What is liquidation?
Learn what liquidation means in Indonesia, how the process works under company law, and who gets paid first.
December 2023 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Liquidation (likuidasi) is the legal process of winding up an Indonesian company after it’s dissolved, by selling its assets and paying its debts
- A liquidator (likuidator) runs a standard liquidation, while a court-appointed curator (kurator) handles the process when a company is bankrupt
- Unpaid employee wages come first in the payment order, followed by secured creditors, preferred creditors such as the state, unsecured creditors and finally shareholders
- Directors can be personally liable for unpaid debts if their fault or negligence caused a bankruptcy, so accurate, current records matter
What does liquidation mean?
Liquidation is the process of closing a company by selling its assets and using the money to pay what it owes. In Indonesia it’s called likuidasi, and any funds left over go to shareholders.
Under Indonesian company law, liquidation always follows dissolution (pembubaran), the legal decision or event that ends a company’s business. Article 142 of Law No. 40 of 2007 on Limited Liability Companies (UU PT) requires every dissolved PT (Perseroan Terbatas, or limited liability company) to go through liquidation.
Say the shareholders of a PT that runs a café decide to close it. The liquidator sells the coffee machines and fit-out and uses the proceeds to pay the café’s debts. Any cash left over then goes to the shareholders.
Types of liquidation
Article 142 UU PT lists the grounds for dissolving a company, and they fall into two broad types. The type depends on who starts the process.
Voluntary liquidation
Voluntary liquidation happens when the company’s owners choose to close it. It follows a resolution at the general meeting of shareholders (GMS), known in Indonesia as RUPS. It can also follow the end of the company’s term set in its articles of association.
Owners often choose this route when they’re ready to retire or start something new, even if the business can still pay its debts.
Involuntary liquidation
Involuntary liquidation starts outside the owners’ control. Article 142 lists four triggers that fall into this group:
- a court order dissolving the company
- a Commercial Court (Pengadilan Niaga) decision ending a bankruptcy because the bankrupt estate can’t cover the bankruptcy costs
- an insolvency finding on a bankrupt company’s estate
- the revocation of the company’s business licence
Why do companies liquidate?
Companies close for financial reasons as well as personal or legal ones. Here are four common triggers.
Insolvency
A company is insolvent when it can’t pay its debts as they fall due. Cash in the bank and long-term financial health are different measures, so it helps to understand how liquidity and solvency differ before problems build.
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Creditors of an insolvent company can apply for bankruptcy or for penundaan kewajiban pembayaran utang (PKPU), a suspension of debt payment obligations. Indonesia’s five commercial courts handled 740 bankruptcy and PKPU cases in 2025, a 15.4% rise on the previous year, according to Bisnis.com’s analysis of court data.
Persistent losses
A business can pay its bills for a while and still lose money month after month. If losses keep eating into reserves, owners may decide that closing now protects more value than trading on.
Keeping a close eye on cash coming in and going out gives you time to change course. So does preparing your business for an economic downturn before one arrives.
Owner exit
Some owners close a healthy company because they’re retiring or have no one to take over. A voluntary liquidation lets them pay every creditor and return the remaining funds to shareholders in an orderly way.
Legal or regulatory reasons
A company that has its business licence revoked must dissolve and liquidate under Article 142 UU PT. A court can also order a company’s dissolution, which leads to liquidation in the same way.
What does a liquidator do?
A liquidator (likuidator) takes control of a dissolved company and winds up its affairs. The GMS appoints the liquidator, and if it resolves to dissolve the company without naming one, the directors act as liquidator.
The liquidator notifies creditors and the government, collects claims, sells assets and pays debts in the legal order. At the end, the liquidator reports the results.
When a company is bankrupt, a curator (kurator) does this work instead. The Commercial Court appoints the curator, who can be an individual or the state estate office (Balai Harta Peninggalan). A supervisory judge (hakim pengawas) oversees the curator’s work.
What happens when a company is liquidated?
UU PT sets out a clear sequence for liquidating a dissolved company. Here’s how the process works under Indonesia’s company law.
1. Appoint a liquidator
The GMS names a liquidator when it resolves to dissolve the company, or the directors take on the role. In a bankruptcy, the Commercial Court appoints a curator.
2. Announce the dissolution
Within 30 days of dissolution, the liquidator must announce it in a newspaper and the State Gazette of the Republic of Indonesia (Berita Negara). The liquidator also notifies the Ministry of Law (Kementerian Hukum), which runs Indonesia’s company register through its general legal administration directorate (AHU).
3. Collect creditor claims
Creditors have 60 days from the announcement to lodge their claims. The liquidator checks each claim against the company’s records, so accurate books make this step quicker.
4. Sell assets and pay creditors
The liquidator sells the company’s assets and pays creditors in the order the law sets. Any money left once the debts are settled goes to shareholders.
5. Report and close the company
The liquidator reports the final results to the GMS or the court, then announces the outcome in a newspaper. The Ministry records the end of the company’s legal entity status and removes its name from the company register.
The Ministry also announces the end of the company’s legal entity status in the Berita Negara, which completes the process.
How are assets distributed in liquidation?
Indonesian law ranks who gets paid first when a company’s assets are sold. Here’s the usual order, starting with the highest priority:
- Unpaid employee wages, which Constitutional Court (Mahkamah Konstitusi) Decision 67/PUU-XI/2013 ranks ahead of all other creditors
- Secured creditors (kreditur separatis), who hold hak tanggungan, fidusia, gadai or hipotek security over company assets
- Preferred creditors (kreditur preferen): workers owed other entitlements, which the same Constitutional Court decision ranks ahead of the state but behind secured creditors, then the state for tax debts under Article 21 of the tax procedures law (UU KUP)
- Unsecured creditors (kreditur konkuren), such as suppliers without security, who share what’s left
- Shareholders, who receive any remaining funds in line with their equity in the company
Liquidators must pay the company’s tax debts before distributing anything to shareholders. The wage ruling is binding, although how it applies in an individual case can still be contested in court.
How liquidation affects employees and directors
Liquidation changes things for the people who work for and run the company. Here’s what employees and directors can expect.
Employees whose jobs end because the company is bankrupt or closing are entitled to severance pay (uang pesangon) and long-service pay (uang penghargaan masa kerja). They can also claim compensation for other entitlements (uang penggantian hak). These rights come from the Manpower Law, as amended by the Job Creation Law (Cipta Kerja), and Government Regulation 35 of 2021.
The amounts depend on the reason for termination and how long each person has worked for the company. Check the current rules with a qualified advisor before you calculate what you owe.
A PT’s structure generally protects shareholders’ personal assets from company debts. Directors carry more risk under Article 104 UU PT.
Each director can be personally liable for unpaid debts if their fault or negligence caused a bankruptcy and the estate falls short. Directors share this liability jointly, and it can reach those who served in the five years before the bankruptcy ruling.
Directors who can show they acted in good faith have a defence. Clear financial records help show how decisions were made.
Liquidation vs bankruptcy
Bankruptcy (kepailitan) is a status a court declares, and liquidation is the process of winding up. Law No. 37 of 2004 on Bankruptcy and PKPU sets out when the Commercial Court can declare a company bankrupt. The company must have two or more creditors and at least one unpaid debt that’s due.
Once a company is bankrupt, a curator manages and sells its estate under a supervisory judge. Bankruptcy can then lead to dissolution and liquidation, as Article 142 UU PT recognises.
PKPU gives a struggling company room to propose a composition plan (perdamaian) to its creditors. It can last up to 270 days, and if creditors and the court haven’t approved a plan by then, the court declares the company bankrupt.
Liquidation vs dissolution
Dissolution (pembubaran) is the decision or event that ends a company’s business, and liquidation is the wind-up that follows. The company keeps its legal entity status while the liquidator works through the process.
That status ends once the Ministry of Law records it and removes the company’s name from the register. Mergers and consolidations are the exception: the company ends without going through liquidation.
What is liquidation in accounting?
In accounting, liquidation changes how a company prepares its accounts. The Indonesian Institute of Accountants (Ikatan Akuntan Indonesia) issues the country’s financial accounting standards (Standar Akuntansi Keuangan, or SAK). These standards assume the business is a going concern that will keep operating.
When management expects to liquidate or stop trading, that assumption stops applying. The company’s financial statements must then disclose this, along with the basis used to prepare them and the reasons.
For example, your balance sheet normally values equipment on the basis that you’ll keep using it. If the company is closing, that basis changes, so work through the numbers with your accountant.
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FAQs on liquidation
Here are quick answers to other common questions about liquidation in Indonesia.
Can a company keep trading during liquidation?
Dissolution ends the company’s ordinary business, so trading stops. The company keeps its legal status so the liquidator can finish winding up its affairs.
How long does liquidation take in Indonesia?
It depends on how many assets need selling and whether any claims are disputed. The 60-day creditor claims period after the announcement is the minimum, so plan for longer.
Can I avoid liquidation?
You may be able to restructure through PKPU or agree new repayment terms with creditors, and forecasting your cash flow helps you spot trouble early. An experienced advisor can help you weigh your options as soon as problems appear.
What are the advantages and disadvantages of liquidation?
Liquidation gives you an orderly, legal way to close the company and settle creditors in the order the law sets. On the downside, the business and its jobs come to an end, and shareholders are paid last.
What’s the difference between insolvency and liquidation?
Insolvency describes a company that can’t pay its debts as they fall due, and liquidation is the legal process of closing a company. An insolvent company may recover, and a solvent company can still choose voluntary liquidation.
Related terms
Learn more about liquidation
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.