Liquidation, or the winding up of a company, is a process during which a company’s assets are seized and realized – that is, converted into cash. This money is typically then used to pay off the company’s debts and liabilities.
The process ensures a fair distribution of a company’s assets between its creditors, members, and shareholders, and results in the termination of the company’s existence once all debts and liabilities have been paid.
Pursuant to Article 142 par. (1) of Law no. 40 Year 2007 regarding Limited Liability Law, liquidation may happen due to:
- A decision made in a General Meeting of Shareholders (“GMS”);
- The expiration of the incorporation period determined in the articles of association;
- A court ordered decision;
- On a revocation of bankruptcy pursuant to a decision of the commercial court which has absolute legal effect, the company’s bankruptcy asset is not insufficient to pay the bankruptcy cost;
- The asset which has been declared bankrupt is in insolvency as regulated by Insolvency Law; or
- The revocation of the company’s business permit, forcing the company to be liquidated in accordance with the regulation.
The appointment of the liquidator shall be determined by the GMS or, in the event of the GMS does not appoint any liquidator, the director of the company. The liquidator will sell the company’s asset priced by the independent appraisal, then allocate the income to any existing creditors of the company. If there is leftover balance, it will be shared with shareholders in accordance with the share ownership structure or by an agreement made by and between shareholders.
Furthermore, for any shareholder assets not registered as a company asset, in the event of a company wind up, this asset will be returned to the owner or shareholder as long as he or she is able to prove ownership.
We at Schinder Law Firm have experience assisting many clients in the process of winding up companies. Should you require further information on this subject, or need our services for winding up, please feel free to let us know.
About the author:
Wisnu earned his bachelor degree in law (Sarjana Hukum) from Universitas Padjajaran in 2016 and joined Schinder Law Firm as a junior associate. While in law school, he was actively involved in a variety of student activities and organizations such as Asian Law Student Association (ALSA).