Commercial court needs modernization

JAKARTA (JP): The poor performance of Indonesia's Commercial Court, particularly its lack of understanding of the complex nature of modern financial transactions, is a major bottleneck in developing an effective and efficient bankruptcy regime, analysts said here on Thursday.

Kartini Muljadi of the Kartini and Partners law firm told a seminar that the complex structure of international finance and its terminology such as events of default, acceleration of debt maturity, syndicated loans, commercial papers, forward transactions and derivatives were very new and incomprehensible to the country's commercial court.

"This is one of the impediments to establishing a predictable and just insolvency regime," she told the participants of the seminar that was discussing the country's new bankruptcy law.

In an effort to revive investor confidence in the crisis-hit economy, the government enacted last July a new bankruptcy law, an amendment to the 1905 colonial bankruptcy code, which was no longer appropriate to handling modern corporate bankruptcy cases.

The new law, and the establishment of the country's first commercial court in August, was meant to convince foreign investors that the country's corporate debtors, with outstanding obligations of US$80 billion, could be held accountable through more efficient bankruptcy proceedings.

The new law was designed to expedite bankruptcy proceedings against defaulting debtors who fail to reach an amicable settlement with their creditors.

Many have, however, expressed dissatisfaction over the commercial court rulings, particularly foreign creditors.

Jerry Hoff, a counsel with the Ali Budiardjo, Nugroho, Reksodiputro law firm, also pinpointed the intricacies of international finance as the major cause.

Kartini pointed to a controversial court decision in a bankruptcy case between the Singapore office of the American Express Bank (Amex) and local publicly-listed PT Ometraco Corporation as an example of the lack of comprehension among the commercial court judges of the features of a modern financial transaction.

Kartini criticized especially the lack of comprehension on the part of judges regarding the normal business practice which allows a bank creditor to accelerate the maturity date of the principal of a loan following a default.

Amex filed a bankruptcy petition against Ometraco last September after the latter failed to repay a $50 million loan.

The Jakarta Commercial Court decided not to declare Ometraco bankrupt and the Supreme Court upheld the decision in November, reasoning that the debt claimed by the plaintiff had not yet matured.

"The basis of the bankruptcy petition is the syndicated facility agreement with the usual features ... Those who are accustomed to such a style will not find it difficult to identify the essential elements in such an agreement. However, those who are not familiar with such developments may find it difficult to fully perceive the entire structure of the transaction," she said.

Kartini, however, was optimistic that the efforts to improve the country's bankruptcy regime were heading in the right direction.

She pointed out that almost 55 percent of the 38 bankruptcy petitions filed with the court last year had been settled.

"This is a sign that the objective of the government to revive the bankruptcy regime is going in the right direction," she said.

"There is hope that with more time, training and practice the judges... will become more and more experienced," added Hoff.

Minister of Justice Muladi said in his opening remarks that the government would continue to monitor and improve the performance of the commercial court.

Muladi said the country's judiciary system would also be further improved with new legislation to be proposed to the House of Representatives in the near future. (rei)