Revision to law on bankruptcy sought to fix existing flaws

Muninggar Sri Saraswati and Dadan Wijaksana, The Jakarta Post, Jakarta

Supreme Court Chief Justice Bagir Manan recommended on Wednesday a revision to Law No.4/1998 on bankruptcy, in order to fix existing flaws and keep up with the dynamic nature of business practices.

Bagir said there were two main reasons a revision was needed: the arguments to file a bankruptcy case under the existing law are too simple and the absence of clauses on the importance of taking into consideration the social impacts when a company is declared bankrupt.

"Currently, the basis required to file a bankruptcy suit are too easy, opening up the opportunity for certain parties to take advantage of this," he said at an event to mark the unveiling of the blueprint for the country's commercial court.

A revision to the bankruptcy law is also recommended in this blueprint.

Currently, a bankruptcy case can be filed if a company fails to repay mature debts to more than one creditor.

Bagir sees this as too easy, pointing out that it does not even take into consideration the size of the debts or the assets of the company.

"With only Rp 5 worth of debt, for instance, a company can be declared bankrupt, even if it has assets worth Rp 50,000, which means that the company would be in no financial danger if the payment was made," said Bagir.

Indonesia passed the bankruptcy law in 1998 to facilitate the establishment of commercial courts to settle business disputes, mostly between debtors and creditors.

In its development, however, due to a combination of flaws in the regulations and corrupt officials, the country's commercial courts have failed to win the confidence of the business world, largely because of its unpredictable and often dubious rulings.

A commercial court declared insurance company Manulife Asset Management Indonesia bankrupt two years ago, despite it being a local unit of insurance giant Canadian-based Manulife Financial Corp.

Revising the law should be seen as an effort to improve the bankruptcy regulations, Bagir said.

He also said a clause should be added to the law to consider the social impact of declaring a company bankrupt.

"For instance, a company running a public transportation system in a certain area is declared bankrupt. The judges should consider whether this will have a social impact.

"We do not have regulations on this, and it should be included in the revision. It would also, for example, give consideration to whether a company employed many workers," Bagir said.

"Currently, judges are more concerned with the legal aspects and do no pay attention to the social impact. That is why the current bankruptcy law needs to be revised."