Property creditors urged to settle out of court

JAKARTA (JP): The Indonesian Real Estate Association (REI) appealed to property creditors, contractors and buyers on Wednesday to reach out-of-court settlements to recover their financial claims against the country's ailing property companies.

Association chairman Edwin Kawilarang said that it would be better if both the debtors and creditors renegotiated debt payments instead of taking the cases to the bankruptcy court.

"Taking the case to the bankruptcy court would not necessarily guarantee that creditors would get their money back immediately," he told a news conference.

He said that even if cases were taken to court, creditors might receive nothing from borrowers because the value of their assets had already plunged to less than their debts as a consequence of the rupiah's sharp drop against the U.S. dollar.

Most of the debts owed by the country's property developers are denominated in U.S.dollars and were obtained before the crisis hit the country in July 1997. At present the rupiah is fluctuating between Rp 10,000 and Rp 9,000 against the greenback compared to the pre-crisis level of Rp 2,500.

According to Edwin, the bankruptcy law introduced in August stipulates that debtors should first pay their obligations to banks, then taxes, then a court hearing fee, and finally a commission of between 2 percent and 3 percent to administrators and curators appointed to take care their assets.

"After that a company can pay their concurrent creditors, such as contractors, suppliers and consumers but it only will happen if the company still has something left," he said.

Modernland case

Edwin also said that REI regretted the commercial court's recent decision to approve the bankruptcy claim against property firm Modernland Realty because both the creditors and debtors were still seeking an out-of-court settlement.

"This decision will only spur other creditors to file more petitions to the court to seek more bankruptcies without considering seeking an out-of-court settlement," he said.

Declaring a company bankrupt would have severe negative impacts, such as the suspension of trading in the company's shares on the stock exchange (if it is a public company), and massive layoffs, he said.

The Jakarta Commercial Court declared Modernland bankrupt on Monday for failing to pay a Rp 94.13 million (US$10,460) debt it owed to Hussein and Johan Subekti.

The two businessmen filed the claim with the commercial court late last month after Modernland failed to return their down payment to purchase apartments it failed to develop.

Edwin said that although the country's bankruptcy law did not stipulate the minimum amount of debt which could be taken before the commercial court, Modernland's debt obligation to the plaintiffs was relatively small.

The new law is part of Indonesia's commitment to the International Monetary Fund (IMF) to introduce a reform package in exchange for a US$46 billion rescue package for the country's ailing economy.

It replaced the antiquated bankruptcy code, based on the 1905 Dutch insolvency ordinance which has been deemed opaque and inefficient to deal with contemporary problems.

Under the new law, a final ruling for a credible creditor should be decided in no more than 300 days after the petition is filed. This includes a 30-day period of appeal.

Before the court makes its decision, debtors and creditors are given 270 days to renegotiate their debt payment but if it fails, the court will resume the bankruptcy proceedings.

Edwin said that the law would only benefit creditors and should not be enacted while the economic situation remained uncertain.

He said the government must take into consideration that most debtors could no longer repay their debts while the rupiah remained at its current levels.

The property industry has been hit harder than most other by the country's worst ever crisis because of the rupiah's sharp depreciation and the punitive high interest rates resulting from the government's tight money policy to cope with high inflationary pressures.

Edwin said that the property sector's debt, including foreign debts, totaled Rp 70 trillion as of May this year.

He added that the association's active members numbered 1,200 companies or only 50 percent of the total in September last year. (gis)