Government to revise draft on bankruptcy law

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.

Eyebox

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.