Govt, House rush to endorse new bankruptcy bill

Rendi A. Witular, The Jakarta Post, Jakarta

The House of Representatives is expected to endorse the long- awaited new bankruptcy bill at a plenary session on Wednesday, despite problematic articles that could make it overly easy for creditors to bankrupt solvent companies.

The House's finance commission and the Ministry of Justice and Human Rights completed the deliberation of the bill on Tuesday. The deliberations themselves were surprisingly completed in only four sessions, giving the impression of excessive haste and a disregard for the suggestions put forward by experts to help avoid a repeat of the various debacles that have already occurred in the field of insolvency law.

One the flaws in the bill amending Law No. 4/1998 on bankruptcy is the absence of provisions stipulating the minimum amount of debt that is required before a creditor may file for bankruptcy, thus allowing bankruptcy proceedings to be taken by any creditor against a solvent company.

Abdul Gani, the director general of legislation and regulations at the Ministry of Justice and Human Rights, said that such an express stipulation was unnecessary as it could serve to prevent creditors recovering the monies owed to them.

"The government and the House agreed to frame the bill in such a way as to protect creditors from companies acting in bad faith. Any restrictions on the filing of bankruptcy proceedings would only lead to more companies acting irresponsibly," said Abdul, who was in charge of the team that drafted the new bankruptcy bill.

But, a number of legal experts and businessmen have said that restrictions were needed in order to avoid solvent companies being declared bankrupt without good cause, as happened in the case of the British-owned PT Prudential Life Insurance in March, and Canadian-owned PT Asuransi Jiwa Manulife Indonesia in 2002.

As in other countries, there should at least be a mechanism for defining whether the company was solvent or otherwise before the court could entertain a bankruptcy petition.

Under the prevailing law, a bankruptcy petition may be filed if a company fails to repay maturing debts to more than one creditor, without regard to the size of the debts or the assets of the company.

With only Rp 5 (less than 1 U.S. cent) worth of unsettled debt, for instance, a company could be declared bankrupt, even if it had assets worth Rp 1 trillion, which would mean that the company would be in no danger financially if the payment was made.

"I think that with the new bill, companies will be more aware of the importance of small claims. Under the proposed bill, any party can still file to recover small claims using the bankruptcy law," said Abdul.

The House and the government resumed deliberating the bill on Aug. 26, after it had been stalled since 2001 due to the opposition of vested interests.

Paskah Suzetta, chairman of the House special committee charged with discussing the bill, said the House had to quickly endorse it in order to help ensure legal certainty for the business community and foreign investors.

"The business community has often complained about loopholes in the bill. Now we have managed to address the problems and ensure that their businesses in Indonesia will not be disrupted by such problems," said Paskah.

The new bill stipulates that the approval of the Minister of Finance is required to declare an insurance firm bankrupt. This provision was drafted following the controversial Manulife and Prudential cases, where the court controversially declared the two solvent insurance firms bankrupt, although the Supreme Court later overturned the decisions of the lower courts on appeal.

There are fears that the failure to frame and enact a watertight bankruptcy law could further damage legal certainty for the business community and dent the flow of foreign investment into the country.

During the final deliberations on the bill on Tuesday, both the government and the House agreed to protect state-owned enterprises that are fully engaged in providing public services from being frivolously or vexatiously declared bankrupt. As in the case of insurers, the bill stipulates that the approval of the Ministry of Finance will also be needed in order to declare a state-owned enterprise insolvent.

Key points of the new bill:

1. Approval of the Ministry of Finance is needed to declare insurance and reinsurance firms, and pension funds bankrupt.

2. Approval of the central bank is needed in order to declare a bank bankrupt.

3. Approval of the Capital Market Supervisory Agency (Bapepam) is required in a bankruptcy ruling in the case of securities, stock market, clearing and custodian firms.

4. A listed company should complete any transactions involving its shares, or a buy-back process, after the court declares it bankrupt.

5. A debt is an obligation which may and can be stated in the form of money, in Indonesian or foreign currency, which was either incurred directly or otherwise, and which arose as the result of an agreement or by operation of law. The obligation must be fulfilled by the debtor, and a failure to do so will give rise to a right on the part of the creditor to redeem the debt from the debtor's assets.

6. The decision in a bankruptcy case should be delivered within not more than 60 days from the date on which the petition was lodged.

7. Dissenting opinions must be made public.

8. Before the commercial court hands down its decision, a creditor, the Ministry of Finance, Bank Indonesia, the Capital Market Supervisory Agency or the public prosecution service may file a petition with the court to freeze the assets of the debtor, and appoint an interim receiver to manage those assets.