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23 January 2020
After fining numerous companies for late notification of mergers, consolidations and acquisitions in recent months, the new commissioners of the Indonesian Competition Commission (KPPU) that took office in May 2018 have once again underlined their commitment to a more active enforcement of merger control rules by introducing KPPU Regulation 3/2019 on the Assessment of Mergers and Consolidations of Undertakings or Acquisition of Shares in a Company that May Result in Monopolistic Practices and/or Unhealthy Competition.
The new merger control guidelines, which came into force on 3 October 2019 and became available to the public on 14 October 2019, replace the old ones found in KPPU Regulation 13/2010, as amended several times,(1) and introduce new consultation and notification forms to be used for submissions to the KPPU.
Additional transactions may need to be notified
The new merger control guidelines create a basis for the KPPU to review asset deals as well as certain additional foreign-to-foreign transactions and transactions between affiliated companies that under the previous merger control guidelines did not need to be notified.
Under the new merger control guidelines, the following undertakings must file a notification to the KPPU:
Notification is contingent on the following conditions being met.
Merger, consolidation or acquisition of shares or assets
As under the previous merger control guidelines, a notifiable transaction should constitute a merger, consolidation or acquisition of shares within the meaning provided by Indonesian competition law. An acquisition of shares involves a change of control (ie, the acquiring party owns more than 50% of the shares and voting rights or holding factual control, such as gaining the ability to influence or direct the company's policy or management). While the law is unclear in this regard, one conservative interpretation is that there could also be a change of control if there is a change from sole to joint control.
The new merger control guidelines add that a transfer of assets (with or without shares) is tantamount to an acquisition of shares and, accordingly, should be notified to the KPPU, provided that several other conditions have been met (as discussed below). A transfer of assets (with or without shares) is tantamount to an acquisition of shares if it:
Assets include all assets that are owned by an undertaking (the target), both tangible and intangible, which are valuable or have economic value.
The new merger control guidelines define an 'asset' broadly and raise a number of questions, such as whether it covers non-core assets. Further, large undertakings whose assets already exceed the current asset threshold of Rp2.5 trillion would theoretically be required to file a notification for each asset acquisition going forward. Consequently, further guidance will be required from the KPPU.
Thresholds of sales and assets
The thresholds that trigger the obligation for an undertaking to make a notification to the KPPU remain the same under the new merger control guidelines, but now also apply to asset transactions.
A notifiable transaction should still meet the following thresholds:
The new merger control guidelines provide that such values must consider the assets and/or sales in Indonesia of:
Direct impact on Indonesian market
Unlike the previous merger control guidelines, which provided a more detailed explanation on foreign-to-foreign transactions and addressed several alternative scenarios, the new guidelines provide a more general observation that mergers, consolidations or the acquisition of shares and/or assets that occur outside Indonesia must be accompanied by a notification to the KPPU if one or more of the parties involved in the transaction is engaged in business activities in or sales to Indonesia. This seems to create more flexibility for the KPPU to claim jurisdiction to review foreign-to-foreign transactions.
Transactions between non-affiliated companies
If a transaction is carried out between affiliates, it is exempted (regardless of whether other criteria are met). According to the new merger control guidelines, a company is an affiliate of another if:
'Affiliation' means a relationship of control that occurs due to:
The exemption from the requirement to notify mergers, consolidations and acquisition of shares or assets does not apply if the transaction involves the placement of directors, commissioners or employees of companies that take part in the transaction.
The deadline for notification is still 30 business days after the transaction has become legally effective, which applies as follows if the target is an Indonesian limited liability company:
The new merger control guidelines clarify that the legal effective date of a merger, consolidation or acquisition of shares or assets carried out by a public company involving a private company or by a private company involving a public company is the date of the transaction's disclosure letter to the Indonesian Financial Services Authority or the last date of payment of the shares or equity securities in the exercise of a rights issue.
The legal effective date for an undertaking carrying out a merger or consolidation that is not a limited liability company is the date of the signing of the merger or consolidation agreement by the parties.
The legal effective date of a merger, consolidation or acquisition of shares or assets performed outside Indonesia is the date of signing or closing of the agreement or approval by the government of the parties that carry out the merger, consolidation or acquisition of shares or assets. The wording of the new merger control guidelines leaves room for interpretation, creating uncertainty for an undertaking carrying out a merger, consolidation or acquisition of shares or assets outside Indonesia regarding when to submit a notification of the transaction to the KPPU.
The legal effective date for an undertaking acquiring assets is the date of the asset's sale and purchase agreement. Seemingly, if the transfer of the relevant asset requires a separate instrument (eg, in the case of land where a deed of transfer of land is needed), the KPPU deems the execution date of such instrument irrelevant for the calculation of the deadline, even though the ownership of the asset will be transferred only on the date of execution of such instrument.
The KPPU only accepts a complete notification submitted during business hours, after which it will state the date of and issue a letter of receipt. The authority can reject incomplete notifications upfront, which means it is now paramount to make a submission well in advance of the deadline.
The new merger control guidelines list the minimum number of documents that should be submitted to the KPPU within the 30 business-day deadline. Under the previous guidelines, it was common practice to submit the notification form and power of attorney where there was a risk that a notifying party would miss the deadline; however, the new guidelines require the notifying party to submit at least the following documents before the 30 business-day deadline:
Fines for late notification
As under the previous merger control guidelines, the KPPU can impose a fine of Rp1 billion (approximately $71,000) per day with a maximum of Rp25 billion (approximately $1.78 million) for late notification. By contrast, rather than starting from the date on which the parties file a notification to the KPPU, such delays are calculated from the date on which the KPPU initiates an investigation in respect of the late notification.
Deadline for complete submissions
Following the submission of documents, which may now be done electronically, the KPPU has 60 business days to seek clarification and evaluate the submitted information and supporting documents. The previous merger control guidelines set no such time limit, which in practice often resulted in many months of delay; however, the new deadline is expected to expediate the procedure. The new merger control guidelines set a strict obligation for a notifying party to meet the KPPU's request for further information or documents within the 60 business-day deadline. If an undertaking fails to meet this obligation, the KPPU make its assessment based on assumptions, the supporting documents submitted or data that the KPPU already has or obtains.
Substantive assessment of notified transactions
The new merger control guidelines introduce an additional framework for the KPPU to assess notified transactions. Under the previous merger control guidelines, the KPPU analysed the markets and restrictions to market access and assessed any risk of coordinated behaviour, efficiency and bankruptcy. Under the new guidelines, the KPPU may also examine the following aspects in such assessments:
The KPPU will issue further details on the new assessment framework.
As under the previous merger control guidelines, the KPPU has 90 business days to complete substantive assessments. However, like the consultation procedure under the previous guidelines, the assessment in the framework of a notification is now divided into two stages: an initial assessment and a comprehensive assessment. The KPPU will conduct a comprehensive assessment only if it is established in the initial assessment that the notified transaction has an effect on competition in the relevant industry or market.
Opinions, conditional approval and remedies
As under the previous merger control guidelines, the KPPU can issue an opinion on whether the transaction is deemed to result in monopolistic practices or unhealthy business competition. If the transaction is deemed to result in monopolistic practices or unhealthy business competition, the KPPU may issue a conditional approval in the form of a notification statement, which requires the undertaking to accept certain behavioural or structural remedies. Such undertakings have 14 business days from receipt of the conditional approval to accept or reject it. If the undertaking accepts the conditional approval, the KPPU will start supervising the implementation of the remedies. However, if the undertaking does not respond or refuses to accept the conditional approval, the KPPU can initiate an investigation on the basis that the transaction violates Indonesian competition law.
Unlike the previous merger control guidelines, the new guidelines provide no detailed provisions on voluntary, pre-merger consultations. The new guidelines also fail to clarify that the KPPU will consider voluntary, pre-merger consultations only in writing (verbal consultations are no longer allowed). A consultation must be accompanied with a plan of the transaction. The result of the consultation can be used in the assessment stage of the notification if there is no change in data for a maximum of two years.
The new merger control guidelines came into effect on 3 October 2019. Under their transitional provisions, notifications received by the KPPU before this date will be assessed using the previous merger control guidelines.
The introduction of the new merger control guidelines appears to be a deliberate effort by the new commissioners of the KPPU to expand the scope of merger control rules in Indonesia, following several recent asset transactions and transactions between affiliated companies involving the placement of senior management which raised the KPPU's concern but could not be assessed due to the restrictive definition of the term 'acquisition' under Law 5 of 1999 (the Competition Law) and Government Regulation 57 of 2010 on Mergers and Consolidations of Undertakings or Acquisition of Shares in a Company that May Result in Monopolistic Practices and/or Unhealthy Competition (the Merger Control Regulation), which only covers the acquisition of shares in a company.
The KPPU expected Parliament to enact a new competition law to replace the existing legislation before the end of its term on 30 September 2019. The bill that was under parliamentary review would have introduced an expanded definition of 'acquisition' to include an acquisition of assets. With Parliament failing to enact the new competition law before the end of its term and a new Parliament assuming office on 1 October 2019, it is doubtful that the new competition law will be enacted anytime soon. This may have triggered the KPPU commission to issue the new merger control guidelines, so that it can start assessing asset transactions pending the enactment of the new competition law.
The KPPU's strategy is risky, as the Competition Law and Merger Control Regulation provide no clear legal basis for an expansion of the definition of 'acquisition'. Article 29 of the Competition Law prohibits an undertaking from "acquiring shares of another company if said action may result in monopolistic practices and/or unfair business competition", while the Merger Control Regulation defines an 'acquisition' as "the legal act of an undertaking to acquire shares in a business entity that may result in monopolistic practices and/or unfair business competition". There is no reference whatsoever to an acquisition of assets in the Competition Law or the Merger Control Regulation.
Interested parties may now file for a judicial review of the new merger control guidelines with the Supreme Court, which may result in their annulment. However, a judicial review will in practice take several months – if not more than a year – and the outcome is uncertain. Therefore, despite the new guidelines' weak legal basis, parties engaged in asset transactions should not refrain from submitting a notification to the KPPU, particularly as it has been active in recent months in investigating past transactions and imposing fines for late notification of transactions that should have been notified thereto.
For further information on this topic please contact Chandrawati Dewi, Gustaaf Reerink or Bilal Anwari at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Ali Budiardjo, Nugroho, Reksodiputro website can be accessed at www.abnrlaw.com.
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