AVOIDING BREACH IN M&A TRANSACTION DURING COVID-19 OUTBREAK
Indonesia is among the top countries with the highest growth rate of COVID-19 spread. Our President, Joko Widodo, has taken immediate action by recommending the people to conduct social distancing and the employers to apply work-from-home policy. Following to this recommendation, the Governor of DKI Jakarta, Anies Baswedan, also issued an order in the form of “Governor of Special Capital Region of Jakarta Instruction No. 6 of 2020 Regarding Temporary Suspension of Office Activities in Order to Prevent the Spread of Coronavirus Disease” on 20 March 2020.
With the enactment of the abovementioned recommendations and instructions, companies are forced to limit its business activities in the office. This undeniably will affect companies’ ability to carry out their corporate actions such as merger and acquisition (M&A). This legal brief will provide several issues to consider when carrying out a M&A transaction in Indonesia amidst this pandemic, specifically on the execution and parties’ prevention on breach of their performance relating to M&A transaction.
Signing the Deed of Transfer in Notarial Form
In accordance with Article 128 paragraph 2 of the Company Law, deed of transfer for the acquisition shall be stated in the form of notarial deed, where in practice the notary will require both of the seller and the purchaser (or their representatives) to sign the notarial deed of transfer before the notary. Amidst of this pandemic, delay of the completion of the transaction might be inevitable. Such delay can cause breach of agreements, specifically on the agreed completion date.
To avoid such breach of agreement, there are several actions that can be carried out by the parties, such as:
Scrutinize the terms and conditions on the agreed transaction documents (i.e. conditional sale and purchase agreement) and renegotiate the terms if possible (i.e extension of the long stop date); and/or
Negotiate with the notary whether physical presence during the deed of transfer signing is possible to be conducted by that notary or other notary who is capable to conduct such action.
Those actions are in line with Recommendation to Prevent COVID-19 Outbreak/ Himbauan Pencegahan Penyebaran COVID-19 No. 67/35-III/PP-INI/2020 dated March 23rd, 2020 issued by Association of Indonesian Notary/ Ikatan Notaris Indonesia which states that work-from-home policy and social distancing will certainly limit the implementation notary public’s duty, therefore a number of alternatives may be adopted for the situation as follows:
Rearrange the signing schedules with the parties, until the conditions allow;
Recommend other notary colleagues whose conditions are more possible to conduct the duty; and/or
For agreements, deeds, or meetings according to the laws and regulations, documents can be made under the hand, by including the clause of "will be made / restated in an authentic deed as soon as the emergency conditions of COVID-19 are revoked by the Government”.
Inclusion of COVID-19 Outbreak into Force Majeure Clause or Material Adverse Change Clause
As the outbreak may result uncertainties, including business uncertainties, there is a possibility that the outbreak will affect the parties performance in carrying out their obligations under the transaction documents. In relation to this, we suggest the documents and/or agreements to include COVID-19 outbreak and any treatments related to the pandemic (i.e: territorial lockdowns) into the force majeure conditions. Further, parties entering into new transactions can also consider virus pandemic as a material adverse change along with certain terms and conditions in the event of such change arises.