New bankruptcy law will help restore confidence: Experts

JAKARTA (JP): The new bankruptcy law scheduled to come into effect next month will be a significant step toward restoring investor confidence in Indonesia, a business consultant has said.

Cliff Sanderson, a principal in the corporate recovery and insolvency practice of Ernst & Young Australia, said yesterday that the new law might restore lenders and investors' trust in the country's legal system.

"For external lenders or investors, it is very important that if their investments or loans start going wrong they have an exit strategy," Sanderson, who is now based in Ernst & Young Jakarta, told reporters.

"They must be able to rely on the judiciary and the legal system to help them recover their investments or loans," he said.

Sanderson said the new law made it easier for creditors to pursue recovery of their debts and force a debtor into bankruptcy if necessary.

Sanderson said there had not been any effective mechanism to help creditors recover their outstanding dues in the past.

It was likely that the international community would watch the first few bankruptcy cases very closely, he said.

President Soeharto signed a new law on April 22, bypassing the usual procedure of debate by the House of Representatives.

To make up for this oversight the House is expected to debate and pass the new law today. It will then come into force on August 24.

The previous bankruptcy law was an antiquated relic of the Dutch colonial administration dating to 1905. It proved to be an inadequate framework in which to settle the problem of mounting unpaid debts because its complexity discouraged creditors from taking legal action.

Chairman of the Ernst and Young Legal Practice in the Netherlands Bob Wessels said the new insolvency law would help heavily indebted local companies resolve their debts and continue with their operations.

Wessels said that under the new law companies were entitled to call upon a 270 day suspension of payment period, during which time they could work with receivers to develop a plan or a composition, including an offer to pay creditors in full or in part.

Creditors and the courts can then decide if the composition is acceptable," he said.

"Suspension of payment does not aim at liquidation, but focuses on giving the debtor breathing space in which to resolve temporary liquidity problems," said Wessels, who is also a special technical consultant to the International Monetary Fund (IMF).

Wessels praised the new Indonesian laws for putting more emphasis on speed, efficiency and transparency.

Under the new law, the court must render a decision within 30 days, beginning from the day the petition is registered.

If judges act speedily and all procedures work efficiently then businesses could return to normal operations in a relatively short time, he said.

Wessels predicted that half of the debtors which would file insolvency suits would be small "one-man" companies which employ less than 50 people, as happened in the Netherlands and Australia.

"The insolvency laws do not only accommodate top companies, but also help smaller ventures to get out of financial trouble," he said.

Sanderson said there was a high success rate in Australia when it introduced a new insolvency law in 1993 after six years of recession.

"About 50 percent of very sick companies which faced insolvency suits put together compositions with their receivers that were agreed by the creditors," he said.

Wessels has been assigned by the IMF to advise the Indonesian government implement the new insolvency legislation.

He has been training judges, legal administrators, receivers and staff for a special commercial court over the past four weeks. (das)