Bankruptcy law should be amended, says Yusril

DENPASAR, Bali (JP): The current bankruptcy law should be amended to minimize legal uncertainties that have hampered foreign investment, a minister said on Wednesday.

Minister of Justice and Human Rights Yusril Ihza Mahendra, who later on Wednesday was removed from the Cabinet by President Abdurrahman Wahid, said he hoped the government could submit a new bankruptcy bill to the House of Representatives sometime this year.

Speaking at a seminar on Asian insolvency reform, Yusril said the latest amendment of the 1998 bankruptcy law was only half complete. The current law, he said, is still largely based on the 1905 Dutch bankruptcy law.

"Only part of the old bankruptcy law has been amended for the purpose of dealing with some of the consequences of the economic crisis," he said in his opening speech at the seminar.

Indonesia amended its bankruptcy law in 1998 partly to help the Indonesian Bank Restructuring Agency (IBRA) recover some of the bad loans at local banks through litigation.

IBRA took over billions of US dollars worth of nonperforming loans and assets after the government liquidated a number of local banks in 1997.

Albeit the agency faces hurdles in restructuring the loans, IBRA rarely has succeeded in winning its bankruptcy suits against companies and liquidating their assets.

"A good law on bankruptcy will assist economic recovery," Yusril said, adding that because of the partial amendment, the current bankruptcy law contains inconsistencies that must be addressed.

"This should be done by introducing a new bankruptcy law that reconciles the differences that now exist."

Yusril cited several reasons to enact a new law: first, to prevent the disproportionate loss of debtors' assets should several creditors request payment at the same time.

Second, to prevent secured creditors demanding the right of sale of the debtors' assets without regard to the interests of the debtor and other creditors.

"And to avoid deception by the creditor or the debtor," he added.

As an example, Yusril said a debtor might try to accommodate a certain creditor at the expense of other creditors.

Local media have reported several bankruptcy cases involving allegedly fictitious creditors that have influenced the vote on debt restructuring proposals in favor of the debtor.

The latest such case involved the International Finance Corporation (IFC), which filed a bankruptcy suit against PT Panca Overseas Finance.

IFC, the financial arm of the World Bank, lost its case against Panca after what IFC alleged were fictitious creditors voted in favor of Panca.

Yusril did not refer to these cases, but said the new bankruptcy law must prevent deception by debtors trying to protect their assets from creditors.

He said the new bankruptcy law also should cover some issues that are not dealt with in the existing law.

As an example, he said there should be an article that stipulated that creditors or debtors need not appeal bankruptcy rulings to a higher court.

"It (the appeal) can be done directly by applying for a final appeal with the Supreme Court. Accordingly, the settlement period could be shortened," he said.

He also suggested putting in place a mechanism for the suspension of the enforcement rights of secured creditors, or those who own a debtor's pledge.

He said this mechanism would mean greater fairness for all parties involved.

"The law also should regulate the legal status of agreements made by the debtor prior to the issuance of a bankruptcy petition," he added.

Clarification of the terms and procedures for applying for a bankruptcy petition and the suspension of payment also require improvement, he said.

Yusril also cited as necessary new provisions on the role of the curator, or court receiver, the creditors' committee, the termination of suspension and payment.

The head of the Asian Development Bank's private sector legal group, Henry C. Pitney, said that aside from revising the bankruptcy law, the government also should improve its legal infrastructure and human resources, including judges and lawyers.

The two-day seminar on insolvency brought a number of legal experts and bankers from various countries together to exchange ideas on improving Indonesia's current bankruptcy law.

Some 100 participants from 22 countries attended the forum, including representatives from the International Monetary Fund, the World Bank and the Organization for Economic Cooperation and Development.(bkm)