Legal and Regulatory Requirements of Spin-Off

There are number of legal and regulatory requirements that must be met when undertaking a corporate action. Spin-off, as one of the corporate actions, has a legal and regulatory requirement that depends on the jurisdiction in which the company is incorporated.

In Indonesia, the legal and regulatory requirements for spin-off are set out in the Law Number 40 of 2007 regarding Limited Liability Companies (hereinafter referred to as the "Company Law") by the definition in Company Law, the term Spin-off is included in the legal act of Separation.

According to Article 1 number 12 of the Company Law, Separation is a legal act carried out by a Company to separate its business which results in all of the Company's assets and liabilities being transferred by law to two or more Companies or part of the Company's assets and liabilities being transferred by law to one or more Companies.

Spin-off is one of the two separation methods carried out by the Company to separate business units in the Company partially resulting in some of the Company's assets and liabilities being transferred by law to two or more companies.

Based on Article 135 of the Company Law, Spin-off is categorize as an Impure Separation since this corporate action is only resulting some of the Company's assets and liabilities being transferred by law to 1 (one) other Company or more that accepts the transfer, and the Company that carried out the Separation remains in existence, so that spin-off does not legally erase or eliminate the existence of the parent company. The parent company that carries out the Spin-off continues to exist in carrying out its business activities.

Spin-off procedures are not much different from other corporate actions. In this case, the spin-off procedure is divided into 3 (three) stages, the main procedure are as follows:

A. Preparation

• Prepare the Draft of Spin-off.
• After prepare the Draft of Spin off, the Board of Directors of the Company shall announce a summary of the Draft of Spin-off in at least 1 (one) newspaper and announce in writing to the employees of the Company who will carry out the Spin-off within a period of no later than 30 (thirty) days before the call for the General Meeting of Shareholders (hereinafter referred to as the "GMS").
• For creditors who object to a company separation, creditors can submit objections no later than 14 days after the announcement of the separation according to the separation plan. If within that time period the creditor does not submit any objections, the creditor is deemed to have agreed to the spin off.

​​B. Organizing GMS

Furthermore, to make a decision on a Spin-off legal action, the company must hold a GMS with the agenda of the Spin off Approval with giving an adequate disclosure about the Spin-off, including the financial impact of the Spin-off on the parent company and the new company.

C. Spin off Transaction

• After obtaining approval from all or some of the shareholders through the GMS to carry out a Spin-off and no creditors object, the Spin Off transaction can be carried out.
• The Spin-off draft which has been approved by the GMS, is set forth in a deed drawn up by the Notary in the Indonesian language.
• Separation process is carried out by establishing a new Company. The establishment of a new Company is carried out by including the separation of some of the assets and liabilities of the initial Company which was separated.

For more information regarding this matter, kindly contact our legal experts:

Eman Achmad - Legal Service Managing Partner

Anandra Febrita - Legal Service Partner