New bank liquidation rule puts depositors second

JAKARTA (JP): Depositors will only be paid after preferred creditors whenever a bank is liquidated, Bank Indonesia said yesterday.

Heru Soepraptomo, a director at the central bank, told a seminar that the new ruling on bank liquidation did not nullify any existing rulings.

"Preferred creditors would still have preferential rights over depositors whenever a bank is liquidated," Heru said.

Preferred creditors are those which hold liens on a bank's fixed assets.

Lawyer Rasjim Wiraatmadja told the seminar that assets already used as collateral could not be liquidated without the consent of the lien holders -- the preferred creditors.

Lien holders' rights are governed by the 1996 mortgage law, not by the new regulation on bank liquidation. And law always overrides government regulations.

"Thus, it is not true that depositors have a better position than preferred creditors whenever a bank is liquidated," Rasjim said.

Heru agreed that preferred creditors had a better position than depositors.

Whenever a bank is liquidated, depositors will only be paid after the appointed liquidation team has paid all salaries owed, court fees, auction fees, taxes, administrative costs and liabilities to preferred creditors.

Nevertheless, Heru stressed, the new ruling on bank liquidation put depositors in a better position than before.

He said the new ruling provided more legal certainty to all parties concerned -- depositors, creditors, directors, commissioners and shareholders -- whenever a bank was liquidated.

Economist Pande Radja Silalahi disagreed, saying that the new ruling on bank liquidation still contained some uncertainty.

He said that appointed liquidators still had too much freedom in settling a bank's liabilities.

Whenever the assets of an insolvent bank fail to cover its liabilities, the liquidators may pay each depositor an equal sum or a proportional amount according to the size of their deposits.

"These two ways to pay out depositors create uncertainty ... For the sake of legal certainty, it would be better to allow one way rather than two," Silalahi said.

He also questioned how the central bank would enforce the ruling on the responsibility of directors and commissioners in the case of bank failure because of their negligence.

The ruling stipulates that directors or commissioners found responsible for bank failure through negligence have an unlimited liability whenever a bank is liquidated. Liquidators may seize their private assets if the bank's assets are insufficient to settle its liabilities.

Heru said the central bank had anticipated that commissioners or directors might transfer the ownership of their assets to somebody else long before their bank was liquidated.

The government is preparing a ruling to empower the central bank to investigate bank fraud. The central bank is expected to be able to trace such hasty transfers of ownership.

"We believe that such hasty transfers of ownership can still be traced; moreover, directors or commissioners may not quit their positions until liquidation has been completed," Heru said.

He added that the central bank would be allowed to investigate only the technical side of fraud, while the criminal side would be handled by the police or the Attorney General's office.

According to 1992 banking law, if directors, commissioners or shareholders' actions cause their bank to become insolvent and lose its operating license, they could face 6 years imprisonment and a fine of Rp 6 billion (US$2.5 million). (rid)