Govt laments court's verdict on Prudential

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.
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