So, this issue is raised and asked to us the other day as opposed to the scheme of loan and its conversion – I was given an article by the Company Law saying that the owed amount (penalties and outstanding interest) cannot be converted into shares – I think some consultant might have some confusion in giving advise or others.
This time I will be quoting the Article 35 :
“(1) Pemegang saham dan kreditor lainnya yang mempunyai tagihan terhadap Perseroan tidak dapat menggunakan hak tagihnya sebagai kompensasi kewajiban penyetoran atas harga saham yang telah diambilnya, kecuali disetujui oleh RUPS. “
- The Article quotes that the owed amount may not be used as the compensation for the shares payment. – so the question raised supposedly not only about owed profit participation or owed interest, instead it should be for all owed amount (whole loan and interest or profit participation).
I was shocked with this claim, and honestly I was laughing as to question who gave this kind of opinion. I supposed nowadays many consultants only read partial clause and quick in conclusion.
When literally translating the article it was said that :
“All Shareholders and other creditors having the right to charge may not used his or its rights to claim to the Company as the compensation to the shares subscription payment towards the subscribed shares, unless approved by the General Meetings of Shareholders”
So, when looking at this article indeed, this arrangement shows that- you cannot enter into a convertible loan unless the general meetings of shareholders approve for the company to enter into a convertible loan arrangement with you – so based on the article Loan , we recommend for you to always check Deed and Article of Association along with obtaining the shareholders resolution.
The reason of this is to protect so that the creditor will not just simply claim to the rights to own shares and therefore neglecting the first rights of refusal of the shareholders within the company.
In conclusion all the owed amount by the Company can be used to set off the shares subscription payment , and indeed the only problem left is that the conversion that occur might actually incur some tax obligation which you need to pay attention to.