Debt Conversion or Collection Right as compensation the obligation of remittance over a number of shares price as regulated in Article 35 paragraph (1) Law Number 40 of 2007 regarding Limited Liability Company (hereinafter referred to as “Company Law”).
If noticed the provision in Article 35 Company Law with the explanation, there are several requirements to can conduct debt conversion with share, including:
A. Approval From General Meeting Of Shareholders (GMS)
According to Article 35 paragraph (1) of Company Law, that has been stipulated Shareholders and Other Creditors who have claims against The Company can’t use their Collection Rights as compensation for the obligation of remittance over a number of shares price they have taken (their Collection Rights are converted into shares or Collection Rights are considered as a substitute for the obligation of remittance capital), unless get approved by the GMS.
The approval towards The Act to Debt Conversion with Share will be valid if The GMS Decision concerning approval Debt Conversion to Shares is conducted suitable with the provision concerning notice of the meeting, quorum, and the number of votes for Amendments to The Articles of Association as regulated in the Company Law and/or The Articles of Association (vide Article 35 paragraph (3) Company Law). The requirement of GMS approval is necessary, because this provision nullifies the Right Issue for another shareholder to acquire new shares (Vide the Explanation of Article 35 paragraph (1) Company Law).
Regarding with approval of GMS, there are several things must be noted, including:
- Conducting Notice of The Meeting, with provision the Directors conduct notice to Every Shareholder within a period of 14 days before the GMS held through Registered Mail and/or Advertisement in Newspaper;
- Quorum Requirement, with provision The GMS regarding approval of Debt Conversion with Shares by The Company can be held if attended by Shareholders / Their Representatives that representing at least 2/3 parts from the total number of shares with voting rights, unless Articles of Association determined a larger quorum of attendance;
- Number of Votes For Legitimate GMS Decision, the decision of GMS regarding approval of Debt Conversion with Shares by The Company is legitimate if gets approval by the Shareholders / Their Representative who represents at least 2/3 part of the Number of Votes issued in General Meeting of Shareholders, unless Articles of Association determined a larger Number of Vote for Decision making.
B. Debt Conversion Only Be Conducted Towards New Shares, Unless There Are Shares Existing That Owned By The Company After Conduct An Shares Buyback
According to the explanation of Article 35 paragraph (1) Company Law, therefore has been stipulated that debt conversion with shares only be conducted towards “New Shares”, unless there are Shares existing that owned by The Company after conduct an Shares Buyback. This is reasoned because the existence of the shares will be compensation with debt obligation which is owned by The Company, whereas the shares that existing in generaly not an asset of The Company, but has become an asset of The Shareholders.
C. Applies Only For Specific Creditor
The last thing that must be noted is not every Creditor may conduct debt conversion or collection rights that owned with Shares of The Company, this is because in Article 35 paragraph (2) Company Law has limited that Collection Rights against The Company that may be compensated with the obligation of remittance over a number of shares price is collection rights for debts against The Company that arise because:
- The Company that has received money or tangible asset or intangible asset that can be valued with money;
- The Parties whose has been Insurer or Guarantor for The Company debts have been fully paid The Company debts with nominal up to totaling the guarantee debts; or
- The Company is an Insurer or Guarantor for The Third Party’s debts. The Company has been obtaining benefits in the form of money or goods that can be valued in money directly or indirectly received by The Company.
The example of implementation from debt conversion with shares, found on Corporate Action that will be conducted by PT Waskita Beton Precast, Tbk (PT WSBP). PT WSBP in the context of implementing the Settlement Agreement which has been legalized (Homologasi), that has been held the Extraordinary General Meeting Of Shareholders (EX GMS) PT Waskita Beton Precast, Tbk (PT WSBP) which has approved for issuing at most 33,60 Billion New Shares for C Series that will be distributed to all Creditors through Capital Reduction Without Rights Issue Process or Private Placement. It should also be noted that PT WSBP was previously declared in a state of Suspension of Debt Payment, before at the end Settlement Plan filed by PT WSBP has been approved by the majority Creditor of PT WSBP.
In general, Private Placement is the act to issue new shares with the purpose to add the capital of the company that is aimed for a new investor who doesn’t hold a share in the company. But, in case of Corporate Action that will be conducted by PT WSBP, the act of Private Placement has the purpose to repaying the debts obligation of PT WSBP to The Creditors resort to conduct Debt Conversion or Collection Right with new share that will be issued by PT WSBP.
Based on the previous description, the conversion of debt into shares is possible as long as it is carried out with New Shares with the approval of the GMS and meets the requirements described earlier. Therefore, for The Company intending to convert debt into new shares to be issued as a corporate action aimed at debt repayment or debts restructuring, further discussions can be conducted with us at TRNP Law Firm.