Government to revise draft on bankruptcy law

The Jakarta Post, Jakarta

In an apparent bid to help companies with financial difficulties to undergo business restructuring, the government plans to revise the draft bankruptcy law, which is now being deliberated at the House of Representatives, an official said.

Director General of Laws and Regulations at the Ministry of Justice and Human Rights Abdul Gani Abdullah told The Jakarta Post that the ministry would ask the House to include additional articles on corporate restructuring in the draft.

"We will submit a revised version of the draft to the House by the end of this year to include issues on corporate restructuring, which will contain a debt settlement scheme and other items," said Gani.

Gani said that the government was now drafting a separate law on corporate restructuring and planned to complement it with the bankruptcy bill, but after further consideration, submitting a separate law would not be possible.

He explained that the there were several subjects in the corporate restructuring draft law that overlapped and contradicted the bankruptcy bill.

The bankruptcy law is supposed to serve more or less the same purpose as the U.S.'s Chapter 7 and the corporate restructuring as Chapter 11.

Chapter 7 is that part of U.S. Bankruptcy Code that specifically deals with bankruptcy, while Chapter 11 deals with the reorganization of a company facing financial difficulties.

Gani explained that the government needed to include the subject of corporate restructuring into the bankruptcy bill because it would protect potential companies faced with financial difficulties from being immediately shut down.

"The decision to allow a bankruptcy petition will be the last resort as bankruptcy imposes huge costs to the country, such as unemployment and the loss of taxes to the state," he said.

He also said that under the bankruptcy bill, a company experiencing financial difficulty could ask for bankruptcy protection from the commercial court. However, only companies that still had prospects of survival could be granted protection by the court.

The court will then order the company to undergo a restructuring program.

Under the bill, the restructuring plan includes, for example, debt rescheduling, a grace period, moratorium, reconditioning, debt cut and debt to equity conversion.

Other attempts also include initial public offerings, consolidation, merger and acquisition of shares.

The time length to implement the restructuring plan will be based on the agreement made between the creditor and debtor.

During the restructuring period, other parties cannot file another restructuring or bankruptcy petition with the company.

If the restructuring program fails, the court can directly declare the company bankrupt without any possibility for the company to file an appeal.

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Contentious points of draft on bankruptcy law

1. A creditor is eligible to file a restructuring program or a bankruptcy petition against an indebted company if the creditor has a minimum nominal debt which is more than 50 percent of the company's total debts.

2. Bankruptcy petition can not be pursued by the commercial court if both creditor and debtor have not explored a restructuring option.

3. Restructuring initiative can be filed with the commercial court by either the management of the company, the creditors and the shareholders who represent at least 10 percent of the company's stake. Creditors can file the initiative without having to seek for approval from shareholders.

4. Restructuring plans between creditors and debtors should be agreed upon within 270 days and can be extended for another 90 days. If there is no agreement made, creditors can directly ask the commercial court to declare the company bankrupt.

5. Dissenting opinions between judges in every verdict must be read in the court and published publicly.

6. A standstill policy is imposed during the restructuring process, meaning that the company could be exempted from having to pay its debt principal and interest charges. The company cannot remove its assets.

7. Restructuring or bankruptcy petition for a bank should be approved by the central bank; self regulating companies such as the stock exchange, clearing companies and custodial companies should be from the Capital Market Supervisory Agency (Bapepam); and insurance company from the Ministry of Finance.