Understanding Liquidation Process in the Company Dissolution

Get information from IGNOS regarding company liquidation under the Law No. 40 of 2007 on Limited Liability Company, including the reasons, and process of the liquidation.

1. Liquidation is the process of dissolving a company, the outcome of which will be used to settle the Company’s debts to its creditors, including to its shareholders.
2. Liquidation can occur due to (i) a GMS decision, (ii) the expiration of the Company’s establishment period, (iii) a court determination, (iv) the revocation of bankruptcy and its assets is insufficient to settle the Company’s debts, (v) the Company’s bankrupt assets being insolvent, and (vi) the revocation of the Company’s business license.
3. The liquidation process will be carried out by a liquidator appointed based on the GMS decision or court determination.

Liquidation is the process of dissolving a Limited Liability Company (“Company”) through the management and settlement of the Company’s assets and liabilities by a receiver or liquidator, where the outcome of such management and settlement will be used to settle the Company’s debts to its creditors, including its shareholders. 

In principle, liquidation can occur for several reasons, as follows:

1. based on the General Meeting of Shareholders (“GMS”) decision, upon the proposal of the board of directors, board of commissioners, or shareholders representing at least 1/10 of the total voting shares;
2. due to the expiration of the Company’s establishment period;
3. based on a court determination, upon a request from (i) the Prosecutor’s Office, for a reason of violating public interests, (ii) a request from interested parties, for a reason of legal defects in Company’s deed of establishment, or (iii) a request from the board of directors, board of commissioners, or shareholders, for a reason that it is no longer feasible to continue the Company;
4. due to the revocation of bankruptcy, where the bankrupt assets of the company are insufficient to settle its debts;
5. due to the Company’s bankrupt assets are in an insolvent condition;
6. due to the revocation of Company’s business license.

Once a Company has been decided to be dissolved based on one of the reasons mentioned above, the liquidator will commence the management and settlement of the Company’s assets and liabilities. The liquidator is appointed based on the GMS decision or a court determination, and has duties that include:

2. Management and Settlement of Company’s Assets
The liquidator is required to compile a list of all the Company’s creditors along with their submitted claims. Then, the liquidator is authorized to carry out the liquidation of the Company’s assets, e.g., through sales or auctions.

3. Announcement and Notification of Liquidation Results
After the Company’s assets have been fully liquidated, the liquidator is required to make announcements in newspapers and BNRI, and notify the Minister regarding the plans to distribute liquidated assets.

4. Distribution to the Creditors
The liquidator distributes the liquidation proceeds to the creditors. If there is any remaining wealth after distribution, then the remainder is returned to the shareholders of the Company.

5. Liquidator Accountability
If the liquidator is appointed based on the GMS decision, then the liquidator is responsible to the GMS. However, if the liquidator is appointed by the court, then the liquidator is responsible to the court.

6. Announcement and Notification of Liquidation Completion
After the liquidator’s accountability is accepted, the liquidator is required to make announcements in newspapers and BNRI, and notify the Minister within a maximum of 30 days from the date the liquidator’s accountability is accepted.