Value and risk are not foreign to Distressed M&A in Indonesia. Attractive prices can hide tremendous legal risk. It’s not just how much you paid for something, but the legal path that you took to get there.
For boards, CFOs, general counsel and private equity practitioners the key issue when undertaking a distressed M&A transaction in Indonesia is to understand whether they are buying an asset, a business or a liability trap.
Why distress changes the deal
Not every distressed situation is the same. While some companies may be under commercial pressure, others are in the throes of a PKPU (suspension of debt payment obligations) or even a formal bankruptcy process. The specific situation of the target is critical to any potential buyer in determining the right timing, amount of control sought and the transferability of the assets.
PKPU or suspension of debt payment obligations is a court-supervised debt restructuring process provided under Law No. 37 of 2004. Under this process, the debtor has time to negotiate and agree on a composition plan with its creditors. Bankruptcy on the other hand is a liquidation process to settle the debt of a debtor by distributing the assets of the debtor to its creditors through a court-appointed receiver.
This type of transaction does not follow the standard M&A playbook. Above all, the legal status of the target company must first be determined. And this can have a different outcome for the buyer after weeks of work.
PKPU vs Bankruptcy: what buyers need to know at a glance
| Feature | PKPU (Suspension of Payments) | Bankruptcy (Kepailitan) |
|---|---|---|
| Objective | Debt restructuring and composition | Liquidation and distribution to creditors |
| Initiated by | Debtor or creditor | Debtor or creditor |
| Governing law | Law No. 37 of 2004 | Law No. 37 of 2004 |
| Court | Commercial Court | Commercial Court |
| Control during process | Debtor retains control; administrator supervises | Court-appointed receiver controls the estate |
| Asset sale rules | Major transactions need administrator oversight | Receiver must act for benefit of creditors |
| Composition plan deadline | Maximum 45 days (PKPU Sementara); extendable up to 270 days in total from the initial PKPU Sementara declaration (PKPU Tetap) | No composition plan; process moves to liquidation |
| Buyer implication | Timing risk; need administrator sign-off on transfers | Cleaner title possible post-liquidation; competition from other bidders |
The distinction matters, in practice. In PKPU, the distressed firm’s management negotiates with the buyer under court supervision. In bankruptcy, a receiver or liquidator manages and sells the firm with instructions to maximise returns for unsecured and undersecured creditors. Consequently, in reorganization scenarios (ie PKPU) the buyer will have more leverage than in a Bankruptcy scenario.
The insolvency framework
Indonesia’s insolvency regime is administered through the Commercial Court. A PKPU or bankruptcy case can be brought by a debtor or a creditor, subject to the statutory proof requirements under Law No. 37 of 2004. In practice, the process is court-supervised and time-sensitive.
During PKPU, major asset transactions usually need administrator oversight. In bankruptcy, the receiver controls the estate. That means the seller may not have full freedom to transfer what it promises to sell, regardless of what the buyer assumes going in.
For buyers, this is the first thing to resolve. Understanding the PKPU process in Indonesia, and specifically what it allows and restricts, is not optional preparation. It is the foundation of every structural decision that follows.
Indonesia’s distressed asset market has seen measurable activity since 2022, with infrastructure, property, and telecoms sectors most affected by post-pandemic capital stress and rising financing costs. The Commercial Court in Jakarta has handled a growing docket of PKPU filings, with creditor-initiated proceedings becoming more common as lenders lose patience with informal restructuring. For buyers with the right preparation, that pipeline represents real opportunity.
Asset deal or share deal
In distressed sales, an asset sale is generally preferable to a shares sale. This is because an asset sale allows the buyer to limit its exposure to liabilities left behind by the target.
Of course, an asset sale is not without its own set of Indonesian law hurdles that need to be cleared by the buyer. Generally, an asset sale does not involve the transfer of certain permits, licences, and contracts that were in place when the target was a going concern. Under the laws of Indonesia, a business can continue to operate under a receiver or a debt enforcement administrator and can then be sold on an asset basis.
The buyer must map out all the required steps to be completed by the seller to ensure that all necessary permits, licences, and operational approvals are obtained so the transferred assets can operate as intended.
Buyers from other jurisdictions such as Hong Kong, where a transfer of undertaking does not automatically take place in an asset sale, may be familiar with this dynamic. Even so, every deal is different. It is critical that the buyer maps out the specific requirements and timelines before negotiations begin, to ensure that sufficient time is built in for closing to occur as planned.
A share deal can be faster in an uncomplicated transaction. In distress, though, it typically means inheriting hidden liabilities, unresolved disputes, and operational issues. The cleanest structure is not always the best one. The right answer depends on speed, risk appetite, and what the buyer can realistically verify before signing.
Asset deal vs share deal in distressed transactions
| Factor | Asset deal | Share deal |
|---|---|---|
| Liability exposure | Cleaner break from historical liabilities | Inherits all company liabilities, known and unknown |
| Licence transfer | Licences generally do not transfer automatically; new applications required | Licences remain with the company; no re-application |
| Speed | Slower; more transaction steps required | Can close faster in straightforward cases |
| Creditor claims | Lower risk if structured correctly | Full exposure to creditor claims against the company |
| Regulatory approvals | May require fresh approvals for transferred assets | Change of control approval may be required |
| Preferred in distress? | Usually yes — cleaner asset separation | Rarely; liability inheritance risk is high |
Main risk areas in distressed M&A in Indonesia
Several risks matter more in distressed transactions than in ordinary M&A. Understanding them before entering a process is what separates disciplined buyers from expensive learners.
Clawback risk:
As we highlighted above, a first concern of buyers of a distressed seller would be the so called “clawback risk”. By virtue of the Indonesian bankruptcy laws, any transaction entered into by the Target prior to the commencement of the insolvency proceedings that prejudices the interests of the creditors of the Target may be challenged. In accordance with Law No. 37 of 2004, this is commonly referred to as actio pauliana. Under Article 41 of Law No. 37 of 2004, the general look-back or “suspect” period for actio pauliana challenges is one year prior to the insolvency declaration. Transactions without consideration (gratuitous acts) and transactions where the debtor knew or should have known that prejudice to creditors would result carry the highest vulnerability, and courts may look beyond the standard one-year window in such cases.
A distressed seller typically completes asset transfers, payments, and other arrangements before insolvency proceedings begin. Buyers acquiring from such a seller must review all prior transactions carefully, with particular focus on the twelve months immediately before any insolvency filing. Related-party deals and below-market arrangements are the highest-risk items.
Liability transfer:
Even in the case of an asset sale, the liabilities of the Employment, Environmental, Tax and Operational departments of a distressed seller will not automatically be written off. On the employment side, the governing framework is Law No. 13 of 2003 as amended by Law No. 6 of 2023 on Job Creation (which ratified Government Regulation in Lieu of Law No. 2 of 2022, following the Constitutional Court’s conditional unconstitutionality ruling on the original Omnibus Law). Severance calculation rules under the current framework differ in certain respects from the original Law No. 13 of 2003, and these differences are material in distressed asset deals where workforce transfers or redundancies are planned.
On the environmental side, the primary statute is Law No. 32 of 2009 on Environmental Protection and Management (UUPPLH), which imposes strict liability on polluters. Government Regulation No. 22 of 2021 on Environmental Protection and Management operationalises this regime. A critical point for buyers is that environmental remediation obligations under Indonesian law can attach to land or site ownership and operational control, not solely to the prior operator’s legal entity. This means that even in an asset purchase of an industrial site, the buyer may inherit remediation obligations even if those obligations are not expressly assumed in the transaction documents.
Separately, tax liabilities of the distressed seller also do not disappear on an asset sale. Historical tax assessments can arise years after the relevant tax period under the General Tax Provisions Law (Law No. 28 of 2007, as amended). The transaction itself also triggers specific tax obligations: in particular, VAT on the transfer of taxable goods and BPHTB (duty on acquisition of land and building rights) where real property is involved. Buyers should obtain tax clearance letters (Surat Keterangan Fiskal) where available, and factor uncleared tax risk into escrow mechanics or purchase price adjustments.
Limits of seller authority:
Thirdly, buyers should also note the limitations of what the seller can offer. In addition to the matters that have been sold to the buyer, the receiver or the administrator may also include items that the receiver or the administrator has power to sell. These may be all of the assets of the target company, or certain of them, depending on the circumstances. It should also be noted that under Law No. 37 of 2004, the receiver may require Commercial Court approval for certain significant asset transactions, and this approval step should be factored into deal timelines.
Furthermore, even if the receiver or the administrator has power to sell certain assets, this does not mean that the seller will be able to guarantee that all of the permits, licenses, contracts and other matters which are connected with those assets will also be transferred to the buyer. Such items should be clearly identified before a purchase is made and appropriate steps taken before the transaction is completed to address any gaps that are identified.
An additional point of particular importance to buyers is the position of secured creditors. Under Article 56 of Law No. 37 of 2004, secured creditors — including those holding fiducia security, hypotheek, or pledge — retain the right to execute their security interests independently of the bankruptcy estate. This right is subject to a 90-day automatic stay from the date of the bankruptcy declaration. Buyers who are targeting assets that are subject to third-party security interests must verify the status of those interests and confirm whether they have been released or discharged before assuming clean title.
Foreign ownership restrictions
A point that is frequently underweighted by cross-border buyers is that Indonesia’s foreign investment restrictions apply equally in distressed M&A transactions. The Positive Investment List, established under Presidential Regulation No. 10 of 2021 as amended by Presidential Regulation No. 49 of 2021, sets out which business sectors are open to foreign investment and at what maximum ownership percentages. These limits are not relaxed because the target is in financial distress.
In practice, this means a foreign buyer acquiring assets or shares from a bankrupt Indonesian entity must verify that the acquired business sector does not fall within a restricted or closed category, and that the proposed ownership structure complies with the applicable foreign ownership cap. Sectors commonly implicated in distressed deals — including certain natural resources, healthcare, and media — carry specific restrictions that can affect both the structure of the acquisition and the maximum stake the foreign buyer can hold.
Where the target is in a sector regulated by OJK (the Financial Services Authority), such as banking, insurance, or multi-finance, sector-specific change-of-control approvals and foreign ownership rules apply on top of the general Positive Investment List framework. Buyers should identify sector-specific requirements at the outset, as these approvals can significantly extend the timeline between signing and closing.
Foreign buyers should also note that any change of ownership in an Indonesian company with registered foreign investment status (PMA company) requires notification to or approval from the Ministry of Investment and Downstream Industry (BKPM), and that certain approvals may also need to be processed through the Online Single Submission (OSS) system. These steps should be sequenced carefully in the deal timeline.
Pricing under time pressure
First of all, the nature of distressed deals are to move fast. But in order to move fast there are certain trade-offs that are made during the due diligence process. One of the biggest trade-offs that there are, is that of certainty of what a buyer is purchasing.
When buying a distressed business you need to price for the unknowns and that usually means some discount, an escrow, very limited warranty and very strict closing conditions. Because the buyer is not paying for perfect due diligence, the buyer is paying for a controlled risk profile.
In Indonesian distressed transactions, escrow mechanisms are the most practical protection tool for distressed buyers. Earn-out and staged closing mechanisms can be considered but these introduce future negotiation risk at the worst possible time for the distressed buyer. The more a distressed buyer can keep the structure clean at the start, the less risk of exposure the buyer will have post-closing.
Furthermore, Buyers need to factor in the costs for “sequencing” of approvals by regulatory bodies. Often, even after signing of a purchase agreement, it will take several months until closing for fresh applications to be filed with relevant ministries, the Ministry of Investment and Downstream Industry (commonly referred to as BKPM) and/or OJK notifications to be published, and subsequent processing and approvals to be granted.
A realistic closing timeline in a distressed Indonesian transaction is typically longer than the buyer initially models.
How to structure for speed
The best distressed buyers are not the fastest talkers. They are the best planners. They know which issues must be resolved before signing, and which can be managed between signing and closing.
A good deal starts with a good asset map that clearly outlines all the assets, encumbrances, licenses held by the entity and the assets and the subsequent employment obligations of existing staff. With that clear framework, the buyer can start planning the various steps needed to get the necessary approvals and can also decide whether to close the deal in one hit or in phases.
Tight timelines have a cost. If something cannot be confirmed in diligence, it probably will not transfer cleanly. The buyer who accepts that reality early pays a fair price. The one who does not pays twice. A very hard mindset to get into but one that will save so much in over payment and potential future dispute. It will also highlight what the true value of the assets and rights are, without the unknown unverified items.
What boards and GCs should ask before a distressed M&A in Indonesia
For any board or GC team contemplating acquisition of a distressed business in Indonesia, three questions draw the line between a strategic acquisition and an expensive effort to recover lost capital. First, is the asset truly transferable? Second, what liabilities do these acquired assets bring? Third, and most importantly, how long is needed to verify all of above in order to pay fair price for what is being acquired.
These are obvious questions that on the surface appear simple enough to determine. However, in distressed M&A these are often the questions that will differentiate between a strategic acquisition and an expensive recovery exercise.
If the answers are unclear, the buyer should slow down. If the answers are acceptable, the buyer can move with confidence. Either way, the deal should be built around legal reality, not just commercial urgency.
Frequently asked questions
The following questions reflect how boards, GCs, and investment teams typically search for guidance on this topic.
1. How does distressed M&A work in Indonesia?
It typically involves acquiring assets or shares from a financially stressed company, often while PKPU or bankruptcy proceedings are in play or a credible threat of them exists. The legal status of the seller under Law No. 37 of 2004 drives the structure, timeline, and risk allocation. Buyers need to understand whether they are dealing with a supervised debtor in PKPU or a court-appointed receiver in bankruptcy before committing to a structure.
2. What is PKPU and how does it affect asset sales?
PKPU is a court-supervised debt moratorium under Law No. 37 of 2004, designed to give the debtor time to negotiate a composition plan with creditors. During the process, major asset transactions typically need administrator oversight, which can limit how quickly and cleanly assets can be sold. Buyers should confirm that any transfer has the necessary approvals before signing.
3. Can foreign investors acquire assets from bankrupt Indonesian companies?
Yes, subject to the insolvency process and applicable transfer rules. The receiver controls the estate in bankruptcy and acts for the benefit of creditors. Foreign buyers can participate but must verify asset title, licence transferability, pending creditor claims, and any sector-specific foreign ownership restrictions before committing. Foreign buyers should pay particular attention to the Positive Investment List under Presidential Regulation No. 10 of 2021 (as amended by Presidential Regulation No. 49 of 2021), which sets out maximum foreign ownership percentages by sector. These restrictions are not waived in distressed situations. Where the target operates in an OJK-regulated sector, additional change-of-control approvals apply. Any change of ownership in a PMA company also requires notification or approval from the Ministry of Investment and Downstream Industry (BKPM) via the OSS system. These regulatory steps should be sequenced into the deal timeline from the outset.
4. What is actio pauliana in Indonesian insolvency?
It is a legal concept under Law No. 37 of 2004 that allows transactions entered into before insolvency proceedings to be challenged if they prejudice creditors. In distressed M&A, buyers should review prior transfers by the target, particularly related-party transactions and below-market arrangements, to assess clawback exposure before signing.
Partner perspective
Afriyan Rachmad, Partner
“The Indonesian distressed M&A market has matured considerably since the early post-Asian financial crisis wave of restructurings. What has not changed is the gap between what buyers think they are acquiring and what Indonesian law actually allows them to take. That gap is where disputes are born.
In my experience, the transactions that go wrong are rarely the ones where the buyer lacked commercial information. They are the ones where the buyer received legal advice too late in the process, or where the legal advice was not integrated into the deal structure from the start. A buyer who discovers mid-diligence that the target’s flagship operating licence does not transfer automatically, or that the receiver requires a separate Commercial Court approval for the asset sale, is a buyer who is already in a reactive position. In distress, reactive costs money. The three questions I always put to buyers at the beginning of a distressed mandate are: What exactly are you buying, who has the legal authority to sell it to you, and what will it take to make that transfer enforceable and clean?
These are not due diligence questions. They are deal design questions. Getting them right before term sheet determines whether the transaction creates value or transfers it to lawyers and creditors. I would also caution cross-border buyers, particularly those from common law jurisdictions, not to assume that the Indonesian insolvency framework operates the way theirs does. The interplay between the Commercial Court, the administrator or receiver, creditor voting mechanics under PKPU, and the rights of secured creditors under Law No. 37 of 2004 has its own logic. Understanding that logic — and working with it rather than against it — is what separates successful distressed acquisitions in Indonesia from expensive lessons.”
About Nusantara DFDL Partnership
Nusantara DFDL Partnership (NDP) is an Indonesian law firm and a member of the DFDL network, which operates across Southeast Asia. NDP advises foreign corporations, institutional investors, and Indonesian businesses across a full suite of corporate legal services, including corporate advisory, mergers and acquisitions, foreign direct investment, joint ventures, employment law, real estate, dispute resolution, restructuring, and cross-border transactions. NDP works with clients across sectors including digital infrastructure, financial services, energy, manufacturing, and property.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.
