Brief of Indonesian Bankruptcy Law

Bankruptcy Law in Indonesia is regulated by Law Number 37 of 2004 on Bankruptcy and Suspension of Payment (Bankruptcy Law). Based on the regulation, Bankruptcy proceedings are initiated by submitting a bankruptcy petition to the Commercial Court. A bankruptcy petition must be filed by a lawyer (having a license to practice) with a Commercial Court having jurisdiction over the debtor’s legal domicile. The bankruptcy petition can be filed by:

  1. The debtor itself;
  2. Any of its creditors;
  3. The central bank (Bank Indonesia) or the Indonesian Capital Market Supervisory Agency (Badan Pengawas Pasar Modal or Bapepam) if the debtor is a bank or a security company respectively; or
  4. The public prosecutor if the bankruptcy petition involves public interest.

According to Article 2.1 of the Indonesian Bankruptcy Law, a debtor that has two more creditors and has failed to pay at least on debt which already due and payable may be declared bankrupt by a decision of the Commercial Court. In order to comply with this provision, it is imperative for the petitioning creditor to prove to the Court that there are one or more other existing creditors of the debtor. The Commercial Court will set a date for a hearing after the petitioner has met the requirements for submitting a petition, and the proceedings can commence.

The possible outcome of these proceedings is that the Commercial Court may decide to declare the debtor bankrupt or to reject the bankruptcy petition. However, both of these decisions are subject to appeal or cassation to the Supreme Court.

It often happens in practice that, pending the Commercial Court’s decision on bankruptcy petition, a debtor submits a petition for suspension of payment as a “strategic defensive response” to a creditor’s bankruptcy petition. In that case the Commercial Court is by law obliged first to review the suspension of payment petition and then to grant a provisional suspension of payment can be converted to an extended suspension of payment for up to 270 days, or a bankruptcy declaration, should creditor’s meeting refuse to grant the extended suspension of payment. The purpose of the suspension of payment is to provide the debtor with time to prepare a settlement plan, and to discuss this with creditors. A settlement plan which has been approved by a qualified number of creditor’s votes and which has been ratified by the Commercial Court will bind all “unsecured creditors”

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