DPR to expedite amendment of contentious bankruptcy law

Fitri Wulandari, The Jakarta Post, Jakarta

The House of Representatives, which is already saddled with the enormous job of completing the debates on dozens of "crucial" bills, may speed up debates on the amendment of the controversial bankruptcy law recently proposed by the government, according to a legislator.

Firman Jaya Daeli, a member of the House's Commission II overseeing legal affairs, told The Jakarta Post on Monday that legislators had mulled starting the debates of the bill before the House entered recess on July 19.

But, he was not sure if they could make it.

Furthermore, Firman said, once the debates started, there was no certainty that the deliberation could be completed in a short time.

"But, we shall try to speed up the deliberation of the bill. The sooner, the better for all of us," Firman said.

To speed up the debates, some legislators were thinking about setting up a special committee to discuss the bill.

At present, the House is struggling to complete its deliberations on 24 bills, some of which were considered crucial, including bills on the presidency, elections and political parties.

Pressure for the revision of the prevailing Bankruptcy Law No.4/1999 has been mounting lately following the commercial court decision to declare PT Asuransi Jiwa Manulife Indonesia (AJMI), a unit of Canada's insurance giant Manulife Financial Corp. bankrupt at the request of its now-defunct, former partner PT Dharmala Sakti Sejahtera, despite overwhelming solvency.

Analysts said the bankruptcy law was too weak to protect a company like Manulife from even a dubious bankruptcy petition launched by opponents.

The call for the revision of the bankruptcy law has ironically also come from the International Monetary Fund (IMF), which together with a Dutch law expert, actually designed the law. Analysts have said that through the law, the IMF initially intended to force recalcitrant local firms to pay their debts and did not expect that the law could be manipulated by the justice system in such a way as was the case, allegedly, with Manulife.

The most important point in the proposed bill, which was made available to The Post on Monday, is that an insurance company can only be declared bankrupt by the commercial court at the request of the Ministry of Finance.

The existing law does not have such a stipulation, meaning it treats insurance firms like any other business, which could be declared bankrupt by the court at the request of its creditors in case of debt payment failure.

At present, insurance companies, are not protected by the law, but banks and securities firms are. It states that the commercial court could only declare banks and securities firms bankrupt at the request of both the central bank and the Capital Market Supervisory Agency (Bapepam).

Strangely missing from the bill, however, is a clause which obliges judges to take into account the solvency of a company prior to deciding upon a bankruptcy verdict.

Analysts have said one of the main weaknesses of the existing law is the non-existence of such a solvency clause, which allows judges to declare a firm like Manulife bankrupt despite the fact that it is solvent.

According to the Ministry of Finance, AJMI has a risk-based capital (RBC) of 167.26 percent, far above the government requirement of 120 percent. RBC is the ratio of capital to risks. Its assets are currently valued at Rp 1.8 trillion.

Lawyer Hotman Paris Hutapea, a specialist in bankruptcy law, said he had been informed that the government's team drafting the amendment of the bill deliberately omitted the solvency clause at the request of the IMF.

It remains unclear why the IMF was opposed to the inclusion of the solvency clause in the amendment of the bankruptcy law given the Manulife case and the fact that many developed countries, including the United States, have such a solvency clause, in their bankruptcy laws.

According to Firman, the amendment of the bankruptcy law was submitted by the government to the House prior to the Manulife bankruptcy ruling.