Jurisdiction - Indonesia
Reports and Analysis
Indonesia – A Brief Look At Suspension Of Debt Payment Obligations.

23 February, 2013

 

 

Indonesia’s 2004 Bankruptcy Law provides creditors and debtors with an avenue to avoid liquidation bankruptcy by engaging in a court-supervised debt moratorium and restructuring process known as a Suspension of Debt Payment Obligations (Penundaan Kewajiban Pembayaran Utang or “PKPU”).

 

A PKPU gives a debtor the opportunity to prepare, negotiate and submit a composition plan to its creditors for their approval. The composition plan details how outstanding debts are to be restructured and typically provides, among other things, for rescheduled and extended payment terms, perhaps with a grace period, reduced interest rates and a waiver of penalties and overdue interest. More sophisticated restructurings, including debt buybacks and equity conversions, are also possible.

 

PKPU proceedings are conducted in the Indonesian Commercial Courts, which are part of the District Court system. There are presently five Commercial Courts in Indonesia: Jakarta, Medan, Semarang, Surabaya and Makassar. Each Commercial Court hears cases involving debtors domiciled in its area of jurisdiction.

 

As regulated under the Bankruptcy Law, particularly Articles 222-294, a PKPU may be initiated by either the debtor or a creditor.

 

If it is the debtor which initiates PKPU proceedings, and the debtor is a limited liability company, the debtor must first obtain the approval of its General Meeting of Shareholders. If the debtor is an individual, the debtor must obtain the consent of his or her spouse unless there is a prenuptial agreement.

 

If it is the creditor which initiates PKPU proceedings, the shareholder approval and spousal consent requirements do not apply.

 

A debtor’s petition for a PKPU may also originate in response to a creditor’s petition to put the debtor in liquidation bankruptcy. Where a creditor submits a petition to the Commercial Court for the debtor’s liquidation bankruptcy, the debtor may respond by petitioning the Commercial Court for a PKPU. The shareholder approval and spousal consent requirements do not apply where the debtor is responding to a creditor bankruptcy petition. If the debtor’s PKPU petition is granted, the creditor’s bankruptcy petition is automatically stayed for the term of the PKPU.

 

There is no insolvency test that must be satisfied to qualify for a PKPU (or for liquidation bankruptcy, for that matter) in Indonesia. However, there are nonetheless two requirements that must be satisfied. The first requirement for a successful PKPU petition (or, again, for liquidation bankruptcy) is that the debtor have at least two outstanding debts of which at least one must be due and payable but not yet paid. The second requirement is that the unpaid debt must be capable of “simple proof.” The term “simple proof” means that the debt must not be subject to messy contract defenses requiring complicated legal proceedings to resolve.

 

A good example of a debt that is capable of simple proof is an overdue bank loan, because the amount and right to repayment generally would not reasonably be the subject of dispute. On the other hand, a good example of a debt that is not capable of simple proof is damages arising from an unlawful termination or breach of a joint venture agreement. In the latter case, the creditor would likely need first to pursue its claim in separate civil proceedings to determine fault and damages and then, once the creditor receives a final and binding judgment on the merit, initiate PKPU proceedings (or bankruptcy liquidation proceedings, for that matter) to collect.

 

If it is the debtor rather than a creditor which initiates the PKPU proceedings, the debtor must additionally prove to the Court that it is unable to pay the unpaid debt. This is to ensure that the proceedings are bona fide.

 

The Bankruptcy Law requires that a PKPU petition be submitted through a licensed advocate and that both the PKPU petitioner and its advocate sign the petition. In the event the debtor is a bank, securities company, insurance company, pension fund or state-owned enterprise, a special rule applies so that only a relevant government regulatory agency, namely Bank Indonesia, the Indonesian Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) or the Minister of Finance, may submit the PKPU petition.

 

In cases where it is a creditor which submits a PKPU petition, the Court must summon the debtor not later than seven days before the first hearing, either by a court bailiff or by express mail. If it is the debtor which submits a PKPU petition, the debtor must provide the Court with a list of its secured and unsecured creditors, the amount of each loan and evidence of the loans. Once the PKPU is registered with the Clerk of the Court, the Court must render its decision within 20 days thereafter if the petition is submitted by a creditor or within 3 days if the petition is submitted by the debtor. During the interim, the Court typically holds between one and three hearings to gather evidence and hear arguments before rendering its decision.

 

The Bankruptcy Law divides a PKPU into two stages, a Temporary PKPU (PKPU Sementara or “PKPU-S”), potentially followed by a Permanent PKPU (PKPU Tetap or “PKPU-T”). The maximum period of a PKPU-S is 45 days from the time the PKPU petition is granted by the Commercial Court. If followed by a PKPU-T, then the maximum period for both the PKPU-S and the PKPU-T together is extended to 270 days.

 

The Panel of Judges granting a PKPU petition will appoint a Supervisory Judge and one or more Administrators to lead the PKPU proceedings. The Administrators are licensed professionals, typically lawyers, who are tasked with verifying creditors wishing to participate in the PKPU proceedings and the amounts of their respective debts, and with organizing creditor meetings. The Administrators must also approve any expenditures or incurrence of liabilities by the debtor during the term of the PKPU.

 

The Bankruptcy Law is clear that there is no appeal from a Court decision granting or rejecting a PKPU petition.

 

If the Commercial Court grants the PKPU petition, the Administrators will announce the PKPU decision in the State Gazette and two newspapers determined by the Supervisory Judge. The newspaper announcements will include the initial schedule for the conduct of the PKPU proceedings and invite creditors to register for the PKPU.

 

Creditors have the option whether or not they wish to register for the PKPU proceedings. If they register, they will gain thereby the right to vote on the proposed composition plan after registering their claims with the Administrators and providing evidence supporting their claims to the Administrators for verification. Whether or not a creditor chooses to register for and participate in the PKPU, the Bankruptcy Law provides that all of the debtor’s creditors (and not just those creditors who register for and participate in the PKPU) will be bound by any composition plan which is eventually approved by those creditors who do participate in the PKPU proceedings and legalized by the Commercial Court.

 

For the duration of the PKPU, the debtor is prohibited under the Bankruptcy Law from making any payments to creditors except for payments made on a pro-rata basis to all creditors and (in practice) payments made to trade creditors, in each case with the approval of the Administrators. Similarly, secured creditors are prohibited from enforcing against their collateral for the duration of the PKPU.

 

If the debtor submits a composition plan to creditors during the PKPU-S, the debtor may choose near the end of the PKPU-S either to put that plan to a creditor vote or to request that the creditors vote to extend the PKPU-S into a PKPU-T so that the debtor may have more time to prepare and negotiate the composition plan.

 

Whether the vote is on a composition plan or to extend the PKPU-S into a PKPU-T, the vote is conducted by class. There are two classes, secured and unsecured creditors. The Bankruptcy Law requires that a majority in number and at least ⅔ in value of the members of each class in attendance vote to approve the composition plan or to extend the PKPU-S into a PKPU-T, as relevant. These same voting requirements apply to any subsequent debtor requests to extend the PKPU-T (up to the 270-day maximum provided by law) or to approve the composition plan during the term of the PKPU-T.

 

Each time there is a creditor vote, the Supervisory Judge will forward the vote results to the full Panel of Judges for the PKPU proceedings for ratification. A successful vote and judicial ratification means an approved composition plan or extension of the PKPU, as relevant. By contrast, any failed vote means the Panel of Judges must terminate the PKPU proceedings and must additionally place the debtor in liquidation bankruptcy. Except in very limited circumstances, there is no second chance once creditors vote against a proposal to approve a composition plan or to extend a PKPU. The debtor must therefore be very careful in determining the timing and circumstances of any vote.

 

Any composition plan that is approved by the requisite creditor votes and ratified by the Panel of Judges will bind all of the debtor’s unsecured creditors and those of its secured creditors that voted yes on the plan. The Bankruptcy Law potentially offers to secured creditors who voted against the approved composition plan the right to receive compensation equal to the lower in value of the collateral held by the creditor or the face value of its loan. However, the administrative particulars of this creditor right are little understood, and to our knowledge, no secured creditor has ever attempted to exercise this right in practice.

 

SSEK

 

For further information, please contact:

 
Michael S. Carl, Soewito Suhardiman Eddymurthy Kardono
michaelcarl@ssek.com 
 
Dewi Savitri ReniSoewito Suhardiman Eddymurthy Kardono
dewireni@ssek.com  
 

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