Govt laments court's verdict on Prudential

Urip Hudiono and Rendi A. Witular, The Jakarta Post, Jakarta

The Ministry of Finance criticized the bankruptcy ruling against solvent PT Prudential Life Assurance, saying it could further harm the country's investment climate.

The Director General of Financial Institutions at the ministry Darmin Nasution said on Monday that the case should serve as a wake up call to speed up the revision of the "flawed" Bankruptcy Law.

"The (Prudential) case has created uncertainty in the country's business climate," Darmin told reporters, adding that his office, which oversees the insurance industry, would urge the House of Representatives to immediately amend the Bankruptcy Law after a number of solvent companies had become victims.

Darmin said that the ministry had proposed an amendment of the law in May last year, under which the ministry would have the final say before dissolving an insurance company --like those of the central bank when dealing with banks.

"Prudential is financially fit, and by logic it does not deserve to be dissolved... The verdict was obviously decided using legalistic technicalities and terms that don't equate with reality. The judges did not take into account the company's financial standing," he argued.

Prudential had a 255 percent Risk Based Capital (RBC) rate last year, well above the minimum requirement of 100 percent. The higher the RBC ratio, the healthier the insurance firm is.

Prudential is 94.5 percent owned by UK-based insurance company Prudential Assurance Company Ltd., with the remaining shares held by local firm PT Sasana Dwi Paramitra.

The Central Jakarta Commercial Court declared Prudential bankrupt on Friday after former Prudential agent, Malaysian Lee Boo Siong, filed a bankruptcy suit with the court against the company on April 7, accusing the company of failure to pay him bonuses amounting to some Rp 366 billion (US$44 million).

Prudential has appealed to the Supreme Court over the ruling.

The company on Monday temporarily shut down its offices throughout Indonesia following the court ruling.

Prudential spokesperson Nini Sumohandoyo said that the company for the time being could not pay any maturing claims until a final and binding ruling had been issued by the Supreme Court.

Nini, however, said that the company was fully committed to protecting the interests of policyholders.

Siong's local lawyer Lucas said that until a final verdict is issued by the Supreme Court, Prudential will be run by a receiver (holding company), who will freeze the company's assets temporarily.

"If the Supreme Court upholds the bankruptcy ruling, Prudential will be liquidated and its assets distributed to Prudential's creditors, who include policyholders," said Lucas.

Critics have said that the logic of Bankruptcy Law No. 4/1998 was weak because a company that does not repay even one of its debts could be declared bankrupt by the Commercial Court regardless of whether it was solvent or not.

The concept of the existing Bankruptcy Law was inspired by Dutch law expert Jerry Hoffe together with the International Monetary Fund in 1998 with the purpose of forcing recalcitrant local debtors to repay their debts to foreign creditors.

In 2002, the commercial court declared solvent insurance firm PT Asuransi Jiwa Manulife Indonesia, a unit of Canada's Manulife Financial Corp., bankrupt in a legal battle against its former local shareholder. The Supreme Court, however, overturned the verdict following protest from various parties including the Canadian government. -- Photo on Page 13