Lawyer says bankruptcy law must be revised

The Jakarta Post, Jakarta

Indonesia's Bankruptcy Law No. 4/1998 must be revised because it does not provide certainty for businesses and investors, according to a lawyer specializing in bankruptcy cases.

Hotman Paris Hutapea said that the logic of the law was weak because a company that failed to repay one of its debts could be declared bankrupt by the judges even if it had assets much greater than its liabilities.

"The government and lawmakers must immediately revise this law because the impact on the business community is severe," he told The Jakarta Post on Tuesday.

The comments came after the Commercial Court last week declared insurance firm PT Asuransi Jiwa Manulife Indonesia (AJMI) bankrupt following a bankruptcy petition filed by the receiver of the now defunct PT Dharmala Sakti Sejahtera over unpaid dividends in 1999. AJMI has said that no dividends were declared during the period. The finance ministry said that AJMI was a solvent company with total assets of Rp 3.1 trillion.

Hotman said that the concept of the existing bankruptcy law was made by Netherlands law expert Jerry Hoffe together with the International Monetary Fund.

He said that the controversial part of the law was initially aimed as a threat at recalcitrant local debtors to force them to repay their debts to foreign creditors.

"But it (the law) has now boomeranged on them (foreign firms)," he said, pointing out to the high profile Manulife bankruptcy case.

He also said that insurance firms did not have the "privileges" of banks or securities firms when dealing with the bankruptcy court.

He pointed out that according to the bankruptcy law, the Commercial Court must first seek the approval of Bank Indonesia when it wanted to declare a bank bankrupt, and the approval of the Capital Market Supervisory Agency (Bapepam) when declaring a securities firm bankrupt.

Separately, Judge Cahyono of the Commercial Court told the Post that a revised version of the bankruptcy law is now on the making, which may require the court to obtain the approval of the finance ministry before declaring an insurance firm bankrupt.

Cahyono is one of the three judges issuing the controversial bankruptcy ruling on AJMI.