Based on data from the Case-Tracking System in five commercial courts (Central Jakarta, Medan, Semarang, Surabaya and Makassar) in 2020, there were 114 bankruptcy petitions and 637 Suspension of Payments (PKPU) petition filings. At the time of writing (end of October 2021), there were already 117 bankruptcy petitions and 625 PKPU petition filings in 2021. If the number of cases in 2020 and 2021 are examined over the same period (January to October), the number of bankruptcy petitions increased from 86 to 114 cases, while the number of PKPU petitions increased from 511 to 625.
Financial restructuring, reorganisation, liquidation and insolvency of business entities can be dealt with through court-supervised proceedings or out-of-court processes.
Court-supervised proceedings are primarily governed by Law No 37 of 2004 on Bankruptcy and Suspension of Payments (Indonesian Bankruptcy Law or IBL), together with civil procedure law, which includes Supreme Court Decree No 109/MA/SK/IV/2020 on Guide Book for Resolving Bankruptcy and PKPU Cases, dated 29 April 2020 (Supreme Court Manual).
Out-of-court processes are governed by contract law, as set out in the Indonesian Civil Code (ICC), and other relevant laws and regulations, depending upon the nature of the organisation, such as:
The IBL provides two types of court-supervised restructuring and insolvency proceedings that may be initiated either voluntarily (by the debtor) or involuntarily (by creditors) by submission of a petition to the Commercial Court:
The bankruptcy and PKPU processes are intertwined because restructuring can emerge from a bankruptcy proceeding, as the IBL provides the opportunity for a bankrupt debtor to offer a composition plan, while liquidation can result from a PKPU proceeding, especially if the PKPU proceeding fails to produce a composition plan that is acceptable to the creditors.
The IBL provides that if the Commercial Court approves a bankruptcy petition, it is required to render a bankruptcy declaration and appoint one or more receiver(s) and a supervisory judge.
In bankruptcy proceedings, after the bankruptcy declaration is rendered by the Commercial Court, the affairs of a bankrupt debtor are handled and managed by one or more court-appointed receivers. The directors of the debtor that is a legal entity lose their power to manage the bankrupt debtor’s affairs and estate, as these powers are given to the receiver. The receiver is subject to the supervision of the court-appointed supervisory judge.
The IBL provides that, if the Commercial Court approves a PKPU petition, it is required by law to grant the debtor a provisional PKPU for up to 45 days and appoint one or more administrator(s) and a supervisory judge. The 45-day provisional PKPU may be extended up to a maximum 270 days from the date the provisional PKPU is granted (in which case it becomes a permanent PKPU).
After the PKPU declaration is rendered by the Commercial Court, the affairs and the estate of a corporate debtor in PKPU proceedings are handled and managed jointly by the director(s) of the company and one or more court-appointed administrators. The administrator is subject to the supervision of the court-appointed supervisory judge. In this regard, the debtor will still be entitled to manage and dispose of its assets, but only jointly with the administrator. The debtor cannot conduct any management or ownership actions relating to all or part of its assets without the approval of the administrator.
Any violation of this provision will entitle the administrator to take whatever action is required to ensure that the debtor’s assets are not jeopardised by the debtor’s action. Performance by the debtor, without the administrator’s consent, of the debtor’s obligation arising after the commencement of the PKPU proceedings, may only be imposed on the debtor’s assets to the extent that the debtor’s assets gain advantage/benefit from this performance.
There is another type of out-of-court insolvency proceedings that is provided by the ICL, known as a dissolution and liquidation proceeding (D&L Proceeding), whereby a liquidator is appointed. Under this procedure, no restructuring can be done as it is aimed at liquidation and the end result will be the termination of the company’s legal entity status.
There are no mandatory obligations for companies to commence formal insolvency proceedings within specified times, except in the case of a company in liquidation whose assets are insufficient to cover its liabilities, the liquidator is required to file a bankruptcy petition pursuant to the IBL (unless all known creditors agree that a settlement can be achieved outside bankruptcy).
Creditors may commence involuntary court-supervised proceedings if a debtor fails to pay its debt(s) by filing either a bankruptcy or PKPU petition against the debtor in the Commercial Court. That petition will be granted if the following requirements are fulfilled:
The IBL provides that a bankruptcy petition may be filed by:
If the petition is granted, the Commercial Court will either declare the debtor bankrupt or grant the debtor protection under a provisional PKPU.
With respect to D&L Proceedings under the ICL, the District Court (Pengadilan Negeri) may involuntarily dissolve a company (and appoint a liquidator) if it declares the company dissolved) by rendering a court order, based upon the involuntary request from the following parties:
The term “insolvency” as used in the IBL has a different meaning from that in many other jurisdictions. It does not constitute a test for bankruptcy declaration, but refers to the specific concept of “the state of being insolvent at law”, which occurs during bankruptcy or PKPU proceedings.
Under the IBL, a bankruptcy declaration or a declaration granting PKPU (marking the commencement of either the bankruptcy or PKPU proceedings), will be rendered by the Commercial Court if either the bankruptcy or PKPU petition being filed (whether voluntarily by the debtor itself or involuntarily by creditors) is allowed based on the fulfilment of the requirements for either bankruptcy or PKPU (see 2.4 Commencing Involuntary Proceedings).
Under the ICL, one of the conditions for commencing D&L Proceedings against a company is that it is declared bankrupt and its estate is in a state of insolvency, having regard to the requirements set out in the IBL.
According to the IBL, the initiation of either bankruptcy or PKPU proceedings against:
Although not explicitly regulated by the IBL, the Supreme Court Manual requires OJK to initiate the voluntary bankruptcy proceedings against “Finance Institution” or involuntary bankruptcy proceedings against “Other Financial Services Institutions” (for example: pawnshops, deposit insurance institutions, Indonesian eximbank (export financing), secondary mortgage facility, health social security agency (Badan Penyelenggara Jaminan Sosial) and others that are under OJK supervision). Nevertheless, no similar provisions for PKPU proceedings exist.
In practice, no bank in Indonesia has ever been either liquidated under the bankruptcy proceedings or restructured under the PKPU proceedings under the IBL, although it is technically possible. Instead, all bank dissolutions and liquidations cases that have occurred in Indonesia in practice used the D&L Proceedings under ICL and the Bank Liquidation Rules.
According to the Bank Liquidation Rules, a bank may be dissolved and liquidated based on a decision of:
A bank that suffers financial difficulties (eg, a solvency issue), which meets certain criteria as set out under Per OJK 15/2017 and therefore is considered as harming the continuity of its business, would be subject to special supervision.
In this regard, there are two categories:
If a bank under special supervision meets certain criteria as set out by PerOJK 15/2017 (Failed Bank).
For a non-systemic bank, it will be declared by the OJK that the non-systemic bank “cannot be restructured” (non-systemic failed bank) and the OJK will inform in writing the relevant non-systemic failed bank and the LPS for obtaining further decisions regarding the non-systemic failed bank. The LPS can later decide whether or not to save the non-systemic failed bank. If the LPS decides not to save a non-systemic failed bank, the OJK will revoke its banking licence after receiving notification of the LPS’s decision. The LPS subsequently will dissolve and liquidate a non-systemic failed bank by taking over the authority of the GMS, declaring the dissolution of the bank, and declaring that the bank is in liquidation and setting up a liquidation team.
Systemic failed bank
For a systemic failed bank, the OJK will request to convene the meeting of the Financial System Stability Committee (Komite Stabilitas Sistem Keuangan or KKSK), consisting of the MoF, the Governor of the central bank, the Chairman of the board of the OJK and the Chairman of the board of the LPS, to determine the steps to handle the systemic bank’s problem. If the LPS handled the systemic bank based on a KKSK decision, the LPS will take over the systemic bank, either with or without the participation of the shareholders of the systemic bank (open bank assistance), restructure the systemic bank, convert all restructuring/handling cost spent by the LPS as the LPS’s equity/shares and later sell all of the shares in the systemic bank. Due to its systemic nature, the systemic bank will not be formally dissolved or liquidated.
Insurance companies are insurance and reinsurance companies duly established and licensed based on insurance law.
According to the Insurance Companies Liquidation Rules:
Securities companies are duly licensed securities companies operating as underwriter, securities broker and investment manager under the Capital Market Rules.
According to the Securities Companies Liquidation Rules, in the event that the licences of the Securities Companies are revoked, the use of the name and logo of such securities companies for any activities are prohibited, except for the activities relating to the dissolution of the securities companies.
According to the Pension Fund Law and the OJK Law:
According to PerOJK 9/2014, a pension fund may be dissolved by the OJK if:
Public Interest SOE
According to the SOE Liquidation Rules, a Public Interest SOE may be dissolved due for the following reasons:
The dissolution of a state-owned company, including a Public Interest SOE, would commence under government regulations, similar to its establishment.
The dissolution of a Public Interest SOE must first be recommended by the SOE Minister (after receiving consideration and review from the MoF and other related minister or head) to the President.
According to the Finance Companies Liquidation Rules, a finance company may be dissolved and liquidated based on the decision of:
For the last two bullet points, the liquidator must report the dissolution to OJK within 15 working days as of the final and binding court decision.
Venture Capital Companies
According to the Venture Capital Companies Liquidation Rules, the dissolution and liquidation of a venture capital company:
For the last two points, the dissolution can only be done upon obtaining approval from the OJK.
There is no mandatory consensual restructuring negotiation requirement before the commencement of a formal “statutory process”.
It is often the case that the debtor prefers a court-supervised process, due to the benefits the IBL provides to debtors:
An example of a high-profile informal restructuring in 2019/2020 involved PT Krakatau Steel (Persero) Tbk, a state-owned public company, which successfully restructured its USD2.2 billion debt to various bank creditors.
Some sectors, such as aviation, property and hospitality, have been heavily impacted by the COVID-19 pandemic in Indonesia, as has also been the case around the globe. As for the court-supervised PKPU process, the number of the cases in 2020 has statistically increased, although not significantly. While COVID-19 contributed to an increase of the 2020 PKPU case numbers, the insignificant increase reflects the fact that the consensual, non-judicial or other informal restructuring processes are preferable to statutory processes and tend to preserve value for stakeholders.
The approach of the Indonesian government to the pandemic seems to be to try somehow to balance the health and wealth sides of the equation. Some regulations have been issued to ease the repayment schedules for debtors (as well as provide tax relief), which has generally served to increase the number of out-of-court restructuring processes. The government has also tried to save some of its Indonesian state-owned enterprises (BUMN) with bailouts or loans. For example, in 2020 a government capital participation was made to national flag-carrier Garuda Indonesia, which is estimated to amount to around USD570 million. In the same year, Garuda Indonesia managed to secure approval from the USD500 million Global Sukuk Holders to extend the maturity date of its obligations under its Global Sukuk. In 2021, Garuda Indonesia further managed to seek approval from various state-owned banks and enterprises, as well as local private banks for rescheduling its debts.
In the insurance sector, PT Asuransi Jiwasraya (Persero) ("Jiwasraya"), a state-owned national life insurance company, defaulted on its obligation to its policyholders. Their claims, as of October 2020, totalled IDR19.3 trillion from approximately 69,445 parties. As a plan to rescue all of Jiwasraya’s insurance policies, the government, through the Ministry of State-Owned Enterprises, prepared funds of up to IDR22 trillion as government capital participation to establish a new insurance company, Indonesia Financial Group (IFG) Life, which will assume Jiwasraya’s liabilities to its customers under the restructured life insurance policies transferred from Jiwasraya to IFG Life.
It is expected that the number of restructurings, both out-of-court and court-supervised, will increase in the near future, given the economic dislocation resulting from COVID-19.
Standstill agreements, default waivers or similar agreements as part of an informal and consensual restructuring process or negotiation are not uncommon in Indonesia. Especially in larger restructurings, many of the practices common in larger/more complex restructurings are followed or mirrored (with local adaptations).
A standstill agreement generally contains obligations for the company aimed at, for example, providing the creditor with more detailed information on the financial circumstances of the company. It is also common to require the inclusion of more covenants, especially relating to the financial condition or actions of the company; and to request additional security as part of the restructuring arrangement.
Standstill agreements have become more common since the onset of the COVID-19 pandemic. As part of the restructuring plan, the borrower will normally be granted a grace period for repayment of the loan. Alternatively, in a more general sense, a default waiver is always an option, subject to the outcomes of negotiations between the creditor and debtor.
The establishment or appointment of a creditor steering committee, informal ad hoc creditor committee or co-ordinators or other representatives of creditors is not common in Indonesia during informal and consensual restructuring processes. Nevertheless, there are certain types of loan deals, in which the creditor enters to the borrower as a shareholder and nominates director(s) in the company. However, it is not typically caused by the restructuring itself, but more by the arrangement and type of the loan itself.
New money could be injected by various stakeholders, such as current or new shareholders or (secured) creditors or new creditors. Under Indonesian law, there is no real possibility (whether in or outside formal insolvency proceedings) to grant providers of new money any super-priority liens or rights. New money providers may stipulate in rem security rights (over either unencumbered assets or second/subsequent-rank already encumbered assets) as a condition for providing their money, but by doing so can only jump ahead of unsecured creditors, not of existing secured or otherwise preferred creditors (except with their consent). Given there is a possibility that not all creditors would be involved in or consent to the out-of-court restructuring process, there may also be a risk of the transaction being set aside or annulled in bankruptcy for being detrimental to other creditors (see 11. Transfers/Transactions that May Be Set Aside).
There is no statutory requirements or legal doctrine imposing duties on creditors. As a general rule, a creditor is entitled to act in its own interest and may decline any proposal for an out-of-court restructuring. See 6.3 Roles of Creditors and 10.2 Direct Fiduciary Breach Claims.
As there is no statutory provision enabling a “cram-down” to deal with dissenting creditors in an out-of-court restructuring, a consensual, agreed out-of-court financial restructuring or work-out may not be entirely effective if not all creditors participate in the process and/or agree with the proposal. As the non-participating creditors and/or the dissenting creditors are not bound by the agreed restructuring, each of them may initiate legal proceedings against the debtor on the basis of default, which would jeopardise the “partially” agreed restructuring implementation.
Credit agreements do not typically contain terms permitting a majority or super-majority of lenders to bind dissenting lenders (within the same credit agreement) to change the credit agreement terms.
The types of security that may be taken by secured creditors consist of mortgages over land (Hak Tanggungan), fiduciary security, pledge, and hypothec.
A mortgage is used to secure certain real-estate titles over land and fixtures attaching to it.
Other immovable assets (which arguably include land with land titles that may not be mortgaged, as well as uncertified land), and movable, tangible and intangible assets (including but not limited to receivables, insurance proceeds, and intellectual property rights) may be secured by a fiduciary transfer (also referred to as a fiduciary assignment).
Assets that can be secured by a fiduciary transfer (other than immovable assets) can also be secured by pledge. Due to the requirement under a pledge that the pledged property be delivered to the creditor, most assets are secured by a fiduciary transfer, as it does not include this requirement. An exception to this is shares of an Indonesian company and bank-account balances, which, in practice, are normally secured by pledge.
A hypothec is used to secure registered vessels/ships that have a gross tonnage of more than 20 cubic metres or the equivalent of 7 gross tonnage.
The formalities to establish security under Indonesian law in general (other than pledge) involve:
Beyond the restructuring/insolvency context, the rights and remedies that secured creditors have to enforce their security upon the debtor’s default on its secured obligations is by way of selling the security through public auction (or private sale in certain circumstances) either:
Under court-supervised restructuring/insolvency proceedings, the secured creditors’ right to enforce their security is subject to a stay for a maximum 90 days as of a bankruptcy declaration being rendered in bankruptcy proceedings and during the entire period of the PKPU proceedings, which can be up to a maximum 270 days from the PKPU decision being granted, in PKPU proceedings. After the stay period has expired, the secured creditor is free to enforce its security, but must be able to complete the enforcement process within two months of the bankruptcy estate being in a state of insolvency. Otherwise, the receiver will take over security enforcement, and the bankruptcy costs (including the receiver’s fee) will need to be deducted from the sale proceeds. The automatic stay in this provision is aimed at:
During the stay period, no legal actions to obtain payment in respect of receivables may be brought before a court.
See 6.1 Statutory Process for a Financial Restructuring/Reorganisation.
There are no special procedural protections and rights in statutory insolvency and restructuring proceedings other than the IBL rule requiring dissenting secured creditors to be compensated by the lowest value of either the collateral (can be selected as between the collateral value determined by the collateral documents or the collateral value determined by an appraiser appointed by the supervisory judge) or the actual claim directly secured by in rem security rights.
Commercially, such a rule is difficult to apply in practice. There is no implementing regulation on how such a provision will work in practice, and it is unprecedented. There is no prescribed procedure on how to remedy if the debtor does not have sufficient cash to pay the compensation, which is quite likely. It is also unclear when the compensation payment should take place, and whether it can be paid by instalment.
Creditors’ claims are classified into several types, as follows.
Bankruptcy estate claims, also known as the post-bankruptcy claims, are claims against the bankruptcy estate which arise during the bankruptcy proceedings after the bankruptcy declaration is rendered and would normally rank higher than any other type of claims, for example:
There are several types of preferred claims:
Preferred claims that rank higher than the secured claims
Preferred claims that rank higher than secured claims will need to be paid from the entire bankruptcy estate, including but not limited to the assets of the debtor that have been encumbered by in rem security rights being held by the secured claims, ahead from the unsecured claims, for example:
Preferred claims that rank lower than the secured creditors'
Specific statutorily preferred creditors whose preference relates only to the debtor’s specific assets, as stipulated by Article 1139 ICC: if the specific relevant assets are subject to in rem security rights of the secured claim, the secured claim will rank higher.
General preferred claims
General preferred claims will need to be paid from the assets under the bankruptcy estate that have not been encumbered by in rem security rights being held by the secured claims, ahead of the unsecured claims.
General statutorily preferred creditors relates to the debtor’s assets in general, as stipulated by Article 1149 of the ICC (for example: revenue authorities, outstanding rights of the employees of the bankrupt debtor other than outstanding wages, eg, severance payments).
Secured claims are the claims that are secured with in rem security rights over the debtor’s particular assets, regardless of whether or not the debt being secured is the debtor’s direct debt.
Note that the IBL provides that secured creditors are:
Unsecured claims are not secured with any in rem security rights and do not have any privilege granted by the prevailing laws and regulations. They will be paid from the assets under the bankruptcy estate that have not been encumbered by in rem security rights held by the secured claims, after the general preferred claims have been fully paid.
The subordination of the creditor’s claim of any class during the bankruptcy proceedings or the PKPU proceedings is not recognised under the IBL.
Unsecured trade creditors are also entitled to vote on the composition plan offered by the debtor. For the continuation of business, it is important for the debtor to be able to secure continuous support from its trade creditors following the PKPU process, which may not be secured if the applicable restructuring terms offered to trade creditors are not favourable.
Under the IBL, unsecured creditors are entitled to vote on the composition plan being offered by the debtor in both bankruptcy and PKPU proceedings. A composition plan will be deemed as approved by the creditors if it fulfils PKPU Voting Requirements and Bankruptcy Voting Requirements.
Failure to secure majority approval from the unsecured creditors may either:
The IBL allows a bankruptcy petitioner to request the Commercial Court to:
There have been no cases to date involving either of these processes.
See 5.1 Differing Rights and Priorities.
New-money claims are not a priority, except for the privilege right under the security interest being provided (if any).
See also 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership on PKPU proceedings.
During PKPU proceedings, the appointed administrator is required to announce the PKPU decision as soon as possible in the State Gazette and in at least two daily newspapers determined by the Supervisory Judge. The announcement will contain the Supervisory Judge’s determination on:
All claims submitted by the creditors to the administrator must be verified against the debtor’s record/book and report, based on the rules of verification set out in the IBL.
The PKPU may be terminated at the request of the Supervisory Judge, or one or more creditors, or upon the recommendation of the Commercial Court, if certain conditions are fulfilled, eg, the debtor is acting in bad faith in managing its assets during the PKPU, or has inflicted loss to the creditor and others. This may end up with the debtor’s bankruptcy declaration.
The debtor may, at any time, request that the Commercial Court lift the PKPU, with the argument that the debtor is now able to start repaying its debts. In this situation, the Commercial Court will summon the administrator and the creditors before making a decision.
A meeting of creditors must be called within 45 days of granting the provisional PKPU. At this meeting, the secured and unsecured creditors must either:
In PKPU proceedings, the decision to approve the composition plan or to extend the PKPU period or to grant a permanent PKPU requires approval from:
The above constitute the PKPU Voting Requirements.
In the scheduled judge’s deliberation hearing, the Commercial Court must decide whether or not to confirm the approved plan, together with its reasoning. The Commercial Court may only refuse to ratify the plan if:
If a composition plan is approved, confirmed and becomes final and binding, it will bind all creditors except the dissenting secured creditors, as explained in 4.3 Special Procedural Protections and Rights.
The bankruptcy will immediately be declared and the bankruptcy estate will be in a state of insolvency, if:
See also 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership on bankruptcy proceedings.
The receiver must announce to all known creditors in writing and publication in the State Gazette and at least two daily newspapers the Supervisory Judge’s determination on:
All claims submitted by the creditors to the appointed receiver must be verified against the debtor’s record/book and report based on rules of verification as set out in the IBL.
After a bankruptcy declaration is rendered, the bankrupt debtor is entitled to submit a composition plan. In bankruptcy proceedings, the decision to approve the composition plan requires approval from:
The above constitute the Bankruptcy Voting Requirements.
In the scheduled judge’s deliberation hearing, the Commercial Court must decide whether or not to confirm the approved composition plan, together with its grounds. The Commercial Court may only refuse to confirm the approved composition plan if:
If a composition plan is approved, confirmed, and becomes final and binding, it will bind all unsecured creditors.
The bankruptcy estate will be in a state of insolvency if (i) no composition plan is offered, or (ii) the composition plan offered is rejected by the creditors, or (iii) the Commercial Court refuses to confirm the approved composition plan.
See 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership and 6.1 Statutory Process for a Financial Restructuring/Reorganisation on PKPU proceedings and bankruptcy proceedings.
The IBL provisions allow the debtor and the administrator in PKPU proceedings or the receiver in bankruptcy proceedings to obtain new financing from a third party after obtaining the supervisory judge’s approval. If this new financing requires security from the debtor’s assets, however, the security can only be provided from the debtor’s assets that are free from any encumbrances or existing security right. Therefore, the claims under the new financing do not constitute priority claims, other than the privilege right under the security interest being provided (if any).
The PKPU decision and the bankruptcy declaration trigger an automatic stay of the debtor’s estate as explained in 4.2 Rights and Remedies.
The creditors are put into two separate classes for the purpose of restructuring under both proceedings, secured and unsecured creditors, on the basis of claim verification in PKPU or bankruptcy proceedings.
In PKPU proceedings, the Commercial Court will appoint a creditors' committee if:
The administrators must request and consider the recommendation from the creditors committee in conducting their tasks. The creditors' committee may give their opinion and recommendation to the administrator for assisting the administrators in conducting their tasks in the PKPU proceeding.
The Supervisory Judge may appoint an expert to conduct due diligence and prepare a report concerning the condition of the debtor’s estate. Every three months following the PKPU decision, the administrator must report on the condition of the debtor’s estate.
In bankruptcy proceedings, the Commercial Court in the bankruptcy declaration, or in a subsequent order, may establish a provisional creditors' committee consisting of three parties selected from the known creditors for the purpose of providing advice to the receiver. After the claim verification is completed, the Supervisory Judge forms a permanent creditors' committee if requested and approved by the unsecured creditors in a meeting with simple majority votes. The receiver is not bound by the creditors' committee’s opinion.
The creditors' committee is entitled to request all books, documents and letters concerning bankruptcy to be shown and the receiver is obliged to provide to the creditors' committee all information being requested.
The ICL does not provide any rules on the creditors' committee.
The dissenting creditors’ claims (other than the dissenting secured creditors’ claim) may be modified without the consent of those creditors, to the extent that the composition plan is approved by the creditors on the basis of either the PKPU or Bankruptcy Voting Requirements.
It is possible for claims against a company under PKPU/bankruptcy proceedings to be traded, taking into account the following:
The IBL does not provide clear rules on this matter. In practice, the restructuring procedures under the IBL have been widely used by various corporate group companies on a combined basis for administrative efficiency.
See 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership, 6.1 Statutory Process for a Financial Restructuring/Reorganisation and 6.8 Asset Disposition and Related Procedures.
In bankruptcy proceedings, the receiver alone can use the bankruptcy estate.
The IBL does not regulate clearly the asset disposition and the procedures during the PKPU proceedings, other than that any ownership act (which include the sale of assets) being conducted by the debtor requires the consent of the administrator. In practice, other than the sale of goods in the ordinary course of business for the purpose of the business continuation, the sale of assets during the PKPU proceedings is not very common.
In bankruptcy proceedings, the procedures involve the reasonable protection that needs to be provided by the receiver to protect the interest of the secured creditors or another third party whose rights are stayed. The transfer of such assets by the receiver results in a condition where the in rem security right over the assets is deemed as terminated by the operation of law.
See 5.1 Differing Rights and Priorities on secured claims. In PKPU proceedings, the secured creditors’ security arrangement can be released only if the composition plan releasing the security arrangements is approved by the relevant secured creditor.
See 6.2 Position of the Company.
The PKPU proceedings and the bankruptcy proceedings include the process of determining the creditors’ value of claims through claim verification process. The outcome of the verification process will be used to calculate the number of votes that a creditor can cast on the voting of the debtor’s composition plan.
The IBL provides that the Commercial Court may only refuse to confirm the approved composition plan if:
The Commercial Court in practice has almost never utilised this provision to refuse to confirm the approved composition plan.
At the time a bankruptcy or PKPU declaration is rendered, if there is an executory contract that has not yet or has only partially been fulfilled, the party with whom the debtor had contracted (Party) may request confirmation from the receiver or administrator within a time period to be agreed by the receiver and the Party (Period) with regard to continuation of the performance of the contract. Where no agreement on the Period is reached, the Supervisory Judge will determine a time period. If, within the Period or the time period stipulated by the Supervisory Judge, the receiver or administrator has not responded or confirmed that it is unwilling to continue the performance of the Contract, the Contract will terminate by operation of law and the Party may claim damages and be treated as an unsecured creditor. If the receiver or administrator declares their willingness, then the Party may request the receiver or administrator to provide security for his or her willingness to perform the Contract and the receiver or administrator should provide that security.
Non-debtor parties (not under bankruptcy/PKPU proceedings), in principle and theoretically, cannot be released from their liabilities on the basis of the composition plan being offered by the debtor.
In practice, however, there are some PKPU cases in which the debtor’s composition plan release non-debtor parties from their liabilities and the plan is formally approved by the creditors and confirmed by the Commercial Court.
Any person that has a debt to and a claim against a debtor can set off that debt and claim in bankruptcy or PKPU proceedings, provided that the debt and claim or any legal action raising the debt and claim have occurred prior to the PKPU or bankruptcy commencing.
A creditor may request nullification of the composition plan if the debtor is negligent in fulfilling the content of the plan. If the Commercial Court decides to nullify the confirmed composition plan, it will:
The IBL is silent on this matter. Equity owners can always receive or retain ownership or other property due to their ownership interests, to the extent that it does not relate to the debtor’s assets.
Insolvency and liquidation proceedings in Indonesia are court-supervised bankruptcy proceedings, regulated by the IBL. D&L Proceedings are regulated by the ICL, but do not constitute court-supervised proceedings.
For bankruptcy proceedings, see 2.4 Commencing Involuntary Proceedings and 6.1 Statutory Process for a Financial Restructuring/Reorganisation.
While the IBL regulates bankruptcy proceedings in every detail, the ICL only regulates how the D&L Proceedings must be performed in general. The bankruptcy proceedings special features/requirements (eg, the stay period, public auction assets' sale, the power to set aside a contract, requirements to become a liquidator, the possibility for a creditors' committee) do not exist in the D&L Proceedings.
See 4.2 Rights and Remedies on the stay period, 6.12 Restructuring or Reorganisation Agreement on executory contracts and 6.14 Rights of Set-Off on set-off.
In bankruptcy proceedings, the sale of assets is carried out by the receiver in a public auction. If the auction fails, the receiver may sell the assets through a private sale after obtaining approval from the supervisory judge.
In D&L Proceedings, the sale of assets is done by the liquidator. There is no public-auction requirement for this purpose.
See 6.3 Roles of Creditors and 7.1 Types of Voluntary/Involuntary Proceedings on creditors' committees.
Indonesia does not provide recognition or other relief in connection with restructuring or insolvency proceedings in another country, as Indonesia has not adopted the UNCITRAL Model Law, and no international treaty has been ratified to enable Indonesian courts to recognise restructuring or insolvency proceedings commenced in or decisions issued in another jurisdiction.
There is no official or unofficial system of co-operation or protocols or other arrangements between the Indonesian courts and those in foreign jurisdictions to co-ordinate restructuring or restructuring or insolvency proceedings.
Although the Indonesian Private International Law in general allows the application of foreign law that is compatible with Indonesian law, there are unfortunately no rules, standards, guidelines to apply foreign law, let alone to determine which jurisdiction's decisions, rulings or laws govern or are paramount.
All creditors, whether domestic or foreign, are treated equally under Indonesian law. The IBL, nevertheless, contains specific provisions allowing creditors domiciled abroad to submit their claims in the bankruptcy/PKPU proceedings after the expiry of the claim submission deadline, provided that certain other requirements are also fulfilled.
Unless there is an applicable convention by the State where the judgment is rendered and Indonesia, foreign court judgment will not be recognised and enforced by the Indonesia courts. No such convention exists. A foreign court judgment could, however, be offered, accepted, and given such evidentiary weight as the Indonesian court may deem appropriate under the circumstances as to the applicable laws of that jurisdiction.
In practice, there is a precedent where the Commercial Court followed a foreign court (moratorium) judgment raised by a party in deciding a PKPU case. In this regard, the Indonesian courts have very broad fact finding powers and a high level of discretion in relation to the manner in which those powers are exercised.
A receiver is appointed in bankruptcy proceedings, while an administrator is appointed in PKPU proceedings. A liquidator will be appointed in D&L Proceedings.
The person that can be appointed as a receiver or administrator is either a licensed lawyer or licensed public accountant who has taken a special course, passed the examination and been registered with the Ministry of Law and Human Rights (Restructuring/Insolvency Professional).
The receiver has the following roles, rights and responsibilities (in bankruptcy proceedings):
The administrator has the following roles, rights and responsibilities (in PKPU proceedings):
The receiver and administrator report to the supervisory judge and the Commercial Court.
The liquidator has the following roles, rights and responsibilities:
The liquidator reports to either the GMS or the District Court that appoints them.
The Commercial Court may nominate a Restructuring/Insolvency Professional as administrator or receiver based on a proposal from the petitioner, or at its own discretion. The Commercial Court may reject the nominated officers if they are not independent, have a conflict of interest or are handling three cases or more at the same time. Alternatively, officers of the Public Trustee will be appointed.
The Commercial Court may replace an appointed receiver/administrator based on:
A liquidator is appointed by either the GMS or the District Court’s order.
Liability of a company could be attributed to a director after a company is declared bankrupt if the bankruptcy of a company is as a result of negligence of the BOD (or the BOC). In that case, if the assets of the company are not sufficient to cover the entire obligations of the company in the bankruptcy proceedings, each member of the BOD (and the BOC) is jointly and severally liable for the remaining obligations of the company that cannot be covered by the bankrupt company’s estate. In order to claim against the BOD (and the BOC), a lawsuit needs to be filed by the receiver of the bankrupt company in order to prove the BOD (and the BOC)’s fault or negligence on the basis of tort under Articles 1365 and 1366 of the ICC. There could also be criminal liability under the Indonesian Penal Code for the BOD and the BOC.
Nevertheless, the members of the BOD and the BOC will not be liable if it can be proven that:
While creditors may assert direct fiduciary breach claims against the directors outside bankruptcy, such a claim can only be asserted by the receiver in bankruptcy proceedings.
The IBL provides that the bankruptcy receiver could request nullification of a transaction carried out by the debtor before its bankruptcy. The receiver must prove the following:
While there is no strict look-back period, the IBL imposes the burden of proof on a third party (to the transaction) for denying the existence of the knowledge that the transaction is detrimental to creditors for a transaction conducted within one year before the bankruptcy declaration.
For transactions conducted prior to one year before the bankruptcy declaration, the burden of proof rests with the receiver.
The IBL provides that the claims to set aside or annul a transaction can only be done in the bankruptcy proceedings and be asserted by the receiver.
Outside the bankruptcy proceedings, any concerned creditor may request nullification of a detrimental transaction carried out by the debtor under the ICC in which the burden of proof rests with the creditor.