Indonesia: Restructuring & Insolvency

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding restructuring and insolvency in Indonesia.

This Q&A is part of the global guide to Restructuring & Insolvency.

For a full list of jurisdictional Q&As visit

  1. What forms of security can be granted over immovable and movable property? What formalities are required and what is the impact if such formalities are not complied with?

    Under Indonesian law, security rights over immovable property are the following:

    a. Hak Tanggungan (Land Mortgage) under Law No. 4 of 1996 on Security Rights Over Land and Objects attached to Land (“Land Mortgage Law”). By issuing the Land Mortgage Law, the Government of the Republic of Indonesia effectively replaced the previous security system, ie hypothec land security with the concept of a “Hak Tanggungan”, a real security right over land and land-related objects and the nearest equivalent to a “mortgage” as understood in other jurisdictions.

    This security right only applies to land under hak milik (ownership right, like freehold) title, hak guna bangunan (a right to build) title or hak pakai (a right of use) title. Hak Tanggungan does not grant ownership of the secured land to its holder. However, it can give the holder the right to sell the land, either privately or at public auction, to settle the unpaid debts.

    Multiple security rights are also allowed over a single plot of land by several creditors, which will be ranked according to the respective dates of registration and/or the date specified in the respective Hak Tanggungan deed.

    The procedure for creating a Land Mortgage is the following:

    1. the parties (ie the grantor / creditor and the grantee / debtor) first sign a mortgage deed (Akta Pemberian Hak Tanggungan) before a Land Deed Official (Pejabat Pembuat Akta Tanah/PPAT) followed by its registration with the relevant Land Office (Badan Pertanahan Nasional/BPN) within 7 (seven) working days of the signing date of the mortgage deed;
    2. the BPN then registers the mortgage in the land book upon receipt of a complete application, and subsequently it is perfected. The Land Mortgage becomes effective as of the date of its registration in the BPN land book.
    3. The BPN issues a land mortgage certificate under the name of the grantee as evidence of the land mortgage’s registration. The BPN also places a mortgage notation on the land certificate.

    If the mortgage deed is not registered under the land book of the relevant Land Office, the land mortgage will not be perfected and the Land Office will not issue a mortgage certificate.

    b. Hypothec for Vessels. A Hypothec is a form of security over immoveable assets that are provided under the Indonesian Civil Code (“ICC”). As advised above, before the issuance of the Land Mortgage Law in 1996, land and objects related to land were secured under a hypothec. However, since the issuance of the Land Mortgage Law, a hypothec is mainly used as security for ships with a minimum gross displacement of 20 metric tons as further regulated under Law No. 17 of 2008 on Shipping (“Shipping Law”). According to the Shipping Law, a hypothec for vessels is defined as collateral over a registered vessel to guarantee settlement of a debt that may provide a priority right to certain creditors over other creditors. Further, under the Shipping Law, a vessel is a form of water transportation of any shape or type, driven by wind power, mechanical power, or pulled or tugged, including vehicles with dynamic support power, submarines, and floating equipment and buildings that do not move.

    A hyphotec is only possible for vessels registered in Indonesia and considered Indonesian flagged vessels. Otherwise, they must be encumbered under the laws of their country of registration. Alternatively, they can be re-registered under the Indonesian flag and included in the Vessel Registration Master List (Daftar Induk Kapal) (“Vessel Master List”).

    A hypothec over a vessel is created by the signing of a deed of hypothec prepared by a Vessel Registration and Transfer of Ownership Listing Official (Pejabat Pendaftar dan Pencatat Balik Nama Kapal - “Registration Official”) at the relevant Directorate General of Marine Transportation office. Once the Hypothec is registered in the List of Indonesian Vessels (Buku Daftar Kapal Indonesia), it comes into effect. Without it (ie registration), the hypothec is not considered perfected. Under the Shipping Law, a vessel may be encumbered under more than one (1) hypothec which will be ranked according to the date of the deed of hypothec.

    Indonesian law also recognizes the following security rights over movable property/assets:

    a. Pledge. Under the ICC, a pledge is a right of a creditor over a movable property that is physically transferred into the possession of the creditor by the debtor. In a pledge, the debtor also provides the creditor a priority right to the proceeds from the sale of the object over other creditors. The pledged object should be in the possession of the creditor or a third party acting on behalf of the creditor (eg a security agent).

    To create the pledge, the parties enter into a pledge agreement followed by the delivery of the pledged object by the debtor to the creditor (both the object and its ownership certificate, if any, eg the Proof of Vehicle Ownership Certificate/BPKB-Bukti Pemilikan Kendaraan Bermotor). A pledge can only be used to secure movable property, either tangible (such as machinery, vehicles, inventories, etc.) or intangible (such as accounts receivable, shares, patent rights, etc.).

    One key requirement of a pledge under Indonesian law is that it requires the pledged goods to be in the possession of the creditor. Otherwise, the pledge will not be perfected.

    The establishment of a pledge is subject to the nature of the object. It can be classified as follows:

    1. a tangible movable object – by delivery of the object into the physical possession of the creditor or a third party agreed to by the parties;
    2. an order instrument – by the endorsement of the instrument and delivery of the same to the creditor; and
    3. an intangible movable object – by notification of the party against whom the rights pledged will have to be enforced of the pledge. In addition, if the pledged assets are in the form of shares, a note must be placed in the register of shareholders (Daftar Pemegang Saham/DPS) of the relevant company. If it is script-less shares, the shareholder must instruct the account holder to block the relevant share account with Indonesia’s central securities repository (PT Kustodian Sentral Efek Indonesia – also known as KSEI).

    The ICC does not require a pledge agreement to be made in writing. However, in practice, a pledge arrangement is always documented in writing for evidentiary purposes. Moreover, in the pledge agreement, the law prohibits the creditor from becoming the owner of the pledged good if the debtor is in default.

    b. Fiduciary Security. Under Law No. 42 of 1999 on Fiduciary Security (“Fiduciary Law”), fiduciary security is a security interest over movable assets, either tangible or intangible, and immovable goods that are not under:

    1. a Hak Tanggungan under the Land Mortgage Law;
    2. a hypothec for a vessel with a gross displacement of 20 or more metric tons; or
    3. a pledge.

    For fiduciary security, the possession of the goods remains under the debtor’s control. Fiduciary Security also provides its holder priority over other creditors.

    Fiduciary security is created by signing a deed of fiduciary security by and between the debtor and the creditor before a notary public. It is perfected by registration with the relevant fiduciary registration office. Otherwise, the fiduciary security is not perfected and is considered not valid. The Fiduciary Law also prohibits there being two fiduciary security’s holders over the same secured goods.

    Government Regulation No. 21 of 2015 regarding The Procedure for Registering Fiduciary Security and the Fee for Drawing Up a Fiduciary Security Deed (“GR 21/2015″) allows registration through electronic registration and an amendment to a Fiduciary Security Certificate (“Fiduciary Certificate”).

    Under GR 21/2015, the application should be submitted to the Ministry of Law and Human Rights within 30 days of the signing of the Fiduciary Security Deed. The deed must contain the following information:

    1. the identities of the parties; the online system will require the Fiduciary Security holder to have an Indonesian address even for a foreign company or alternatively, it may use the its subsidiary’s address or the address of its attorney;
    2. the date and number of the Fiduciary Security Deed, and the name and address of the notary public who prepares the Deed;
    3. the data of the underlying agreement, ie the loan agreement;
    4. a description of the Fiduciary Security object;
    5. the security value; and
    6. the value of the Fiduciary Security object.

    c. Collateral Right over Warehouse Receipts. Under Law No. 9 of 2006 regarding The Warehouse Receipts System, to create this right a warehouse receipt issued by a warehouse manager proving the ownership of commodities that are stored in the warehouse for a certain period (up to three months) is required.

    To be effective, the warehouse receipt must be delivered to, or be in the possession of, the creditor. Warehouse receipts may be in the form of (a) non-negotiable warehouse receipts, which state the name of the party entitled to delivery of the stored commodities, or (b) negotiable warehouse receipts, which state an order/instruction for a party to receive the stored commodities. Both receipts must contain certain information, including among others, a description of the goods, the location of the goods, and the expiry date of the receipt. Upon the expiry of a warehouse receipt, the warehouse manager is required to deliver the goods to the current owner of the warehouse receipt, who may not be the original owner.

    The procedure for the above is the following: the creditor/grantee first notifies the Warehouse Receipt Registration Centre (Pusat Registrasi Resi Gudang) and the warehouse manager of the existence of the warehouse receipt. In addition, the warehouse receipt security must be documented in a deed of security. If the debtor/grantor is in breach of contract, the creditor/grantee is entitled to sell the secured objects at public auction or a private sale. The creditor/grantee is entitled to use the proceeds from the sale to settle the debtor/grantor's debt.

    The procedure/formalities for all security rights (whether the property is movable or immovable) must be followed. Otherwise, the security right in question will be voidable or will be considered not to exist. The above security rights are special security rights because their holder has priority over holders of general security. General security is security provided by law (Article 1131 of the ICC) to all of a debtor’s creditors. As a general rule, all of the debtor’s assets are considered the debtor’s security to all its creditors.

    In addition, a security agreement is an accessory agreement attached to a main agreement such as a loan agreement. If the main agreement is terminated and/or the loan secured under the security right has been settled in full, then the security agreement will automatically be terminated.

  2. What practical issues do secured creditors face in enforcing their security (e.g. timing issues, requirement for court involvement)?

    In principle, if the debtor fails to comply with its obligation(s) under the underlying documents, the creditor can immediately enforce the special security rights (eg Hak Tanggungan, pledge, fiduciary security, or collateral right to a warehouse receipt) without waiting for the final and binding court ruling or following the judicial enforcement process. Enforcement may be through a public auction or a private sale or a court order in accordance with the prevailing laws and regulations.

    Enforcement of Hak Tanggungan
    To enforce a Hak Tanggungan, as explained, the Land Mortgage Law allows the creditor to sell the land privately if both parties agree and as long as this approach gives the highest price that benefits all parties. In a private sale, newspaper or local newspaper announcements must be made and the sale cannot be effected for 1 month after such announcements. Alternatively, the creditor can also ask the court to issue a writ of execution so that the court will sell the secured land at public auction. The creditor does not need a final and binding court ruling because the Hak Tanggungan Certificate already has executorial title (irah-irah) (as stated “Demi Keadilan Berdasarkan Ketuhanan Yang Maha Esa”). With this title, the Land Mortgage Certificate is, by law, considered a final and binding court ruling. However, in Indonesian’s context and as per the ICC, a creditor usually serves proper demand letter(s) to the debtor to confirm that the debtor has failed to comply with its obligations. After the given time period under the demand letter(s) is lapsed, the creditor then submits the foreclosure petition to the court, asking for debt settlement from the debtor. By sending the demand letter, the creditor can avoid the debtor’s argument, among others, the foreclosure petition is premature.

    Enforcement of Hypothec Security
    To enforce Hypothec Security, the creditor may execute the security object at public auction or another enforcement alternative with or without a court involvement, similar to the execution of fiduciary security and a pledge. According to Article 1178 (2) of the ICC, it allows the first Hypothec holder to require a condition where he can sell the objects encumbered by the Hypothec through an auction office if the debt is not settled. However, in practice, the creditor may need to serve demand letter(s) to the debtor before executing the security object asking for the debt settlement so that it is confirmed that the debtor has failed to comply with its obligations under the underlying agreement.

    Enforcement of a Pledge
    Under the ICC, a pledgee (ie the creditor) has the right to direct execution (Article 1155) to enforce the pledge security. The right to direct execution allows the creditor to have the pledged object(s) sold at public auction after the period of the debt has elapsed, or after serving proper demand letter(s) on the debtor asking for payment of the due and payable debt if there is no provision regarding the period. Under the ICC, this right to direct execution is automatically given to the creditor.

    In addition to a public auction, another alternative is available for the creditor under Article 1156 of the ICC, ie the creditor can ask the court to authorize the creditor (i) to sell the pledged object(s) in a manner to be determined by the court or (ii) to acquire and own the pledged object(s) for a price to be determined by the court, up to the amount of the debt plus any interest and outstanding costs.

    Enforcement of Fiduciary Security
    Fiduciary Security also has executorial title / irah-irah, and therefore it can be enforced in the same manner as a final and binding court ruling. The same as the enforcement of Hak Tanggungan, the creditor may serve demand letter(s) on the debtor before executing it. If the debtor fails to comply, the creditor can then proceed with the enforcement process.

    The enforcement may be carried out by (i) exercising the executorial title under the fiduciary security certificate; (ii) selling the property secured by the fiduciary security at public auction, or (iii) if the grantor agrees, by a private sale following the procedure provided in the regulations.

    Despite the availability of the above direct enforcement method for each security right under the law, in practice, auction offices often request a court order to hold a public auction. The court order is also required because the purchasers of the collateral prefer to have an execution order issued by a court to prevent any future claims and to reduce the likelihood of success of a later attempt by the debtor to recover its property from the purchaser. In practice, obtaining a court order may take a very long time (even in some cases, it can take a year or more) and involves a complicated court bureaucracy. For example, if the debtor refuses to voluntarily comply with the creditor’s request, to enforce the Hak Tanggungan, the creditor must ask the court to summons the debtor so that the court can order the debtor to voluntarily pay its debt which may take 2 to 3 months from submission of the request. If the debtor does not comply with the court summons, the creditor must submit a petition for an attachment order as well as a petition for execution in accordance with the Indonesian Civil Procedure Law. This process may take more months.

  3. What is the test for insolvency? Is there any obligation on directors or officers of the debtor to open insolvency procedures upon the debtor becoming distressed or insolvent? Are there any consequences for failure to do so?

    In Indonesia, the insolvency procedure means the bankruptcy procedure. Under Law No. 37 of 2004 regarding Bankruptcy and Delay of Payment (the “Bankruptcy Law”), the petition for bankruptcy will be approved by the relevant Commercial Court (“Court”) if it satisfies the following requirements:

    • The debtor has at least two creditors; and
    • At least one of the debts is due and payable.

    The above requirements should be proved in a simple way. Otherwise, the Court may reject the petition.

    The directors of the creditors have no obligation to initiate insolvency procedures against the distressed company/debtor with the Court. If the bankruptcy involves its own company, the directors can submit the bankruptcy petition upon obtaining approval from the General Meeting of Shareholders in accordance with its Articles of Association. Therefore, bankruptcy proceedings can to be commenced by the debtor itself voluntarily or by the creditors. However, certain conditions apply if the bankruptcy petition involves a financial institution.

  4. What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and / or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

    Under the Bankruptcy Law, the insolvency procedure means bankruptcy proceedings. Bankruptcy is applied for if a distressed company cannot be turned around and the decision is that the best solution is for the company to cease doing business, sell its assets, and distribute the proceeds from the asset sales amongst its creditors. In most cases, a debtor who is declared bankrupt will be ceased to exist as a legal entity. It is also possible that, following to the bankruptcy proceedings, the debtor still exists provided that the requirements under the Bankruptcy Law are met, eg existence of the debtor is proposed by the creditor or the receiver and this proposal is approved by the creditor representing more than 50% of the acknowledged and accepted creditor’s claim. The main purpose of the bankruptcy procedure is to impose a general attachment on all of the the assets of the bankrupt debtor to satisfy the creditors’ claims. A declaration of bankruptcy may be applied for by the debtor, creditor or by a third party. For example, (i) the Attorney General can file a petition for the bankruptcy of any party for the public interest or (ii) the Financial Services Authority may do so if the debtor is a bank or insurance company.

    The following are the involvement and roles of the parties during the Bankruptcy Proceedings:

    1. the bankrupt debtor: the debtor must cooperate fully with the appointed receiver so that the receiver can identify the debtor’s rights and liabilities and in the proceedings, the debtor must be accompanied by an attorney;
    2. the creditors are required to submit their claims to the receiver for verification and voting rights;
    3. the receiver is authorized and entitled to manage the debtor assets and must be an independent party, with no conflict of interest vis a vis the bankrupt debtor or its creditors, and act in the best interests of the creditors;
    4. the supervisory judge: a judge within the Court who will supervise the receiver; and
    5. the creditors’ committee (not mandatory): if required, the Court has the discretion to appoint a temporary creditors' committee consisting of three individuals selected from the creditors to advise the receiver.

    Under the Bankruptcy Law, the Court must rule on the petition for bankruptcy within 60 calendar days of the petition’s submission. The ruling is subject to appeal to the Supreme Court within 8 calendar days, and the Supreme Court must issue its ruling within 60 calendar days. If the Court declares the debtor bankrupt, the Court will appoint a receiver to manage all of the assets of the bankrupt debtor. Upon the issuance of the bankruptcy ruling, the management of the bankrupt’s debtor is no longer entitled to manage (eg transfer) the debtor’s assets.

  5. How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?

    The Bankruptcy Law recognizes 3 (three) types of creditor, ie preferred creditors, secured creditors, and unsecured creditors:

    a. Preferred Creditors (Kreditur Preferen) are creditors prioritized by law. Preferred creditors are entitled to payment in full from the bankruptcy estate. Preferred claims are tax claims and post-bankruptcy/delay of payment claims, including among others, the fees of the receiver/administrator, fees of experts appointed by the Supervisory Judge, and the wages of the employees of the bankrupt’s debtor.

    b. Secured Creditors (Kreditor Separatis). These are creditors who hold security rights (eg fiduciary security, land mortgage, hypothec or other security rights) over some or all of the debtor’s assets.

    c. Unsecured Creditors (Kreditor Konkuren). These are ranked as follows:

    • Specific statutory preferred creditors whose preference relates only to specific assets;
    • General statutory priority creditors; and
    • Non-preferred unsecured creditors.

    Under the Bankruptcy Law, employees may “resign” from the bankrupt debtor or be terminated by the appointed receiver. If the employer is declared bankrupt, to terminate their employment, the employer (ie bankrupt debtor) must serve them 45 calendar days prior notice, which triggers payment of a severance package to each employee depending on their term of service. The severance package will follow the provisions under the Law No. 13 of 2003 on the Employment.

    In the bankruptcy proceedings, the claims are ranked: 1. Secured Creditors and 2. Unsecured Creditors. Preferred Creditors are not ranked because their entitlement is guaranteed by law. The Bankruptcy Law is silent on equitable subordination as is recognized in other jurisdictions, in which the court can reorganize the creditor’s debt in the light of any inequitable conduct. However, if Secured Creditors can prove that a portion of the debt that they are owed might not be settled by the proceeds from the sale of the secured objects, for the remaining outstanding debt they can be treated as Unsecured Creditors.

  6. Can a debtor’s pre-insolvency transactions be challenged? If so, by whom, when and on what grounds? What is the effect of a successful challenge and how are the rights of third parties impacted?

    Yes, a debtor’s pre-insolvency transactions may be challenged. The Bankruptcy Law and the ICC recognize an “Actio Pauliana” suit. An Actio Pauliana suit is an effort made by creditors (under Article of 1341 of ICC) or the receiver to cancel any legal acts of the debtor performed before the declaration of bankruptcy, which may harm their interests by filing a lawsuit in the relevant court.

    The Actio Pauliana suit may be accepted if it can prove that at the time of the performance of the legal acts, the debtor and the parties with whom the debtor performed the legal acts knew or should have known that the acts would adversely affect the other creditors, unless the acts were required under agreements and/or laws.

    The legal acts that would adversely affect or harm the interests of the other creditors mean any transaction entered into less than a year before the bankruptcy declaration which the bankrupt debtor was not required to enter into and:

    1. the transaction was an agreement under which the obligations of the debtor exceeded the obligations of the party with whom the agreement was entered into; or
    2. the transaction constituted payment of, or security for, a debt which was not yet due and payable.

    If the court ruling grants the “Actio Pauliana” suit, it is enforced against the debtor as well as the counter-party (the third party) to the agreement entered into.

  7. What restructuring and rescue procedures are available in the jurisdiction, what are the entry requirements and how is a restructuring plan approved and implemented? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play?

    For restructuring the debtor’s debts, the Bankruptcy Law recognizes the Delay of Payment procedure. A Delay of Payment is not a condition in which the debtor is unable to pay or is insolvent and it is not the purpose of the liquidation of the bankruptcy estate. The main concern is regarding not just the debtor, but also the creditors. It may not be the case that the debtor cannot repay its loans, but only that the debtor needs more time to repay them. In this situation, the creditors do not want the debtor to be declared bankrupt; they would prefer that the debtor repays its debts.

    A decision on a Delay of Payment is not the same as a bankruptcy decision, where once bankruptcy is declared, the debtor’s management loses its right over its wealth. In a Delay of Payment, the debtor’s management retains its right. However, to take any corporate action, they require prior approval from the appointed administrator.

    The company’s management may be allowed to continue operating with a view to eventually trading out of its difficulties. This procedure provides a company temporary relief to re-organise and continue its business activities under the management of its directors together with an appointed administrator, under the supervision of a supervisory judge. By continuing its business, the company may able to settle its debts to creditors in accordance with the composition plan.

    Under the Bankruptcy Law, the Court must issue its Delay of Payment ruling within (i) 20 calendar days if the petition is filed by the creditor or (ii) 3 calendar days if the petition is filed by the debtor. For the Court proceedings, the debtor or the creditor must be represented by an attorney. The Delay of Payment ruling is not subject to appeal to the Supreme Court. If the Delay of Payment ruling accepts the petition, the Delay of Payment procedure must last no longer than 270 days from the date of the issuance of the ruling (including 45 calendar days for the temporary Delay of Payment).

    The requirements for a Delay of Payment are same as those for Bankruptcy in 3. above.

    The test for a Delay of Payment for the debtor or the creditors to apply for a Delay of Payment is that the debtor cannot pay its debts and the debtor or the creditors foresee that the debtor will not be able to pay its debts on time.

    The effects of a Delay of Payment are the following:

    1. The management of the debtor’s business is placed under the supervision of one or more administrators who in turn are supervised by a Supervisory Judge.
    2. If any of the Debtor’s obligations are met without approval from the administrator after the delay of payment decision, they can only be charged to the Debtor’s assets if they benefit the Debtor’s assets.
    3. During the temporary/permanent Delay of Payment, the debtor is relieved from any liability to pay its debts.
    4. Any attachments which have been obtained against the debtor’s assets are declared null and void and if the debtor has been taken into custody as a hostage, the debtor must be released immediately.
    5. Creditors’ claims secured by pledges, hypothecs, fiduciary agreements or other priority rights may not be enforced nor may secured assets be attached by the creditors.
    6. Proceedings already commenced by the Court do not end nor does the Delay of Payment preclude the initiation of new proceedings.

    For the restructuring of the debts, during the Delay of Payment procedure (within 270 calendar days):

    1. the debtor can submit a composition plan to be discussed and approved by all of the registered creditors in the creditors’ meeting; and
    2. if the creditors’ meeting (more than 1/2 the registered secured creditors and 1/2 the registered unsecured creditors) agree and approve the proposed composition plan, the administrator and the supervisory judge will inform the Court’s panel of judges so that the composition plan can be incorporated in the final and binding court ruling.

    If the composition plan does not meet the minimum requirements for approval, the debtor will automatically be declared bankrupt, and the bankruptcy procedure will apply. A decision declaring a debtor bankrupt or approving a delay of payment cannot be appealed.

  8. Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

    Yes, it can. For a Delay of Payment (restructuring proceeding), the Bankruptcy Law (Article 240 (4)) allows the debtor to obtain new financing from third parties with the prior consent of the administrator provided that the new financing is only intended to increase the assets of the debtor. If the new financing requires collateral, the debtor may encumber his assets under a pledge, fiduciary security, hak tanggungan, hypothec, or other security right, as long as the new financing has approval from the administrator and the supervisory judge. The encumbrance of the debtor’s assets (under a pledge, fiduciary security, hak tanggungan, hypothec, or other security right) for the new financing is only possible for assets that are not yet encumbered.

  9. How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any an ability for either party to disclaim the contract?

    Under the Bankruptcy Law, the counter party who has entered into a reciprocal agreement with the debtor may request certainty from the receiver (in the event of a Delay of Payment from the administrator) with regard to the continuance of the existing/ongoing reciprocal agreement within a specific time frame, as to whether the obligations will be complied with. If there is no agreement on the time frame, the supervisory judge will make decision on the time frame. If confirmation is given, the receiver (or the administrator) must provide security for the performance of the obligation. However, this does not apply to agreements under which the bankrupt debtor must personally perform an obligation.

    If there are contractual delivery of goods commonly traded items in the agreement/contract imposing a certain time limit, and the party obliged to deliver them is declared bankrupt before delivering them, the agreement is terminated by the bankruptcy declaration. The parties harmed thereby may name themselves unsecured creditors (Kreditor Konkuren) to claim compensation. However, if the termination causes harm to the bankruptcy estate (budel pailit), the counter parties to the agreement must receive compensation for their losses.

    If the debtor has been leasing certain objects, either the receiver or the lessor, may terminate the lease agreement (in the event of a Delay of Payment, the debtor, with the consent of the administrator), but a prior termination notice must be served in accordance with the local custom, or the notice period stated in the lease agreement or according within 90 days. If the lease fee has been paid in advance, the lease agreement cannot be terminated early before the lease period covered by the lease fee ends. Note that from the declaration of bankruptcy or Delay of Payment, the lease fee is considered a debt of the bankruptcy estate.

  10. What conditions apply to the sale of assets/the entire business in a restructuring or insolvency process? Does the purchaser acquire the assets “free and clear” of claims and liabilities? Can security be released without creditor consent? Is credit bidding permitted?

    In principle, all of the bankruptcy estate must be sold at public auction as requested by the receiver in accordance with the prevailing regulations. According to the request, the auction office will determine the date of the auction. After the announcement of the proposed auction as required under the prevailing laws, any individual or legal entity may participate in the auction as a prospective buyer, except those who are prohibited by law from doing so, such as for example, judges, attorneys general, court bailiffs, notaries public, the auction office officials, employees, attorneys and the head of the auction office which handles the bankruptcy estate and the receiver. The most common auction requirement is the price limit determined by the receiver as the party requesting the auction so that the auction office can decide on the auction winner (whether the highest price is achieved or exceeded).

    Once the auction winner has been determined by the auction office, the receiver should surrender the relevant bankruptcy estate to the winner and the winner must pay the price to the receiver. In this case, the auction winner becomes the buyer of the bankruptcy estate. The auction winner must also pay the auction duty (Bea Lelang) and other fees thay may apply. The purchaser acquires the assets “free and clear” of any claims and/or liabilities.

    If the public sale is not succeeded, a private selling may be conducted with the prior approval of the supervisory judge.

    The proceeds from the sale of the assets (whether at public auction or a private sale) after the deduction of the auction duty (Bea Lelang), the receiver’s fee, and other fees, will be distributed by the receiver to the secured creditors and the relevant unsecured creditors, as applicable, for the debts that have been verified, in settlement of the debts.

    As to “credit bidding”, secured creditors who hold a certain security right (eg pledge, fiduciary security, hak tanggungan, hypothec, or other security right), may foreclose on their right as if there were no insolvency after a stay period of 90 days as of the date of the declaration of bankruptcy (it might be similar in other jurisdictions and be known as “credit bidding”). In this case, the security may only be released from the objects with the relevant Secured Creditors’ consent. If they do not foreclose on their security right within this period, they are also entitled to receive payment from the proceeds from the sale of the bankruptcy estate.

  11. What duties and liabilities should directors and officers be mindful of when managing a distressed debtor? What are the consequences of breach of duty?

    The liabilities of directors to the bankrupt company are basically the same as their liabilities to the company when it is not bankrupt. They are principally not personally liable for any action that they have taken under the company’s name in accordance with their duties and authorities. However, there are certain circumstances in which directors may be held personally liable under Law No. 40 of 2007 on Limited Liability Companies (“Company Law”), ie the bankruptcy is the fault of or due to the negligence of the Board of Directors (“BOD”) and the bankruptcy estate is not sufficient to settle all of the company’s debts. In this case, the members of the BOD may be held jointly responsible for all the unpaid debts. This also applies to members of the BOD who served as directors within the 5 years before the declaration of bankruptcy found at a fault or negligent. The company’s shareholders can also file a lawsuit against the members of the BOD because of the breach of their fiduciary duty,

    If a lawsuit is filed by the company’s shareholders, the members of the BOD will not be held responsible for the company’s bankruptcy if they can prove that:

    1. the bankruptcy was not caused by their fault or negligence;
    2. they have performed the administration of the company in a good faith, prudently, and with full responsibility for the interests of the company and for the purposes and objectives of the company;
    3. they have no conflict of interest, either directly or indirectly, in the administration of the company they have performed;
    4. they took action to prevent the bankruptcy.
  12. Is there any scope for other parties (e.g. director, partner, parent entity, lender) to incur liability for the debts of an insolvent debtor?

    In principle, no third party can be held liable for the debts of the bankrupt debtor. However, in addition to the BOD, the members of the Board of Commissioners (“BOC”) may also be held liable jointly together with the BOD, if the bankruptcy is due to their fault or negligence in supervising the company’s BOD and the bankruptcy estate is not sufficient to settle all of the company’s debts.

    Further, in general, the liability of shareholders is limited to their shareholding. However, a shareholder may be held personally liable for its actions or for the losses incurred by the company if any of the following applies:

    • the company has not yet obtained a legal entity status;
    • the shareholder has used the company in bad faith solely for its own benefit;
    • the shareholder was involved in unlawful acts committed by the company;
    • the shareholder used the assets of the company in a way that caused the company to be unable to settle its debts;
    • the company has had only one shareholder for more than six months.
  13. Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?

    As explained, the responsibility also applies to members of the BOD who served as a director within the last 5 years for any action before the declaration of bankruptcy that might include a fault or negligence that has caused the bankruptcy. This also applies to the members of the BOC. For a finance institution, the directors or commissioners of the bankrupt debtor will not be able to serve as directors or commissioners in any other finance company because their appointment will be assessed by the relevant government institution.

  14. Will a local court recognise concurrent foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition?

    The Indonesian courts do not recognise bankruptcy and/or delay of payment/rescue procedures in other jurisdictions, since Indonesia is not a party to any treaties related to international insolvency issues. Therefore, a foreign court ruling handed down during foreign court proceedings cannot affect property located in Indonesia. Neither do the courts usually cooperate with foreign courts if there are concurrent proceedings in other jurisdictions. To recognize a foreign restructuring (which we assume that it should be in the form of a court ruling), the party can only use that ruling as evidence to support its lawsuit filed in the Indonesian courts.

  15. Can debtors incorporated elsewhere enter into restructuring or insolvency proceedings in the jurisdiction?

    The Bankruptcy Law is silent on this matter. However, we note a case in 2013, in which an Indonesian company filed a petition for a delay of payment against a foreign debtor. If the Court accepted this petition, we are not sure whether the Indonesian company can enforce it outside Indonesia because Indonesia does not have any bilateral agreement with any nations in relation to the enforcement of foreign court ruling.

  16. How are groups of companies treated on the restructuring or insolvency of one of more members of that group? Is there scope for cooperation between office holders?

    The concept of a company group is not recognized under the Bankruptcy Law or the Company Law. The Bankruptcy Law is silent on joint proceedings for a family/group of companies. This means that there can be no single court file, single list of creditors or single notice list for the combined members of the group. The case for each member of the company group will require separate proceedings and there is no practical acknowledgement of related proceedings. However, if the Bankruptcy or Delay of Payment proceedings involve a holding company, it may possibly affect its subsidiaries because the shares of the holding company in the subsidiaries may be considered its assets.

    However, it is common for a member of a company group to act as a creditor (either secured or unsecured) of its affiliate that has filed for bankruptcy or a Delay of Payment due, for example, to the existence of an affiliated loan agreement.

  17. Is it a debtor or creditor friendly jurisdiction?

    In general, we believe that the Bankruptcy Law is more friendly to creditors, provided that it is applied properly because the creditors have a more important role in determining or deciding on certain key issues that may affect the proceedings significantly (in both bankruptcy and/or Delay of Payment). Among other things, creditors can vote on whether to approve or reject the composition plan in the creditors’ meeting as explained in No. 7 above; and the creditors may ask the supervisory judges to establish a creditors’ committee if necessary, to work with the receiver and/or the administrator.

    However, in recent years, the courts have been more debtor friendly, as 2 (two) large debtors have been able to restructure their loans with their creditors.

  18. Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?

    No, political factors should not affect bankruptcy or Delay of Payment proceedings because in Indonesia, the courts rule independently on any case presented to them.

    The state only has a role in bankruptcy or Delay of Payment proceedings in that, among other things, a bankruptcy petition may also be submitted by a state attorney for the public interest. For certain debtors, an application for a bankruptcy declaration may only be submitted by OJK (the Financial Services Authority/Otoritas Jasa Keuangan) – (if the debtor is a bank, an insurance company, a financial institution, a pension fund institution, or a securities company, the stock exchange, a clearing and custodian institution, or a settlement and depository institution); and the Minister of Finance (if the debtor is a state-owned company engaged in the public sector).

  19. What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?

    In our experience, the greatest barrier to efficient and effective insolvency proceedings in Indonesia is the uncertain length of time needed to complete the liquidation of the assets. The timing issue is not within the bankruptcy proceedings since the Bankruptcy Law sets a time limit for the panel of judges to hand down the final decision on the bankruptcy petition (60 days). It arises after the bankrupcty declaration as there is no time limit under the law for the liquidation of the assets to be completed.

    The liquidation of the assets can in some cases be difficult for the receivers if it is related to land. Most debtors are reluctant to surrender a land certificate to the receiver, so the receiver has to ask the land office for a land certificate. However, the land office often rejects the receiver’s request, because a receiver is not one of the parties entitled to apply for a replacement land certificate under Government Regulation No. 24 of 1997 on Land Registration.

    Recently, the Supreme Court has been holding Forum Group Discussions (FGD) to seek solutions to barriers in proceedings under the Bankruptcy Law. The FGDs involve academics from several universities, bankruptcy practitioners/stakeholders (eg receivers, lawyers), law students, and others. One of the most discussed issues in the FGDs is the lengthy asset liquidation process until the debt can finally be settled, which for certain receivers, means extra costs.