Commercial court needs modernization

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)