What to Expect When You’re Not Expecting… Bankruptcy

It may be said that people usually build corporates and businesses without ever thinking that they have a chance to be bankrupt. They usually remain positive without ever considering what is fatally going to happen… which is bankruptcy. Bankruptcy is often being regarded to be a monumental blunder for corporates. But, this does not mean that they cannot rise to their glory days again. In order to fix those terminal blunders, that is where Bankruptcy Law will be enacted.

What is bankruptcy law?

To get familiar with bankruptcy law or Hukum Kepailitan, we must know what bankruptcy really means. According to an Indonesian legal curator, Imran Nating, bankruptcy is defined as a process in which a debtor who has financial difficulties to pay his debt is declared bankrupt by the court, in this case, a commercial court or Pengadilan Niaga, because the debtor cannot pay its debts. Debtor assets may be distributed to creditors in accordance with government regulations.

The purposes of bankruptcy law are to:

1. Ensure equal distribution of the debtor assets among his creditors;

2. Prevent the debtor from engaging in actions that could harm the interests of creditors; and

3. Provide protection to the well-meaning debtor of its creditors, by obtaining debt relief.

Bankruptcy law in Indonesia grows in line with the development of law, society and globalization. Before 1998, bankruptcy institutions in Indonesia are rarely used as a way of resolving debt problems. This is because the settlement of debts at that time (where politics and power act as commanders) were more settled through public court or out-of-court settlement. Ever since the infamous monetary crisis of 1998, debt problems in Indonesia appear massively. The problem was that many Indonesian companies were making loans in the form of foreign currency, especially US dollars, both to foreign and domestic creditors. Furthermore, to overcome this complicated circumstances, at the urging of the IMF (International Monetary Fund), the government finally issued bankruptcy rule (Perpu Kepailitan) as a way of settling debts faster and more certain.

Bankruptcy law in Indonesia is currently regulated under Law No. 37 of 2004 concerning Bankruptcy and Suspension of Payments (PKPU). Regarding Suspension of Payments, a legal scholar, Munir Fuady quoted that, Suspension of Payments is a specified period of time provided by law through a commercial court ruling, wherein such time period the creditors and debtors are given an agreement to deliberate the means of repaying its debts by providing a composition plan for all or part of the debt, including the necessary mean to restructure their debts. Furthermore, it is being stipulated within the bankruptcy law because it gives a promising chance to the debtor to pay its debts and a good faith for the creditors for getting a repayment.

There are 2 outcomes for corporates after being declared bankruptcy:

1. All the debtor's assets are confiscated by a legal curator and the debtor loses the right to administer. (According to Law No. 37 of 2004 Article 10 and 24); and

2. A necessary mean to consider the Principle of Business Continuity, this principle describes that a decision on bankruptcy should consider the continuity of a company or business entity that is still sustainable.

A legal curator, as mentioned above, is an individual person appointed by the court to administer and settle the assets of a bankrupt debtor under the supervision of a supervisory judge in accordance with Law No. 37 of 2004.

A legal curator has an important role after bankruptcy is being declared, they are involved to supervise the management of the debtor’s business, make payments to debtors and creditors, and during the period of suspension, a legal curator may use or sell the property of the bankrupt party that is within the course of the continuity of the debtor’s business to the extent that it is reasonably afforded the protection of the creditor or third party.

For the outcome that the Principle of Business Continuity shall be considered, it can be reflected in the case of PT. Pelita Propertindo Sejahtera (PT. PPS):

Hundreds of consumers or buyers of apartment units and shophouses in Palazzo apartments in Kemayoran were very disappointed because of the developer, PT. PPS, has not completed the construction of the apartment and handed over the apartment units and shophouses they bought. Whereas, according to the Sale and Purchase Agreement, the buyers should have gotten the unit in good condition and habitable around the year 2007. However, until the year 2009, it did not materialize.

This leads to bankruptcy.

However, after the PT. PPS bankruptcy decision was obtained with a permanent legal force and peace proposal submitted by PT. PPS was rejected by creditors, the legal curator who handled the case came up with a smart thinking. What if the curator continues the construction of the apartment and then deliver the units of apartments or shophouses to each buyer? After all, even if the Palazzo apartment is forced to be auctioned the value will be very low and creditors will get a very small share.

Moreover, after the legal curator began to take control, the progress of the business seems to be satisfying and this led to consumers got their units, creditors got their repayments and debtors got their reliefs.

This is one of the bankruptcy cases that we can look up to that defined bankruptcy does not always mark the end of a corporation’s future.

Sources:

[1] “Hukum Kepailitan Di Indonesia.” Clickgtg's Weblog, 2 July 2008, clickgtg.wordpress.com/2008/07/02/hukum-kepailitan-di-indonesia/.

[2] Nainggolan, Bernard. “Kata Sambutan Yulman, S.H., M.H., Mantan Hakim Pengawas Pengadilan Niaga Pada Pengadilan Negeri Jakarta Pusat.” Peranan Kurator Dalam Pemberesan Boedel Pailit, Penerbit P.T. Alumni, 2014.

[3] Nainggolan, Bernard. “Sekapur Sirih, Bernard Nainggolan, S.H., M.H., Kurator & Penulis Buku.” Peranan Kurator Dalam Pemberesan Boedel Pailit, Penerbit P.T. Alumni, 2014.