INDONESIA Trends and Developments Contributed by: Farih Romdoni Putra, Aditya Bagus Anggariady, Ghifar Hilmi and Andhika Kusumonegoro, KARNA
Background In Indonesia, the regulation concerning insolvency was first comprehensively and expressly stipulat - ed under Law No 37 of 2004 regarding Bankruptcy and Suspension of Debt Payment Obligations (“Law 37/2004”). In principle, the enactment of Law 37/2004 was driven by the need for legal reform in the area of insolvency, particularly following the monetary crisis of 1998. During that period, the government enacted Government Regulation in Lieu of Law No 1 of 1998 concerning the Amendment to the Bankruptcy Law (“ Perppu 1/1998”), which essentially amended Staats- blad 1905 No 217 in conjunction with Staatsblad 1906 No 348 ( Faillissements-Verordening or FV), as several provisions therein were deemed no longer relevant to the circumstances prevailing in 1998. In principle, upon the enactment of Law 37/2004, Indonesia entered a new phase in the handling of legal matters related to insolvency. Law 37/2004 expressly introduced two main mechanisms, namely: • bankruptcy process – a mechanism for declaring a debtor bankrupt, followed by the liquidation of the debtor’s assets for the benefit of the creditors; and • suspension of debt payment obligation ( Penundaan Kewajiban Pembayaran Utang or PKPU) process – a debt restructuring mechanism that considers the debtor’s financial capability and is based on a settlement agreement mutually reached between the debtor and the creditors. In today’s global economy, these mechanisms are increasingly tested by modern commercial reali - ties. Many Indonesian debtors now maintain com - plex financial structures involving multiple foreign investors, lenders or lessors, resulting in obligations denominated in various currencies and governed by different legal systems. Consequently, financial dis - tress or default involving such debtors often extends beyond national borders, giving rise to cross-border insolvency situations that involve both domestic and foreign stakeholders. This changing landscape illustrates how the principles established under Law 37/2004 must now be inter - preted in the context of international financing and investment, where insolvency no longer concerns
local creditors alone, but may also affect foreign finan - cial institutions, offshore lessors and cross-border investors with exposure to Indonesian entities. Cross-Border Insolvency Indonesia adheres to the territorial principle for cross- border insolvency rules, so foreign insolvency deci - sions cannot be enforced in Indonesia. If there are foreign creditors who wish to file for insolvency pro - ceedings against Indonesian entities, the process will start from scratch, where they must file for PKPU or bankruptcy. In both PKPU and bankruptcy, debtors and creditors have the same opportunity to reach a settlement. However, the difference is that, in bankruptcy, only unsecured creditors have the right to vote on the set - tlement, while in PKPU both secured and unsecured creditors can vote on the settlement proposed by the debtor. Since the enactment of Law No 37 of 2004, Indone - sia has not yet undertaken any significant reformed to its insolvency framework, particularly in relation to cross-border insolvency. The current regime remains domestic in scope and lacks clear provisions for rec - ognising and co-ordinating foreign insolvency pro - ceedings. Indonesia has not yet adopted the United Nations Commission on International Trade Law Model Law on Cross Border Insolvency (1997) (the “UNCITRAL Model Law on Cross-Border Insolvency”), an inter - nationally recognised framework that promotes co- operation between courts and insolvency practition - ers across jurisdictions. Its adoption would enhance legal certainty, transparency and efficiency in cross- border cases involving Indonesian entities and foreign creditors. The Model Law’s key features include: • access to local courts for representatives of foreign insolvency proceedings and creditors, and authori - sation for representatives of local proceedings to seek assistance elsewhere; • recognition of certain orders issued by foreign courts; • relief to assist foreign proceedings; and
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