Govt mulls omission of restructuring clause

Rendi A. Witular, Jakarta

Government officials and legislators now deliberating a revision to the Bankruptcy Law are likely to drop proposed articles that would allow companies with financial difficulties to undergo restructuring first, instead of facing immediate bankruptcy.

Minister of Justice and Human Rights Yusril Ihza Mahendra told The Jakarta Post recently the amendment would focus more on the administration of the commercial court, such as on the conditions to file for bankruptcy.

"The ministry initially proposed articles on corporate restructuring to be included in the revision. But several ministries rejected the proposal because of certain problems. The Cabinet has yet to reach an agreement," said Yusril, refusing to elaborate further.

Rumor has it that the proposed articles were rejected because of pressure from several foreign donors who feared that, as the articles required debtors to undergo restructuring before they could be declared bankrupt, creditors would find it difficult to reclaim their money.

Yusril dismissed the rumors, saying "the current government has never been dictated by foreigners, and there is no pressure from donors regarding the revision of the law".

Last year, the government asked the House of Representatives to include additional articles on corporate restructuring and debt settlement schemes in the draft law.

The articles were expected to serve a similar purpose as Chapter 11 of the U.S. bankruptcy law on restructuring a company facing financial difficulties.

At the time, the government said corporate restructuring needed to be included in the bankruptcy law to protect companies from immediate closure.

Filing for bankruptcy is expected to be a last resort, as such a move entails in huge costs for the country, like unemployment and loss of tax revenue.

The articles on corporate restructuring proposes that a company experiencing financial difficulties could request protection against bankruptcy from the commercial court, on the condition that only those companies with a likelihood of survival would be granted court protection.

The court would instruct the company to implement a restructuring program upon a time frame determined by agreement between creditor and debtor.

Meanwhile, the company would be protected from bankruptcy petitions or suits for the duration of the restructuring program.

If the program failed, the court could declare the company bankrupt without any possibility of appeal.

The deliberation of amendments to the law, which began in May, followed controversial bankruptcy rulings against several foreign companies, such as British PT Prudential Life Insurance in March and Canadian Asuransi Jiwa Manulife Indonesia in 2002.

Despite sound finances, the two firms were declared bankrupt by the commercial court, although the rulings were overturned by the Supreme Court on appeal.

The cases further damaged the country's insurance sector and deterred new investment.