New bankruptcy law will help restore confidence: Experts
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)