INDONESIA Law and Practice Contributed by: Jufrian Murzal and Enos Martryn Budiman, Murzal and Partners
9.2 Directors’ Use of Defensive Measures In Indonesia, the use of defensive measures by direc - tors in takeover situations is generally limited. The board does not have broad authority to unilaterally block a takeover, as significant corporate actions, such as the issuance of new shares, material trans - actions or changes to the capital structure, typically require approval from the GMS under the Company Law and the company’s AoA. As a result, shareholder approval and ownership structure play a key role in determining the outcome of takeover attempts. 9.3 Common Defensive Measures Defensive measures available to the board of direc - tors in Indonesia are generally limited. The board does not have unilateral defensive tools such as poison pills. Instead, any defensive action typically requires approval from the GMS. In practice, defensive measures may include pro - posing corporate actions such as a rights issue, the issuance of new shares, or a private placement to a friendly investor (a “white knight”), which may affect the company’s control structure. More broadly, takeo - ver outcomes often depend on the support of control - ling shareholders rather than tactical board defences. 9.4 Directors’ Duties In adopting defensive measures, the board of direc - tors must act in good faith and with due care in accordance with the Company Law. Any action that may potentially impede a takeover must be justifiable as an objective measure taken to protect the interests of the company. If such actions lack a reasonable basis or result in losses to the company, the directors may be held personally liable. Accordingly, the use of defensive measures is constrained by the duty of care and must adhere to principles of accountability. 9.5 Directors’ Ability to “Just Say No” In Indonesia, the board of directors generally cannot unilaterally prevent a business combination. Strategic transactions such as mergers or acquisitions require approval from the GMS under the Company Law.
The board may evaluate the proposed transaction and provide recommendations, particularly if it considers that the transaction may not be in the best interests of the company. However, once the required legal procedures and shareholder approvals are satisfied, the board does not have the authority to block the transaction.
10. Litigation 10.1 Frequency of Litigation
Litigation in connection with M&A transactions in Indo - nesia is relatively uncommon, particularly in private deals. Most disputes are typically resolved through renegotiation, commercial adjustments or termination of the transaction prior to closing, without escalating into court proceedings. In cross-border transactions, parties may also rely on arbitration or other alternative dispute resolution mechanisms. 10.2 Stage of Deal Where disputes arise, they most commonly occur between signing and closing, particularly in relation to the satisfaction of conditions precedent or changes in circumstances affecting the transaction. Post-closing disputes may also occur, typically involving breaches of representations and warranties, purchase price The COVID-19 pandemic led to the termination or renegotiation of a number of pending M&A transac - tions due to changing economic conditions. Most cancellations were resolved commercially rather than through litigation. The pandemic also increased attention to material adverse effect or material adverse change clauses. Since then, such clauses are typically drafted with greater clarity, including more detailed provisions on the scope of triggering events, long-stop dates and the conduct of the target company before closing. adjustments or indemnity claims. 10.3 “Broken-Deal” Disputes
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