Due Diligence of an Indonesian Partner: How to Check Debts and Legal Disputes

How to Conduct Due Diligence on an Indonesian Partner: Checking Debts, Lawsuits, and Assets

Before entering into any partnership with an Indonesian company—whether it’s an investment, M&A transaction, or launching a joint venture—it’s crucial to conduct thorough due diligence. This process, known as Due Diligence, is a legal and financial investigation that helps uncover risks before signing any agreements.

Indonesia has its own legal and corporate framework, which differs significantly from Russian or European systems. As a result, gathering information from a company’s website alone won’t provide the full picture. A common and effective practice is to hire experts who can assess the reliability and transparency of a partner, including their debt load, legal entanglements, and asset ownership.

Below, we explain how to independently or with a consultant’s help gather key information about an Indonesian company or individual entrepreneur.

1. Financial Stability: How to Verify Debts and Liabilities

The first red flags for a potential partner are existing debts, collateral encumbrances, or outstanding tax liabilities. When conducting your review, consider the following:

Company Financial Statements

Examine financial records—they reveal the company’s actual financial condition:

• Profit and loss statements, balance sheets, and cash flow reports—ideally for the past three years.
• Loan obligations and credit lines—whether there is currently outstanding debt, and what collateral or guarantees have been issued.

These documents are generally requested from the company directly or obtained via a legal representative if the company agrees to cooperate with the due diligence process.

Tax Compliance Checks

Registration with the Indonesian tax authority is mandatory. A company should possess a valid taxpayer identification number called NPWP (Nomor Pokok Wajib Pajak). Through the Directorate General of Taxes website, you can verify registration status, although full tax histories are typically accessed via authorized representatives or with a power of attorney.

If your prospective partner operates as an individual under a CV (Commanditaire Vennootschap) or UD (Usaha Dagang) legal form, then local tax consultants are necessary to help verify compliance. Debt-related information is not publicly disclosed and requires formal inquiries.

2. Legal Proceedings and Bankruptcy Risks: What to Look For

Legal disputes, court cases, or insolvency proceedings are critical warning signs. A cursory background check often misses deeper issues that could later become major liabilities.

Reviewing Litigation History

The Supreme Court of Indonesia (MA-RI) provides access to records involving legal entities and individuals. Focus on:

• Contract dispute cases or financial claims—especially in commercial courts (Pengadilan Niaga).
• Judicial rulings involving enforcement of obligations or unresolved legal orders.
• Pending PKPU bankruptcy proceedings (Penundaan Kewajiban Pembayaran Utang)—the local equivalent of debt restructuring.

Important: Some information is restricted, and detailed analysis may require assistance from a local lawyer or court liaison.

Risks of Personal Liability

Under Indonesian law, if a company’s director intentionally avoids debt repayment or acts against the interest of creditors, they may be held personally liable. This underscores the importance of checking the background of founders and ultimate beneficial owners, especially in cases involving litigation or insolvency.

3. Verifying Asset Ownership and Business Licenses

A business partner may claim ownership of property, vehicles, or manufacturing facilities. To confirm legal ownership and check for encumbrances, consider verifying:

Which Assets Require Verification

• Real estate and land—information is maintained by the National Land Agency (BPN). Verification generally requires a power of attorney or owner’s consent.
• Vehicles—can be checked via the database of Korlantas Polri (Indonesian National Traffic Police). Some data is open access, but full verification typically requires assistance from local professionals.
• Business licenses and permits—the key document is the NIB (Nomor Induk Berusaha), which confirms the legal right to conduct business activities.

In Indonesia, it’s common for assets to be registered under affiliated individuals or relatives. Without legal due diligence or a company’s cooperation, confirming true ownership may be difficult.

4. Counterparty Due Diligence Checklist in Indonesia

Here is a quick reference checklist for baseline verification of a potential Indonesian partner:

• Request incorporation documents and the NIB license
• Review financial statements and debt obligations
• Confirm the registration of a taxpayer number (NPWP)
• Check litigation history via the Supreme Court’s website
• Evaluate assets and property through available databases
• Investigate ownership structure and affiliated companies
• Gather insights into business reputation from local sources

Many due diligence initiatives are carried out with the support of independent consultants and investigative firms specializing in corporate analysis. For high-value deals, this is a smart investment in legal and financial protection.

Common Pitfalls to Avoid During Partner Verification

• ❌ Relying solely on documents provided by the company
• ❌ Failing to check legal exposure and litigation history
• ❌ Overlooking personal liability of founders and managers
• ❌ Not realizing that assets may be registered under third parties
• ❌ Operating without a local lawyer and lacking access to restricted databases

Conclusion: Trust, But Verify—Especially in a Foreign Legal Environment

You can’t accurately assess the reliability of an Indonesian partner based on surface impressions—financial strength, legal transparency, and confirmed asset ownership are the pillars of partner security. Conducting due diligence in Indonesia requires a structured approach, deep knowledge of local regulations, and access to government records.

Use all available resources, and when in doubt, engage licensed due diligence professionals. It’s an investment in trustworthiness—and your best protection against future losses.