RECENT DEVELOPMENT ON INDONESIA’S BANKRUPTCY LAW" PROF. DR. SUTAN REMY SJAHDEINI, S.H.” ‘The Indonesia's Bankruptcy Law In July 1997 Indonesia was hit by an appalling monetary crisis. The Banking and real sector were shattered to pieces. The banking sector, which was prior to the crisis already in difficulty due to poor management of most banks, e.g. resulting into large non-pertormance bank loans, could not be prevented trom collapse. The collapse was due 10 the downfall of the real sector ay an effect of the ex ‘many bank debtors were unable to repay their credits. Due to the downfall of the real seotor, the entrepreneurs in the real sector were not only unable to pay back their credits to the local banks but also to their creditors abroad. To offer protection to the foreign creditors, IMF requested the Govemment of Indonesia to enforce the Bankruptey Law of year 1905, which did not function since long, by altering and adding the provisions in the Taw and by forming a special court, dre Commercial ‘Court, specially assigned to examine bankruptcy cases. se hat ‘As a result of the IME pressure on 22 April 1998, therefore, the Government finally issued the Government Regulation Substituting Law No. 1 Year 1998, dated 22 April 1998 regarding the Amendment on the Bankruptcy Law, as contained in the Indonesian State Gazette, year 1998 No. 87 (The Bankrupicy Law). The Government Regulation thereafter was agreed by the Parliament to become a law, ie. Law No. 4 ‘Year 1998 contained in the Indonesian State Gazette, year 1998 No. 135, hereinafter in this paper referred to as the Bankruptey Law. Il. The Bankruptey of the Natural Person and Legal Entity Unlike as in many other states, expecially nations embracing the common law system, the Bankruptey Law does not differentiate bankruptcy regulations for the Debtor representing a legal entity and natural person. In other words, for both kinds "This paper has been prepared for presentational “The General Assembly Meeting of ALA” 0n 26 ~ 28 ‘May 2003 at ‘The Shangri-la Hotel, Singapore. ‘The wrlter is The Chairman of the Law Offices of REMY & DARUS; President & CEO of BRUISINFSS REFORM & RECONSTRUCTION CORPORATION (ARRC): Professor af Ranking Taw at the University of Indonesia, Airlangga University, and University of Surabaya: Professor of Bankruptcy Law atthe Notary Magister Program at Padjajaran University; former Managing Director ‘of Bank Negara Indonesia (Porro) Tok; Memiber of the Logal Exports Council at the Ministry of Justice and Human Right; Expert Consultant for the National Law Development Agency: Arbiter of Badan Arbitrase Nasional Indonesia - BANI (the Indonesian National Board of Arbitration); and “Arbiter of Badan Arbitrase Pasar Modal Indonesia ~ DAPMI (Indonesian Board of Arbitration for the ‘Capital Market)288 Indonesia fof Debtor either in the form of a legal entity or natural person the same regulations apply, i.e. this Bankruptcy Law. Besides that, the bankruptcy application may not only be filed against the Private Enterprise but also filed against Government Owned Enterprises (BUMN) pursuant to this Bankruptcy Law. II. Application Conditions for a Bankruptcy Decision It is of vital importance to know beforehand which conditions should be fulfilled in accordance with the Bankruptcy Law if a natural person or legal entity intends to file a petition for bankruptcy at the Commercial Cour. It is important to know the conditions, because if the petition does not fulfill the conditions, then the Commercial Court shall not award the petition. These conditions are provided in Article 1 par. (1) of the Bankruptcy Law. According to Article I par. (1) of the Bankruptey Law: The Debtor having two or more Creditors and who did not pay at least ‘one debt due and claimable, is declared bankrupt through an authorized court decision as stipulated in Article 2, either at his own petition or atthe petition of one (or more) of his Creditors. From the provision of Article 1 par. (1) of the Bankruptcy Law, it can be ‘concluded that a petition for a bankruptey decision against a Debtor ean only be filed i it fulfills the following conditions a. The Debtor against whom the petition has been filed must have at least ‘two Creditors; or in other words there must be more than one Creditor. ‘The Debtor does not pay at least one debt to one of his Creditors. ©. The unpaid debt must be due and claimable. IV. The Definition of Debt What is meant by “debt” as meant in Aticle 1 par, (1) of the Bankruptey Law? The Bankruptey Law does not give a definition regarding what is meant by deht. The elucidation of Article | par (1) of the Bankruptcy Law only mentions, that “debt” unpaid by Debtor as referred to in this provision is the principal debt or its interest. ‘The absence of the definition regarding the meaning of debt in the Bankruptcy Law may gencrate legal uncertainty, because it may cause disputes to arise regarding the following: 1. Whether any obligation of a natural person or legal entity to pay an amount of money, even if the obligation does not arise from a debt/loan agreement, be classified as a debt ay meant in the Bankruptcy Law? In other words, whether only the obligation to pay a debt arising out of a debt agreement he classified as debt. ar does it also include any obligation to‘Recent Development on Indonesia's Bankruptcy law 289 pay money, which obligation arises, due to whatever rights, either due to an agreement or to a law? 2. Whether any obligation to do something, even if it does not represent the obligation to pay an amount of money, but not honored by the obligor and hhave caused a loss of money for the party to whom the obligation should Ihave been fulfilled, be also classified as a debt as uneant in the Baukruptey Law? 3. Whether any obligation to give something. or to do something, or not to do something, i. as provided in Article 1234 of the Indonesian Civil Code (KUHPerdata), even if it did not incur a loss, be also classified as a debt as meant in the Bankruptcy Law? What is felt concomed at the possibility of the arising disputes regarding the meaning of debt as provided in the Bankruptcy Law, has in practice truly taken place. ‘This matter is apparent from various court decisions. From court decisions it can be known that neither the Commercial Court nor the Supreme Court is consistent in their opinion regarding the understanding of debt, Sometimes the court interprets debt in a narrow meaning, at other times however, the ‘court interprets deht in a broad meaning. A debt in a narrow meaning is the obligation to pay a number of debts arising out of debt agreements only. Whereas a debt in a broad meaning is any obligation to pay money, which arises due to whatever title ights, arising from any agreements, debt agreements as well as other agreements and arising from the law. V. The Fffect of Rankruptey on the Debtor As the Debtor has been declared bankrupt based on a court decision, therefore according to Article 22 of the Bankruptey Law he has lost by the power of law his rights to master and manage his properties. And as of that time the Debtor's property shall be ineluded in the bankrupt's estate, managed by’the Curator appointed by the Commercial Court, To manage that bankrupt’s estate, in accordance with Article 13 of the Bankruptcy Law the Curator’s duty is among others to list the Debtor's debts and the Creditors’ claim. This duty precedes his duty to pay the claims of each Creditor. The Curator must befor authenticity ofthe el ‘The Bankruptey decision by the court does not mean that the Debtor would lose his competence to conduct legal acts in general, but only lose his power or authority to manage and transfer his property estate. Thereby, the Debtor is still able to conduct legal acts, eg. to get married, to enter mto a marriage agreement, accept domations, set ay an alomey or represent other parties, and others. VI. The Creation of the Commercial Court By the enactment of Law No. 4 Year 1998 regarding Bankruptcy the ‘Commercial Court was established,