepreneur. After all, nothing lasts forever.
The Indonesian law is very clear on the general principle of company dissolution. Paragraph 1 of Law No. 40 of 2007, under Article 143 that dissolution of limited liability companies does not remove its legal status right away. The legal status will cease to exist after the liquidation process is done.
But first, let us explain the difference between dissolution and liquidation.
Dissolution happens by taking the company’s name off the official registry.
Liquidation, on the other hand, refers to the selling of company assets; To settle the financial obligations of used proceeds. It’s usually done if the companies cash flow is not enough to cover the outstanding debts.
Liquidation is the process of winding up the business. In totality, this marks the official exit of the company from the industry. On your behalf, a licensed insolvency practitioner must monitor the overall process.
What are the Reasons for Company Dissolution?
Article 142 of Company Law in Indonesia cites the different bases for company dissolution. Read them carefully to know what applies to your situation.
- Resolution of General Meeting of shareholders – The law says that the resolutions can be based on the proposal of the Board of Directors, Board of Commissioners, or one-tenth of the voting rights held by shareholders. The company dissolution is deemed valid if the majority or three-fourths of the total shares with voting rights approved the dissolutions.
- Dissolution based on court order – The prosecutor’s office may issue a request to dissolve a company if it found that such business has been violating the public interest and the rights of relevant parties, its shareholders, and board of directors, among others. The offense is usually so significant that ordering it to shut down must be in place right away. Should this happen, the court will appoint an official to oversee the liquidation process of the company.
- Conclusion of company life as written in the articles of association
- Filing of bankruptcy and the assets cannot cover the bankruptcy costs
- The company has become insolvent already
- Revocation of business permit, forcing the company to undergo liquidation process
How to Dissolve Your Company
Here are the necessary procedures for a company dissolution.
Get the majority vote of the shareholders
As mentioned, Article 79 (2), Article 82 and Article 144 (1) of Company Law states that the board of directors, board of commissioners or shareholders holding at least one-tenth of the shares with voting right may bring up the concern over company dissolution as well as the assignment of liquidators. The dissolution will be made valid after at least three-fourths of the voting shares voted for it. If not expressly stated, the dissolution process begins and effective when the resolution to dissolve is approved, following Article 144 (3) of Company Law.
Assigning the liquidator
After dissolution, Officials should be in charge to process the liquidation. If the General Meeting of Shareholders did not choose a liquidator, the board of directors has the power to act as liquidator, according to Article 142 (3) of Company Law.
Notifying concerned parties
The liquidator has 30 days since the date of effectivity of the dissolution to announce the liquidation of the company, as mandated by the Article 147 (1) of the Company Law.
The liquidator should notify all the creditors through announcements in a newspaper and State Gazette of the Republic of Indonesia. Further, the liquidator should also notify the Minister of Law and Human Rights.
Take note of the following as these should be included in your announcement:
- legal basis of dissolution
- name and address of liquidator
- procedure for the submission of claims
- period for submission of claims
Gathering claims of the creditors
The submission of creditors claims has only 60 days to receive since the day of announcement.
Settling financial obligations and accounts receivables
The liquidator should be able to record and collect the assets and liabilities of the company, pay the creditors, pay the remaining assets, and other related actions to settle the assets of the company.
Convening of shareholders
After the process of liquidation, the General Meeting of Shareholders will approve the discharge of the liquidator from his or her job.
The steps might be rigorous but you just need to be patient. Above all else, Before closing your company make sure to pay the creditors to avoid trouble.
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