Incongruous judgment

Incongruous judgment

The unbelievably absurd judgment meted out by the Commercial
Court last week in the bankruptcy petition against PT Asuransi
Jiwa Manulife Indonesia (AJMI) only served to strengthen the
public's perception of how hopelessly corrupt and incompetent is
the country's court system.

The court should have outrightly thrown out the bankruptcy
petition as legally defect because the lawsuit was entirely
groundless. How could the receiver of a defunct company, Dharmala
Sakti Sejahtera (DSS), which had been declared bankrupt by the
same court in 2000, have sued AJMI for bankruptcy for nonpayment
of a dividend that is the proprietary right of the shareholders?

AJMI says its shareholders meeting in February 2000, decided
to retain its 1999 profit, which is not unusual for a rapidly
growing company. Even though DSS was a 40 percent shareholder
until it was declared bankrupt by the court over default on its
debts in June 2000, DSS was legally bound to abide by the
shareholders' decision.

As bizarre as it seems, it was this nonexistent dividend that
was used by the receiver as the legal basis for its bankruptcy
petition against AJMI. And as ludicrous and illogical it might
be, the Commercial Court, which is in charge of enforcing the
country's bankruptcy law, decided in favor of the plaintiff,
declaring the country's fourth largest insurance firm with Rp 1.8
trillion (USS$206 million) in total assets and Rp 216 billion in
solvency level bankrupt.

We don't believe the court verdict was caused by technical
incompetence on the part of the judges to interpret the laws.
Even though the Commercial Court is a relatively new institution,
set up only in 1999, its resources have been strengthened with ad
hoc judges who are expert in complex business and financial
transactions.

The legal predicament faced by AJMI is only the latest,
starkest example of questionable, entirely insensible court
decisions in the country.

One day earlier, the Padang District Court in West Sumatra
decided on June 12 not to issue an injunction asked for by state-
owned PT Semen Gresik to force the directors of its 99.99
percent-owned subsidiary, PT Semen Padang, to convene an
extraordinary shareholders meeting. The court decided that
publicly traded Semen Gresik's request for the meeting was
legally flawed. The company's articles of association require the
shareholders to go to the court after their request, filed three
times, remained unheeded by the Semen Padang management.

Despite this bombed-out legal system, some Cabinet ministers
and many others among the political elite still wonder why
foreign investors have not returned to the country. These
ignoramuses have even resorted to a state of denial, shamelessly
blaming the government's reform agreement with the International
Monetary Fund for its failure to restore investor confidence in
the country.

What makes the June 13 Commercial Court's decision so mind-
bogglingly absurd is the fact that it is only the latest twist to
the Manulife saga that in 2000 and 2001 got the attention of the
international community, the IMF and almost all senior officials
of the three branches of the government, including then president
Abdurrahman Wahid.

The Canadian insurer found itself drawn into a legal quagmire
soon after it bought the 40 percent stake of its bankrupt DSS
partner in AJMI that was auctioned off by the government in
October 2000, because an unknown company overseas, Roman Gold
Assets, claimed to have acquired the DSS shares through a shell
corporation in Hong Kong, Harvest Hero International, which in
turn claimed to have acquired the rights to the shares from DSS.

Even though all legal evidence proved that the claimed share
acquisition was false and did not meet any legal requirements,
the usually inert National Police acted immediately to vigorously
follow up the complaint, interrogate Manulife executives and even
detained one of its vice presidents for three weeks.

Now that AJMI is in legal limbo, contingency measures are
needed to contain the damage done to the company. The Supreme
Court would be wise to give top priority to the appeal to be
filed by AJMI and to decide on it sooner than the 30-day time
limit, in view of the company's function as a trust institution
with fiduciary responsibility for around 400,000 policyholders,
4,000 employees and numerous other stakeholders.

The legal sham also makes it more imperative than ever to
speed up judicial reform, which is one of the core reform
programs the government has agreed to with the IMF. True, the
judicial branch of the government should be politically
independent. But independency without accountability is anarchy.

How can the government bring the 35 recalcitrant, largest bad
debtors which owe the taxpayers more than Rp 140 trillion (US$16
billion) to justice if most judges are either hopelessly
incompetent or corrupt when it comes to dealing with parties with
money power or cases involving huge sums of money?

Moreover, it is futile to talk about economic reform, let
alone economic recovery, without an acceptably minimum degree of
legal certainty because it is the framework of laws, rules and
ethics and their enforcement that constitute the most crucial
determinant of a country's economic condition and its degree of
social cohesion and decency.