House asked to endorse bankruptcy rules

JAKARTA (JP): The government urged the House of Representatives yesterday to endorse its new bankruptcy regulation issued in lieu of a law in April to deal with the mountain of cases caused by the economic crisis.

Minister of Justice Muladi told a plenary session of the House that the government hoped the regulation, issued to replace the antiquated bankruptcy law, could come into effect on Aug. 20.

The bankruptcy rules are part of the government's effort to resolve the problem of the huge unpaid debts that Indonesian companies owe foreign creditors.

They are needed to give greater legal certainty to the business world which in turn could restore confidence that the government is serious in its efforts to solve the crisis, Muladi said as he presented the draft regulation for the House's endorsement.

Muladi said time was of the essence and that the government could not draw up a bankruptcy bill because it would take too long to be passed.

The government felt the proper legal instrument, given the urgency of the matter, was to issue a new regulation in lieu of the bankruptcy law, he said.

Muladi said Article 22 of the 1945 Constitution allowed the government to issue a regulation in emergency situations.

An emergency was not simply when the country was physically under threat of aggression, rebellion or riot but should also be looked at in terms of the immediacy of a problem confronting the government.

The minister said the existing Bankruptcy Law, enacted 92 years ago during the Dutch colonial administration, was no longer effective to deal with current bankruptcy cases.

Few cases have been tried under the bankruptcy law, reflecting that the legislation has rarely been used or tested.

The new regulation promises simple and swift court action in dealing with bankruptcy cases.

It states that a person or institution with debts owed to two or more creditors can be declared bankrupt by a court order if he/she or it defaults on at least one of the debts.

A creditor or the government's prosecution office can petition a court for a ruling to declare the debtor bankrupt.

In the case of debtor banks, the petition must come from Bank Indonesia, the central bank, while for publicly listed companies, it must come from the Capital Market Supervisory Agency.

The regulation requires a court to rule within 30 days of the application being filed.

The government is currently preparing to establish new commercial courts to deal specially with bankruptcy cases. They will be set up initially in Jakarta's five mayoralties.

The regulation allows plaintiffs or state prosecutors, pending a court decision on bankruptcy, to apply to a court to order the confiscation of part or all of the debtor's assets.

Alternatively, a court could appoint a receiver to monitor the management of the debtor's business affairs or oversee payments and transfer of assets to creditors.

The regulation allows a court to nullify some transactions conducted by a debtor up to one year prior to the declaration of bankruptcy, if there is sufficient evidence that the debtor was aware, or should have been aware, that the transactions would damage the creditors' interests.

Creditors can request a court to nullify grants made by a debtor within the last 12 months if the debtor knew, or should have known, that such actions were harmful to the creditors.

A creditor can immediately execute claims to rights to guarantees, auctions and collateral.

The new regulation also empowers a court to mediate in a dispute between debtors and creditors.

A court can rule for deferral of loan repayments if a debtor is unable to meet its obligations, on condition that the debtor presents a proposal for a settlement.

The court must then set a date to hear the case within 45 days after it rules for deferral. (emb/aan)