INDONESIA Law and Practice Contributed by: Maria Sagrado, Frederick Simanjuntak and Stephanie Kandou, Makarim & Taira S.
6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders The enforcement of collateral by a secured lender depends on the type of security and the terms set forth in the security documents. These often include triggers such as events of default or change of control. Security interests are generally enforced through pub- lic auctions or private sales or sales in a manner deter- mined by the court. By law, secured assets cannot be automatically transferred to the lender in the event of the borrower’s default and the lender is only entitled to the proceeds from the enforcement of the security. While securities with executory titles, such as mort- gages and fiduciary security, are legally enforceable without court involvement, in practice, a court ruling with an execution order is often required. Secured lenders hold priority over other unsecured creditors when recovering payments from the pro- ceeds of collateral enforcement. This preferential right remains intact even in the event of the borrower’s bankruptcy or liquidation. 6.2 Foreign Law and Jurisdiction Under Indonesian law, a contract governed by for- eign law is generally recognised as valid, binding and enforceable under the freedom of contract principle, except for contracts that must be governed by Indo- nesian law, such as construction contracts. However, the choice of foreign law as governing law is subject to certain limitations, such as public policy, mandatory provisions and a sufficient connection (nexus) to the parties or transaction. Similarly, parties to a contract may choose to resolve disputes in a foreign jurisdic- tion, as this is permitted under the same principle. Regarding waivers of immunity, such waivers are, in principle, valid under Indonesian law. However, Indo- nesia lacks explicit regulations on this matter. As a general legal principle, sovereign immunity applies only to parties whose actions or assets are attribut- able to a sovereign entity or state.
ing these types of security are classified as secured creditors and have the right to enforce their security, subject to certain formalities under Indonesian bank- ruptcy law. Assets secured by mortgages, fiduciary securities and pledges are excluded from the bank- ruptcy estate. However, contractual security arrangements (such as guarantee agreement) may not survive a borrower’s bankruptcy, as the receiver has the authority to deter- mine the continuation of such contracts. Under Indo- nesian insolvency law, lenders relying on contractual security are typically classified as unsecured credi- tors by the receiver which are generally treated equally under the principle of pari passu unless where statu- tory or secured claims take precedence. Lenders should note that, by law, certain claims must be prioritised over others, including foreclosure expenses, costs related to safeguarding secured asset (such as mortgages, fiduciary securities or pledges) from loss, and preferential claims by tax authorities. Further details regarding insolvency proceedings under Indonesian law is provided in 7. Bankruptcy and Insolvency . 5.8 Priming Liens Under Indonesian law, a mortgaged object, such as land, can be encumbered with multiple mortgages. A first-rank mortgage takes priority over subsequent ranks, with priority determined by the registration date of the relevant mortgage deed. If multiple deeds are registered on the same date, priority is determined by order indicated in the deeds. The same concept also applies to vessel secured by hypothec, which can be encumbered with multiple hypothecs in which the rank will be determined by date and serial number of the hypothec deed. Other types of security interests cannot take priority over a lender’s existing security interest, as Indonesian law prohibits multiple secu- rity rights being established over the same asset (eg, pledge).
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