Govt mulls omission of restructuring clause
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.