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Mergers and acquisitions in Indonesia have increased significantly in 2020 and 2021. Does this lead to monopolistic practices and unfair business competition?

The Commissioner of the Business Competition Supervisory Commission or Komisi Pengawas Persaingan Usaha (“KPPU” ), Ukay Karyadi, stated that mergers and acquisitions in Indonesia have increased significantly in 2020 and 2021. It was noted that in 2019, the number of notifications of mergers and acquisitions was 123, rising to 196 notifications in 2020 and 233 notifications in 2021.

According to Law No. 40 of 2007 regarding Limited Liability Companies, a merger is a legal action taken by one or more companies to merge with another existing company, which causes the transfer of assets and liabilities of the merging companies to the remaining company. Afterwards, the legal entity status of the merging company ceases by law. The acquisition is defined as a legal action conducted by a legal entity or an individual to acquire the company’s shares, resulting in the transfer of control of the company.

However, based on Law No. 5 of 1999 regarding Prohibition of Monopolistic Practices and Unfair Business Competition ( “Law 5/1999” ), there are various kinds of restrictive agreements and prohibited behaviors, one of them is Mergers and Acquisitions. Thus, if the resulting company executes the following, the resulting merger is considered monopolistic behavior and/or unfair business competition:

  1. Prohibited agreements, for example oligopoly practices, price fixing, division of territory, boycotts, cartels, trusts, oligopsony, vertical integration, closed agreements, agreements with foreign parties (Articles 4 to 16 of Law 5/1999).
  2. Prohibited activities, such as monopolistic practices, monopsony practices, market control, conspiracy (Articles 17 to 24 of Law 5/1999).
  3. Abuse of dominant position, for example, concurrent position or sharing ownership in several similar companies (Articles 25 to 27 of Law 5/1999).

It should also be emphasized that if the merger action is found to have resulted in monopolistic activities and/or unfair business competition, KPPU has the ability to impose administrative sanctions on the business actor. Administrative penalties include the termination of the merger and/or a fine ranging from IDR 1 billion to IDR 25 billion (Article 47 paragraph (2) of Law 5/1999). In addition, a fine of IDR 25 billion to IDR 100 billion or a maximum of 6 months’ imprisonment instead of a fine might be imposed (Article 48 paragraph (1) of Law 5/1999).

Therefore, a merger can lead to monopolistic practices and unfair business competition, but the action is not automatically prohibited by Law 5/1999. In addition, to examine the existence of monopolistic practices and unfair business competition in merger and acquisitions practices, it is also necessary to have an accurate assessment to determine the presence or absence of these monopolistic practices and unfair business competition.

Schinder Law Firm has had years of experience in mergers and acquisitions. Should you wish to carry out these matters, and especially if you have concerns in relation to monopolistic practices and unfair business competition, feel free to drop us an email at info@schinderlawfirm.com.

Author: Dewi Susanti

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