Pay or liquidate<\/p>\n
The easy time will soon end for Indonesia's nonpaying debtors
\nwho have adopted a laid-back attitude since the outbreak of the
\neconomic crisis last year. It is no coincidence that the new
\nbankruptcy law, a government regulation in lieu of a law to amend
\nthe 1905 Insolvency Ordinance, was enacted last week. This was
\nabout 10 days before the Aug. 3 start of the Frankfurt agreement
\non the overall restructuring of Indonesian corporate and bank
\nforeign debt, which totals more than US$72 billion.<\/p>\n
The new bankruptcy procedures are designed specifically to
\nprovide an effective, efficient legal mechanism to decide if
\ndebtors are bankrupt and to deal with selling their assets. The
\n90 amendments contained in the new law are prompted by the urgent
\nneed for a quick, fair, transparent and effective resolution of
\ncompany indebtedness which is crucial for legal certainty in the
\nbusiness sector and for encouraging new bank lending.<\/p>\n
Hundreds of companies are now technically bankrupt under the
\nhuge burden of foreign and domestic debt, but the government and
\ncreditors have been barred by the opaque procedures of the 1905
\nrulings from declaring them legally bankrupt and acting quickly
\nto implement their liquidation. This stalemate has virtually
\nstopped all new domestic and foreign lending to the business
\nsector, thereby paralyzing a huge number of industrial firms.
\nMany banks are failing because they cannot collect their loans.<\/p>\n
Much has been written about the benefits of the new bankruptcy
\nprocedures, including the setting of tight time limits of a
\nmaximum of around 110 days after the filing of the bankruptcy
\npetition for the issuance of court decisions and their
\nenforcement. This already includes 30 days for the appeal process
\nthat must go to the Supreme Court. The old procedures allowed
\ndebtors indefinite delays that could protract proceedings for up
\nto more than 10 years.<\/p>\n
The new bankruptcy legislation is among the business and
\ncommercial laws Indonesia urgently requires to ensure the fair,
\nsmooth running of its market economy. Effective commercial laws
\npermit business parties to agree freely on the terms of a
\ntransaction, discourage fraud and abuse and place the power of
\nthe state behind the enforcement of legal rights arising from
\nconsensual agreements.<\/p>\n
The law facilitates business transactions and capital flows
\nas it protects both creditors and debtors with clearly defined
\nrules. Investors need an easy entry to businesses through
\nsimplified licensing procedures as well as a smooth way out if
\nneeds be. The law is not made simply for the benefit of
\ncreditors. It stipulates procedures not only for liquidation but
\nalso reorganization of problem firms. It provides failing firms
\nwith an orderly means of exit but also allows ailing, but
\npotentially viable, firms to restructure.<\/p>\n
But the real test of the effectiveness of the new law will
\ntake place later next month when the Commercial Court, set up to
\nhandle bankruptcy cases, starts working in Jakarta with 45
\nspecial judges who have undergone special training since May.
\nLitigants must be confident the court has the power and the
\ncapacity to judge objectively and get its judgments enforced.<\/p>\n
At issue here are not only skills and knowledge about
\ncommercial laws and modern business practices but also the
\nnotorious reputation of Indonesia's judicial system. The nation's
\ncourt system, besides being over-loaded with a mountain of cases,
\nhas so far been stigmatized by the widespread public perception
\nthat many judges can be bribed and are highly vulnerable to
\npolitical pressures.<\/p>\n
Laws are only as good as the institutions that enforce them.
\nIt is competent and reliable courts and specialized enforcement
\nagencies on which all enforcement activities -- formal or
\ninformal -- ultimately depend.<\/p>\n
The government itself must abide by the rule of law so private
\nentities will trust it not to intervene arbitrarily in their
\naffairs.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/pay-or-liquidate-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}