Procedure
Jurisdictional thresholds
What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
All foreign investment through establishment of a limited liability company involving foreign individuals or entities as shareholder(s) (a PMA company) is subject to review by the Minister of Law and the Indonesian Investment Coordinating Board (BKPM). M&A transactions involving listed companies require either a post-notification to or pre-merger review by the Financial Services Authority (OJK). This applies to all transactions involving listed companies, irrespective of specific thresholds such as transaction value or turnover.
Furthermore, any merger, consolidation, or acquisition of shares or assets would be subject to review by the Indonesian Competition Supervisory Commission (KPPU). This review is triggered if the following factors are present:
- a change in control occurs, meaning a transfer of more than 50 per cent of shares with voting rights or an ability to control or direct the management of the company;
- the total assets value or turnover, or both, of the involved parties exceeds a certain threshold;
- the assets being located in or the sales being generated in Indonesia exceed a certain threshold; and
- the transaction occurs between non-affiliated parties.
The assets or turnover thresholds referenced above are as follows:
- the total assets of the transacting parties, their controllers and entities under common control, exceeds 2.5 trillion rupiahs (or 20 trillion rupiahs for the banking sector); or
- the total annual turnover of the transacting parties, their controllers and entities under common control, exceeds 5 trillion rupiahs.
National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?
National interest clearance for incorporation of a PMA Company
The first step of national interest clearance for investment in Indonesia is to identify whether the planned business activity is open to foreign investment or subject to specific restrictions or other sector-specific regulations, or both. If the investor is able to comply with the specified conditions, the subsequent steps include establishment of a PMA company and securing the necessary business licences.
The current licensing system in Indonesia is known as risk-based business licensing, meaning that the required licence of the business is proportionate to the risk level of the business. The PMA company will need to submit its application for its relevant business licensing through the Online Single Submission system. The BKPM will evaluate the application, including the submitted business and investment plan, prior to granting the relevant business licence.
M&A clearance process for listed companies
The post-transaction notification process for acquisitions of listed companies requires the company, on the day immediately after the date of completion under the transaction, to announce the completion: (1) to the public through one Indonesian daily newspaper; (2) through the stock exchange website; and (3) to OJK. If the company is exercising a right of mandatory tender offer, various documents pertaining to such mandatory tender offer shall be submitted to OJK.
For pre-merger (and consolidation) review, the company is required to submit a merger plan (including financial documents) to be reviewed by OJK. The OJK may request additional information or documents before confirming that the submitted documentation is complete and the merger plan may proceed.
KPPU notification
When a transaction meets the criteria for merger control, the investor must notify the KPPU within 30 business days of the closing date of such transaction. The notification must be submitted through an online notification system. The submission must comprise company profiles of the involved parties, financial statements, a summary of transaction agreements, the business plan, and market share and competition analysis within the relevant market.
If the submitted documents are considered complete, KPPU will conduct substantive assessment on the transaction and issue a stipulation on whether the transaction is likely to result in monopolistic practices or unfair business competition.
The KPPU notification fee is charged based on the formula of 0.004 per cent multiplied by the value of assets or turnover, based on certain calculation. The fee is capped at 150 million rupiahs.
Which party is responsible for securing approval?
The founders of a PMA company bear the responsibility for obtaining ratification from the Minister of Law. If the PMA company (non-listed) carries out an M&A transaction, the relevant target company must notify the transaction to the Minister of Law. Both ratification and notification would need the assistance of a public notary.
In the case of a listed company carrying out an acquisition, the post notification would need to be submitted by the investor, the target company or the seller (as applicable). For mergers and consolidations, it is the investor’s responsibility to submit a merger plan to OJK.
Over and above that, the buyer in an M&A transaction is required to submit a mandatory merger control notification to KPPU, with the target company assisting in providing the necessary information.
Review process
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
Minister of Law approval over the establishment of a new PMA company and process of acknowledgement over an M&A transaction for a non-listed and listed company would typically take at most one week.
The entire pre-merger (and consolidation) assessment process by OJK can be completed at the earliest within 20 business days from the date the application is submitted. Nevertheless, this time frame does not account for additional time required if OJK requests additional information or amendments to the merger plan. During the merger review, there are no fast-track options available for the transacting parties. However, if within 20 business days of the submission, OJK does not provide response on the submitted documents, the review process is automatically deemed complete.
Specifically for merger control by KPPU, the entire assessment process may be completed within 93 business days of the date the notification is submitted to KPPU. This includes a maximum three days for reviewing the completeness of the documents or information, and a maximum of 90 days for the substantive review. However, if KPPU requires additional information or documents, the time frame may be extended accordingly.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
The founders must acquire a ratification issued by the Minister of Law after the establishment of a PMA company.
Unless required otherwise by sector-specific regulation, a post-closing notification is applicable to the M&A transaction for non-listed companies (to the Minister of Law) and to acquisition transactions for listed companies (to OJK). On the other hand, pre-merger (and consolidation) review is required for merger or consolidation transactions of listed companies. Violating such notification and review obligations may result in administrative sanctions, such as written warnings, fines, restriction or suspension of business activities, revocation of business licence, and cancellation of approval and registration.
In the context of merger control, a notification to KPPU must be submitted within 30 business days of the effective date of the relevant transaction. Failure to notify KPPU within the prescribed time frame may lead to administrative fines, currently set at 1 billion rupiahs for each day of delay.
Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
Informal guidance is generally provided by each government institution, including the Ministry of Law, BKPM, OJK and other ministries. Investors may seek consultation regarding their proposed transactions or investment plan with representatives of the relevant institutions. The main difference between authorities lies in their preferred mode of communications, with some favouring direct consultations and other opting for online meetings.
For formal guidance, this would be dependent on sector specific regulations or any other regulations issued by the relevant ministry.
Specifically for merger control, formal guidance in the form of consultation with a KPPU officer is available, as outlined in the Indonesian Merger Control Regulation. A company may consult KPPU in writing prior to implementing a transaction, providing details of the transaction plan. The KPPU will then issue written advice, guidance and opinion on the proposed transaction. The results of this written consultation may be used in the assessment process at the time of KPPU notification as long as there is no change in data for a maximum of one year.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
For all transaction scenarios (ie, incorporation, M&A for non-listed and listed entities), the application and approval process is straightforward. It typically does not require the involvement of consultants specialising in government relations, public affairs, lobbying or other similar areas. It is, however, advisable that the company engage legal advisers to provide guidance on the procedures, requirements and standard forms to complete the necessary applications.
There are no officially recognised informal fast-track options or shortcuts in the approval process for transactions; nevertheless, ensuring the completeness of required documents and information may be helpful in avoiding delays in the review process.
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
Despite the fact that merger control in Indonesia adopts a post-closing method, KPPU retains the authority to cancel a transaction if it is proven to violate article 28 of the Competition Law, which prohibits transactions that result in monopolistic practice or unfair business competition. The KPPU is, however, unlikely to immediately proceed with cancelling the transaction. Instead, it will raise its concern and the buyer is entitled to respond in one of three forms: full agreement, partial disagreement or full disagreement of the commission’s findings and conclusions. Each type of feedback will lead to a different subsequent step.
While the legal procedures for full agreement and partial disagreement with KPPU’s conclusion may differ, both may still result in conditional approval by KPPU. The conditions may include structural and behavioural changes by the involved business actors, and the adoption of a fair pricing strategy. The implementation of such conditions will be supervised by KPPU within the determined period.
If the buyer completely disagrees with the KPPU’s conclusion, KPPU will initiate a further investigation, where proceedings will be held against the business actor involved.
Source from Lexology
Original News HERE
