Going bankrupt<\/p>\n
Creditors and debtors expected some start-up problems when the
\nJakarta Commercial Court, the first judicial institution in
\nIndonesia's 53-year history specially established to judge
\nbankruptcy proceedings, began operating on Aug. 20. But most
\nstill seem perplexed by the court's first two verdicts it handed
\ndown on insolvency cases.<\/p>\n
The problem is not that the court has no real teeth, as many
\nhad predicted, but rather it made ill-judged bites.<\/p>\n
One of the decisions, made last month in favor of the debtor,
\nwas considered completely insensible because the creditors' suit
\nagainst PT Ometraco Corp was rejected only because a similar case
\nwas filed against another Ometraco subsidiary. The verdict, in
\nwhich US$125 million was at stake, was seen as utterly confusing
\nsince the two debtors are two separate legal entities.<\/p>\n
The other verdict, announced early this week in favor of the
\ncreditors, was no less puzzling. The debtor, publicly listed PT
\nModern Realty with Rp 215 billion ($21.9 million) in total
\nassets, was declared bankrupt because of a failure to settle Rp
\n94.13 million ($10,400) in debts to two individual creditors.<\/p>\n
Though the decisions can still be appealed directly to the
\nSupreme Court, the rulings are seen as detrimental to the
\nmomentum needed in settling the private sector debt overhang.<\/p>\n
All creditors do agree that the bankruptcy court is merely a
\nremedy of last resort which should be taken only against debtors
\nwhose dealings are in bad faith or those who are simply
\nunwilling, rather than unable, to repay their debts. But the
\ncommercial court, established to enforce the new Bankruptcy Law,
\nis an essential component of the commercial laws needed to create
\nlegal certainty in the business sector.<\/p>\n
The new bankruptcy procedures are designed to ensure a quick,
\nfair, transparent and effective resolution of company
\nindebtedness within strictly set time limits. The objective
\nobviously is not to have as many default debtors as possible
\ndeclared bankrupt -- as this would surely cause a devastating
\nsocial and political backlash. It rather serves as a legal
\nrecourse of last resort to force distressed debtors to negotiate
\nwith their creditors in good faith or to expedite the liquidation
\nof default debtors who are beyond any bail out through debt
\nrestructuring.<\/p>\n
In fact, the first option that has to be offered by the
\ncommercial court, as required by the new bankruptcy law, is a
\npetition by a debtor for a temporary suspension of payments to
\nthe creditor during which the two sides try to negotiate a debt
\nrestructuring plan under the supervision of a court-appointed
\nadministrator.<\/p>\n
Only if this option fails will the court allow creditors to
\nask for immediate bankruptcy proceedings and appoint a receiver
\nto sell or liquidate the assets of the default debtor.<\/p>\n
Provided debtors act in good faith and their business has new
\nprospects under debt restructuring, most creditors will prefer
\nrehabilitation programs to revive the debtor's business because a
\ngoing concern offers more value, thereby increasing the recovery
\nrate for the creditor's loan. The proceeds from the sales of
\nliquidated assets are usually only a fraction of their normal
\nmarket price.<\/p>\n
But an effective, full-fledged commercial court is quite
\nessential, especially now when hundreds of companies have been
\ntechnically bankrupt under the huge burden of foreign and
\ndomestic bank debts. Most of them have simply stopped making
\npayments. More damaging to business certainty is the fact that
\nmany default debtors have refused to negotiate with their
\ncreditors even though the government has set up a general
\nframework under the Indonesian Debt Restructuring Agency and
\nJakarta Initiative for debt restructuring and rescheduling for up
\nto eight years.<\/p>\n
The commercial court is designed to break such deadlocks which
\nhave virtually stopped new domestic and foreign lendings to the
\nbusiness sector, thereby paralyzing a large number of industrial
\nfirms. Moreover, the settlement of $64 billion in private sector
\nforeign debts is crucial for the reopening of international
\ncredit lines to Indonesian businesses.<\/p>\n
The two controversial court decisions, however, should not
\nhastily lead businesspeople to a final verdict that the court is
\nineffective and incompetent. The issue here has nothing to do
\nwith the notorious reputation of Indonesia's judicial system that
\nhas long been perceived as highly susceptible to corruption and
\npolitical pressures. None of the judgments raised questions about
\nthe moral integrity of the presiding judges. Rather, they
\nreflected lack of the judges' technical competence, something
\nthat is still understandable given the complete novelty of
\nbankruptcy rulings in the judicial system.<\/p>\n
Even though the judges completed three months of special
\ntraining in bankruptcy proceedings and business practices in
\nAugust, we cannot expect them to master all the complex
\nramifications of business deals right away. They require a
\nlearning period.<\/p>\n
We believe litigants, too, will see the problems simply as a
\ntemporary confusion, which can still be straightened out in the
\nSupreme Court.<\/p>\n
Most importantly, the power and capacity of the court to judge
\nobjectively and have its verdicts enforced has not been called
\ninto doubt because it is not a question of the judges' integrity
\nbut rather their technical competence. This, we believe, will
\neventually be ironed out as the court picks up more experience in
\nthe months to come.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/going-bankrupt-1447899208",
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"sponsor": "Okusi Associates",
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