INDONESIA Law and Practice Contributed by: Enny Purnomo Widhya, Nugrahani Astiyanti and I Gusti Ngurah Oka Anantajaya, Mochtar Karuwin Komar
detain an aircraft for unpaid taxes or charges related to the use of the aircraft and airport authorities may also detain an aircraft for unpaid charges related to the use of the aircraft. 2.5 Insurance and Reinsurance 2.5.1 Requirement to Engage Domestic Insurance Companies Indonesian Insurance Law provides that any insurance object in Indonesia can only be insured and reinsured with domestic insurance and reinsurance companies, except when: • no insurance company in Indonesia has the capa - bility to bear the insurance risk or is willing to give insurance coverage; or • the owner of the insured object is neither an Indo - nesian individual nor Indonesian legal entity. Thus, as a matter of practice, for insurance and rein - surance to satisfy the Aviation Law requirements, an operator usually places insurance with domestic insurance companies and the reinsurance could be with a combination of Indonesian reinsurance compa - nies (who may reinsure some of the risks with offshore reinsurance companies) and non-Indonesian reinsur - ance companies. 2.5.2 Mandatory Insurance Coverage Requirements Pursuant to the Aviation Law, aircraft operators must insure the following: • the operated aircraft; • the crew and personnel of the operated aircraft; • second party’s liability (persons or legal entities having a direct relation with the operation of the aircraft); • third party’s liability (persons or legal entities not having a direct relation with the operation of the aircraft); and • aircraft incident investigation and aircraft acci - dents. 2.5.3 Placement of Insurance Outside of Jurisdiction Under the prevailing Indonesian regulatory framework, insurers in Indonesia are required to prioritise domes -
tic reinsurance before placing risks abroad. This means that 100% foreign reinsurance placement is not automatically allowed. Insurers must demonstrate that domestic reinsurers cannot absorb the risk, and only then may they seek offshore coverage. 2.5.4 Enforceability of “Cut-Through” Clauses An insurance/reinsurance “cut-through” or ”loss pay - ee” clause is enforceable under Indonesian law to the extent that it does not contravene any applicable laws, regulations or public policy of Indonesia. 2.5.5 Assignment of Insurance/Reinsurance Under Indonesian law, it is not possible to assign contractual rights for purposes of security, except the right to payments or monies. On a separate matter, if, under the assignment for security, the assigned object is insurance proceeds payable by the lessee or the lessee’s insurer to the lessor for security purposes, such assignment has to be made in the form of a fiduciary security assignment agreement governed under Indonesian law, drawn up before an Indonesian notary and in the Indonesian language and registered with the Fiduciary Registry Office (failing which (i) the security assignment over the insurance proceeds of the lessee may not be enforceable in Indonesia, and (ii) the assignee will not have a priority right (security right), which may be per - tinent in the event of bankruptcy of the lessee or the insurance company). In addition, if there is removable equipment to be secured separately from the airframe, then the most common form of security over such movable assets is fiduciary security. For the latter, the fiduciary security can be registered if granted by an Indonesian entity. 2.6 Lease Enforcement 2.6.1 Restrictions on Lessors’ Abilities Provided that the rental is not paid in advance by the lessee, then, generally, there is no restriction on a les - sor’s ability to terminate an aircraft lease (including to sell the aircraft following the lease termination). Fun - damentally, it depends on the terms of the lease. Note that, under the Indonesian Civil Code, termination of a contract (including a lease agreement) requires a court order, unless both parties to the contract have waived the applicable article under the Indonesian Civil Code.
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