An acquisition is a corporate action undertaken by a business entity, whether an individual or a company, to achieve the strategic goals, including but not limited to:

1. Market Expansion: To enter new markets or geographic regions and increase market share.
2. Diversification: To diversify the company’s product or service offerings, reducing dependency on a single revenue stream.
3. Economies of Scale: To achieve cost savings through increased production efficiency or shared resources.
4. Synergy: To combine complementary strengths, such as technology, expertise, or customer bases, to enhance overall business performance.
5. Competitive Advantage: To eliminate competition or strengthen the company's position in the industry.
6. Access to Resources: To acquire valuable assets, such as intellectual property, talent, infrastructure, or raw materials.
7. Financial Benefits: To improve financial performance, such as increased revenues or profits, or to access new sources of funding.
8. Strategic Alignment: To align with long-term strategic goals, such as vertical or horizontal integration.
9. Tax Benefits: To leverage potential tax advantages or optimize the company’s financial structure.
10. Innovation: To gain access to innovative technologies, research, or methodologies that can enhance the acquiring company’s offerings.

Under Article 1, paragraph (11) of Law No. 40 of 2007 on Limited Liability Companies (“Law 40/2007”), an acquisition is defined as a legal act performed by a legal entity or an individual to take over shares in a company, resulting in a change of control over that company. This highlights that the key aspect of an acquisition is the transfer of control of the company.

In some cases, a business entity (“Investor”) may seek to acquire a company undergoing bankruptcy to achieve significant strategic business objectives. Understandably, many question the benefits of acquiring a bankrupt company and how such an acquisition can be executed.

The primary benefit of acquiring a bankrupt company lies in its assets and business network. The Investor often assess the value of the company's assets and network in comparison to its outstanding debts. If the value of the debts is lower than the combined value of the assets and network, acquiring the bankrupt company can be seen as a worthwhile opportunity. This potential for value recovery and strategic advantage motivates the Investor to consider such acquisitions. However, is it possible to acquire a bankrupt company under Indonesian law?

Before exploring the possibility of acquiring a bankrupt company, it is essential to understand the concept of bankruptcy under Indonesian law. According to Article 1, letter (1) of Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (“Law 37/2004”), bankruptcy is the general seizure of all the assets of a bankrupt debtor, which are managed and settled by a receiver under the supervision of a supervising judge.

Under Article 24, paragraph (1) of Law 37/2004, a bankrupt company loses the legal right to control and manage its assets from the date the bankruptcy declaration is issued. Consequently, the receiver appointed by the court assumes full authority to manage and control the assets of the bankrupt company, as outlined in Article 16, paragraph (1) of Law 37/2004.

When an investor intends to acquire a bankrupt company, they must negotiate with the receiver to formalize their intention. Once an agreement is reached, the receiver will disclose the list of recognized creditors, categorized into:

1. Secured creditors,
2. Preferential creditors, and
3. Unsecured creditors.

The receiver will then coordinate with these recognized creditors and consult with the supervising judge regarding the acquisition plan. In practice, the acquisition of a bankrupt company can be executed through the following steps:

1. Novation Transaction (Cessies). This step involves purchasing and transferring all recognized debts listed by the receiver to the investor, as permitted under Article 613 of the Indonesian Civil Code. This process is a critical commercial strategy for the investor when negotiating the acquisition of the bankrupt company’s debts. In practice, creditors often recognize the limited likelihood of recovering the full value of their receivables from a bankrupt company. This situation creates an opportunity for Investor to negotiate favorable terms. Typically, Investor may secure the purchase of these debts at a discounted rate, ranging from 60% to 70% of the total outstanding debts. This approach enables the Investor to acquire the bankrupt company’s obligations at a reduced cost while providing creditors with a reasonable settlement.
2. The Becoming Sole Creditor. Once all debts are transferred, the investor becomes the sole creditor of the bankrupt company. The receiver will then update the list of recognized debts to reflect that the investor is the sole creditor of the bankrupt company.
3. Debt Equity Swap. As the sole creditor, the investor can propose converting the company's outstanding debts into equity, effectively taking ownership of the bankrupt company. In this step, at the very beginning, the Investor must negotiate with all shareholders of the bankrupt company to ensure that the quorum required for the acquisition through a debt-equity swap is fulfilled, as outlined in Article 89 of Law No. 40/2007.

This process is permissible under Article 202, paragraph (1) of Law 37/2004 and Point 18.1.5 of the Supreme Court of the Republic of Indonesia Decision No. 109/KMA/SK/IV/2020 on the Implementation of Guidelines for Settlement of Bankruptcy and Suspension of Debt Payment Obligation Cases (“DSC 109”), because based on a legal concept, the bankruptcy process does not dissolve the legal entity of the bankrupt company, unless, after the bankruptcy process is completed, the receiver initiates a liquidation process for the bankrupt company, as outlined in Article 142 of Law No. 40/2007.

Subsequently, according to these provisions, the commercial court may revoke the bankruptcy status once all the bankrupt company’s debts are settled. Since the debts have been transferred to the investor, who has become the sole creditor, the investor can facilitate the settlement, leading to the revocation of the bankruptcy status.

Furthermore, once the bankruptcy status of the company has been revoked, the company may request the commercial court for rehabilitation to restore its reputation, as outlined in Article 219 of Law No. 37/2004.

In conclusion, acquiring a bankrupt company in Indonesia offers both strategic opportunities and challenges. Through processes such as novation transactions and debt-equity swaps, an investor can potentially acquire valuable assets and business networks at a discounted cost, while addressing the outstanding liabilities of the bankrupt company. The legal framework, particularly under Law 40/2007 and Law 37/2004, provides a structured process for the acquisition of a bankrupt company, ensuring transparency and protection for creditors and investors alike.

By carefully navigating the complexities of bankruptcy proceedings, investors can not only secure valuable assets but also facilitate the rehabilitation of the company, restoring its reputation and enabling its reintegration into the market. While the acquisition of a bankrupt company is a compelling strategy for achieving business goals such as market expansion, diversification, and cost optimization, it requires careful negotiation, a clear understanding of legal requirements, and a strategic approach to debt management.