Direction of Indonesian Bankruptcy Law Development and the Urgency of the Bankruptcy Bill

The increasingly complex global economic developments demand that the national legal system continually adapt to the dynamics of modern business practices and trade. In this context, bankruptcy law plays a strategic role as an instrument for resolving debtor-creditor relationships while maintaining the stability of economic activities.

Bankruptcy law not only serves as a means of settling commercial disputes but also as a legal tool that ensures certainty, justice, and protection for business actors in conducting economic activities.

In the Indonesian legal system, the current regulation of bankruptcy is still based on Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (UU KPKPU). However, after nearly two decades of implementation, various developments in business practices and societal legal needs indicate that the regulation is no longer fully adaptive to contemporary economic dynamics.

Conceptually, bankruptcy is a legal mechanism involving a general seizure of the entire debtor’s assets, managed and settled by a curator under the supervision of a supervisory judge, to proportionally fulfil the debtor’s obligations to creditors.

Bankruptcy is essentially intended to ensure a fair distribution of the debtor’s assets to creditors and to prevent actions by the debtor that could harm creditors’ interests.

From the perspective of modern bankruptcy legal theory, the bankruptcy institution also functions to reduce the social costs of business failure and ensure that debt resolution is conducted in an orderly, transparent, and efficient manner. Therefore, bankruptcy law is not merely repressive towards the debtor but also serves as a restructuring mechanism that allows business continuity (going concern) under certain conditions.

Nevertheless, in its practical application, the UU KPKPU has given rise to various problems that indicate a mismatch between legal norms and the needs of the modern business world. One major criticism of the regulation is the ease of meeting the requirements for filing a bankruptcy petition.

Based on the provisions of Article 2 paragraph (1) of the UU KPKPU, a debtor may be declared bankrupt if they have two or more creditors and fail to pay at least one debt that has fallen due and is collectible. This norm, in practice, often creates issues because it does not require actual insolvency.

As a result, companies that are financially healthy but facing commercial disputes can have bankruptcy petitions filed against them by creditors. This situation potentially leads to the misuse of the bankruptcy institution as a business pressure tool or even as a means of unfair business competition.

Another problem lies in the concept of simple proof as regulated in Article 8 paragraph (4) of the UU KPKPU. This provision requires judges to grant bankruptcy petitions if simple proof is established of a debt that has fallen due and is collectible.

In practice, this norm often leads to varied interpretations because there is no clear definition of the boundaries of simple proof. This situation ultimately limits the judge’s room for more comprehensive consideration of the debtor’s financial condition or the legal relationship context between the parties.

These problems indicate that Indonesia’s bankruptcy legal system still overly emphasises the debt collection function rather than the business restructuring function, which should be a key characteristic of modern bankruptcy law.

Amid these various issues, the plan to establish the Draft Law on Bankruptcy and Suspension of Debt Payment Obligations (RUU KPKPU) represents an important step in the national legal development agenda.

The drafting of this bill is a response to the need to strengthen a bankruptcy legal framework that is more adaptive to economic developments, enhance legal certainty for business actors, and promote a more conducive investment climate.

From a legal development perspective, the revision of the UU KPKPU is also part of the government’s efforts to create an economic legal system capable of competing in the global context, particularly in supporting ease of doing business and protecting investment activities.

One important norm proposed in the Bankruptcy Bill is the strengthening of the insolvency concept as the main requirement for filing bankruptcy petitions. In modern bankruptcy legal systems, a company is principally only bankruptable if it is proven to be genuinely unable to pay its debts (insolvent).

This concept is crucial to prevent the use of the bankruptcy mechanism against companies that actually still have the financial capacity to continue their operations. Thus, the application of the insolvency test becomes an instrument that ensures bankruptcy is truly used as a last resort in debt resolution.

Another norm of concern in the Bankruptcy Bill is the regulation regarding the automatic stay. In international bankruptcy legal practice, the automatic stay is a mechanism that temporarily freezes all collection actions against the debtor from the filing of the bankruptcy petition.

Its purpose is to prevent the transfer or disappearance of the debtor’s assets before the bankruptcy decision is issued by the court. In the current Indonesian legal system, this mechanism is not adequately regulated, leading to situations where debtors transfer assets before the bankruptcy ruling is issued.