Supreme Court's ruling on Dharmala upsets experts

Supreme Court's ruling on Dharmala upsets experts

JAKARTA (JP): An insolvency expert and financial analysts
deplored on Tuesday the Indonesian Supreme Court's latest verdict
which rejected a bankruptcy appeal by the International Finance
Corporation and other creditors against PT Dharmala Agrifood.

They said the appeal ruling did not bode well for impatient
offshore creditors struggling to recover debts from Indonesia's
troubled firms.

Jerry Hoff, an insolvency expert of Loeff Claeys Verbeke law
firm, said most foreign creditors were very disappointed with the
ruling which could have an adverse impact on the lending and
borrowing climate in the future.

"A lot of my clients are very disappointed with the bankruptcy
court ruling," he told The Jakarta Post on Tuesday.

"I fear that it will have a very negative impact on the
borrowing capacity of Indonesian firms trying to secure credits
in the future," he said.

The Supreme Court on Monday turned down an appeal by IFC --
the private investment arm of the World Bank -- together with ING
Indonesia Bank and publicly listed Bank Niaga to declare food
producer Dharmala Agrifood bankrupt.

The three banks filed an appeal petition with the Supreme
Court after their initial bankruptcy claim against the listed
Indonesian agricultural food producer was thrown out by the
Jakarta Commercial Court early December.

The commercial court ruled that the loans of IFC and ING
Indonesia Bank to Dharmala Agrifood, totaling US$51.7 million,
were not "due and payable," a prerequisite for a bankruptcy
claim.

It further ruled that the claim of Bank Niaga over its loans
worth Rp 16.04 billion (US$2.1 million) to Dharmala Agrifood was
"null and void" because the credit agreement was granted to cover
foreign exchange losses and such an arrangement breached Bank
Indonesia's regulations on derivative transactions.

Hoff, one of the insolvency trainers for Indonesian bankruptcy
judges, noted that as seen from their rulings, the judges had not
acquired full knowledge of the bankruptcy law.

"What's more to the point is that I have trained all the
Indonesian judges but their rulings have disappointed me," he
said.

He said the Indonesian government should quickly take drastic
and comprehensive steps to improve the bankruptcy court as
failure to do so would pose more difficulties for the country's
economy.

"I am curious to know what the Indonesian government is
thinking of this negative development," he said.

David Chang of Trimegah Securindolestari and Eddy S. Widjojo
of Mashill Jaya Securities agreed and said the Supreme Court's
ruling on Dharmala Agrifood could serve as a bad precedent in the
eyes of offshore creditors.

They said that the bankruptcy court, which was originally
designed to help offshore creditors settle their credits with
debt-ridden domestic firms, has not worked properly as intended
since its inception in August last year.

"The decision seems to be against foreign creditors. But it is
the Indonesian borrowers that will have more difficulties in
securing credits in the future," Chang told the Post.

"Or even if they want to secure credits, there will be more
difficulties and costs will be very high."

Eddy added that the ruling would further weaken foreign
investor confidence in Indonesia's legal process. And it could
also hamper new lending for the country's corporations.

Nevertheless, lawyers and analysts said they were not
surprised at the Supreme Court's ruling largely because the
commercial court had handed down several decisions that were
viewed as controversial.

As of the end of January, 38 bankruptcy cases had been filed,
and 12 companies had been declared bankrupt, mostly small
companies. Bigger companies, however, appeared to get off the
hook easier.

Notable among the controversial verdicts was one involving the
bankruptcy petition filed by an American Express Bank-led
consortium against PT Ometraco Corporation, where the court threw
out the case on the grounds that the banks filed two separate
bankruptcy petitions instead of one lawsuit to cover both the
Ometraco Corp and its unit PT Ometraco Multi Artha, the group's
finance subsidiary. (aly)