Fri, 24 Nov 2000

Harassment of Manulife

The legal jam in which Canadian Manulife Financial Corp. has found itself after legally buying the assets of bankrupt Dharmala Sakti Sejahtera through a government-authorized auction in Jakarta last month is raising great doubts over the government's asset disposal program, one of the major sources of state revenue.

The speed at which the police moved to arrest a senior executive of PT Asuransi Jiwa Manulife Indonesia and freeze US$20 million of the company's funds merely on the basis of a complaint from Roman Gold Assets Ltd., an unknown company based in the British Virgin Islands tax-haven area, is raising big questions about the integrity of the law enforcement system, especially the police.

Yet no less devastating is the subsequent erosion of confidence in the bankruptcy law and its enforcement institution, the Commercial Court, which is supposed to play a crucial role in forcing recalcitrant debtors to negotiate in good faith.

While we should allow legal experts to decide on the legal row, we cannot help but feel dumbfounded by the manner in which the police have pursued the case.

Thus far, the first fact we know is that Manulife bought the 40 percent stake in PT Asuransi Jiwa Manulife (that was owned by Dharmala) through a government-mandated auction held in October after Dharmala was declared bankrupt by the Commercial Court in June. Manulife, as the sole bidder, won the stake at Rp 170 billion ($18 million). The deal was concluded in good faith and the transaction increased the Canadian company's shareholding in PT Asuransi Jiwa Manulife to 91 percent, with the remaining 9 percent held by the International Finance Corporation, the private-sector arm of the World Bank.

The second fact is that Roman Gold, which the police previously knew nothing about, suddenly came up with a complaint. It disputed the fact that it had bought the Dharmala stake from Highmead Ltd., a company based in Western Samoa that is also completely unknown to the police, through a Rp 350 billion deal in Singapore on Oct. 19 or one week before the auction in Jakarta. Roman Gold's director Haryono Winarta claimed that prior to the purchase, he examined documents provided by Highmead Ltd., which showed that Highmead had the right to sell the Dharmala shares after the latter company was declared bankrupt. The timing of this deal, one week before the official auction in Jakarta in late October, should nonetheless raise eyebrows because the publicly listed Dharmala was declared bankrupt in early June.

Surprisingly though, the police acted quickly -- unusually fast indeed for such a matter, given the police's inertia in handling more high-profile cases -- without first investigating the legitimacy of the complaint.

Instead of immediately arresting and detaining for three weeks a senior executive of Manulife and ordering the freezing of $20 million of Manulife's funds, the police should have first investigated how Roman Gold could have purchased the Dharmala assets. If Roman Gold is truly a viable investment company with an international network and concluded the deal in good faith, it should have known that Dharmala had been declared bankrupt in Jakarta in June.

Instead of immediately "harassing" PT Asuransi Jiwa Manulife, the Jakarta-based subsidiary of the giant Manufacturers Life Insurance Co., the police should have first investigated how and when the Western Samoan company, an entity completely unknown to them, acquired the Dharmala shares. The police should have asked the Jakarta Stock Exchange management and the Capital Market Supervisory Agency about when Dharmala sold its stake or granted power of attorney over the stake to the Western Samoan company.

It should be noted that the bankruptcy suit against Dharmala was filed in February and, based on Indonesia's Bankruptcy Law, a conservatory attachment should be imposed on the assets of the debtor, in this case Dharmala, during the bankruptcy proceeding.

Needless to say, the resolution of the legal dispute over the Dharmala shares in PT Asuransi Jiwa Manulife will determine public confidence in Indonesia's legal system, notably the bankruptcy proceedings, which are so vital in resolving the huge corporate debt overhang.

After the debacle over the Standard Chartered Bank's deal to acquire 20 percent of Bank Bali shares last year, the Manulife case will further determine investor confidence in the legality and real value of the tens of billions of dollars in assets which have yet to be disposed by the Indonesian Bank Restructuring Agency to fuel a faster and stronger recovery of the economy.