Deadlock provisions are essential in business partnerships to resolve disputes and prevent the company from stalling. These provisions, such as Call and Put Options, offer clear solutions, allowing partners to either exit the business or continue operations, ensuring fair resolutions and minimizing disruption.
In business partnerships, disagreements can sometimes escalate to the point of a deadlock, when both parties cannot agree on an important issue for the company. When this happens, deadlock provisions in a joint venture agreement can provide a clear solution. This article will explain how deadlock provisions, such as those outlined in Article 17, help resolve disputes and ensure business continuity or a fair resolution for both parties.
Also read: Metamorfosis Kode KBLI bagi E-Commerce di 2026
What Are Deadlock Provisions?
Deadlock provisions are rules within an agreement that define how to resolve situations where two parties in a company cannot reach an agreement. The aim is to ensure that the company does not become stalled or cease operations simply due to a disagreement. Below is an explanation of how these deadlock provisions work.
- Call and Put Options: The Primary Solution
When a deadlock occurs, both parties have two main options: the Call Option and the Put Option. These options grant each party the right to buy or sell the other party’s shares, with the goal of allowing one party to exit the partnership or ensuring the company continues to operate.
- Call Option (Right to Purchase Shares): One party can offer to buy the other party’s entire shareholding in the company at a fair market price. The buying party will send an official notice, called a “Call Option Notice,” within 60 days after the deadlock is identified.
- Put Option (Right to Sell Shares): Conversely, the party wishing to exit can offer to sell their entire shareholding to the other party at a fair market price. The selling party will send an official notice, called a “Put Option Notice,” within the same 60-day period.
These options provide a clear exit strategy when the parties cannot reach an agreement, either by buying or selling the other party’s shares.
- What Happens if Both Parties Submit Offers Simultaneously?
If both parties submit notices to buy or sell shares at the same time, there are rules to determine who will buy or sell their shares:
- If Both Parties Submit Call Option Notices: If both parties want to purchase shares from each other, the offer with the higher price will prevail. The party offering the lower price must sell their shares to the party offering the higher price.
- If Both Parties Submit Put Option Notices: If both parties want to sell their shares, they must agree to find a third-party buyer who will purchase all of their shares at an agreed price (with a maximum 20% discount from the fair market price). If they cannot find a buyer or agree on the price within 60 days, the deadlock process continues.
- Final Call Option
If the above process fails, the “Final Call Option” comes into play. In this option, each party can send a notice to buy shares at 80% of the fair market price. If both parties send such notices, the higher offer will prevail. If no notice is sent for the Final Call Option, the last step is to liquidate the company (close the company and distribute the proceeds).
- Priority Between Call and Put Options
If one party submits a Call Option Notice and the other party submits a Put Option Notice simultaneously, the first notice submitted will prevail. If both notices are submitted on the same day, the purchase price will be based on the market price of the shares.
- Independent Appraiser to Determine Market Price
To ensure fairness, the market price of the shares will be determined by an independent appraiser from a reputable major accounting firm. This appraiser will ensure that the price is aligned with the fair market value. If the parties cannot agree on which appraiser to use, the appraiser with the lowest fee will be chosen.
- Special Provisions for Certain Situations
In specific situations, such as when one party purchases all of the other party’s shares, additional rules apply based on other agreements related to the company. For example, if one party buys shares from the other, certain provisions from existing agreements, such as a Tripartite Cooperation Agreement, may also apply.
- Company Liquidation
If neither party exercises the Call or Put Option, the agreement will be terminated, and the company will be liquidated according to applicable laws. This ensures that, even without an agreement, the company can be closed in an orderly and legally compliant manner.
- Continued Cooperation During the Deadlock Process
During the deadlock resolution process, both parties must continue to cooperate fully. They must avoid actions that could harm the company and must continue to operate the company as normal, as if the deadlock did not exist.
Conclusion
Deadlock provisions offer a clear way to resolve disputes between business partners. Through the Call and Put Options, these provisions ensure that one party can exit fairly, or the company can continue operating. By providing rules that govern various scenarios during a deadlock, these provisions help minimize disruption and prevent more significant legal issues. In the fast-paced world of business, having such provisions in place is crucial to ensure that the company continues, or if necessary, is shut down in an organized and legal manner.
Author: Kristian Ade Chandra – Partner at C&R Phase Counsellors at Law.
