The law and the judiciary
The new government regulation on bankruptcy, issued in place of a 1905 law on insolvency, affords better protection to both creditors and debtors. Its issuance, circumventing the House of Representatives, which has the constitutional right to enact and repeal laws, reflects the urgency of the matter.
Essentially, this new simple and more efficient regulation on bankruptcy can unravel part of the complex economic crisis. The question of the US$68 billion offshore debts owed by the country's conglomerates is widely acknowledged as a major stumbling block to any move toward an economic recovery. With the new government regulation, creditors can now petition a court to declare debtors bankrupt and, with the help of the court, recover their money by the confiscation or sale of debtors' assets. So far, many debtors have taken a laid back attitude, knowing that creditors would not take the legal channels to try to recover their money.
The new regulation was signed by President Soeharto on April 22, and will come into force three months thereafter. This will allow the government to make all the necessary preparations, including the establishment of commercial courts that will deal with bankruptcy cases, and, more importantly, preparing judges who will hear and rule on these cases. Then there is also the question of preparing independent and qualified receivers to help execute the courts' rulings on bankruptcy cases.
What stands out most in the new regulation is the simplicity of the condition for a court to issue a bankruptcy ruling. The regulation states that a debtor which owes to more than two creditors can be declared bankrupt by a court if he defaults on one of the creditors.
The regulation allows a court to order the confiscation of debtors' assets, pending a hearing on their bankruptcy, and to annul transactions, transfers of assets or grants by debtors carried out in the 12 months before bankruptcy is declared. This way, creditors' interests are protected from the possibility of debtors shifting their assets before being declared bankrupt.
Creditors will not necessarily have their day in court all the time. The rule protects debtors against arbitrary petition for bankruptcy from creditors. Not all debtors who default on their loans are insolvent. Some may experience temporary financial dislocations. They should be given reprieve. The regulation says a debtor can ask a court that he be allowed to defer repaying loans, provided that he furnishes a proposal for a settlement.
This new regulation, or a virtual-law, protects all sides. The new regulation promises simple and swift justice. A law, however, is only as good as the judge who applies it. Here in lies the key to the success, or failure, of the new regulation.
Unfortunately, skepticism abounds about our courts of law, and about our judges. Some of the accusations of corruption, collusion and nepotism echoed during recent student demonstrations were targeted at the judiciary as well as the executive branch. Allegations of a court "mafia" may never be proven but the fact that they have persisted for so many years can't be good for the court's image.
There is, however, every reason to be optimistic, especially from encouraging statements by the new Justice Minister Muladi. He has not only made many promises to clean up the judiciary system, but has also gotten down to carry out many of these promises to order the courts to put their house in order.
Given the intention and urgency behind the new regulation on bankruptcy, there is no reason for the House of Representatives to feel that it has been snubbed. The biggest service that the House can give to the country, in fact, is not only to support the new regulation but also to back the minister of justice in fighting corruption in our courts. Muladi will undoubtedly face strong resistance from those within the court system, and he will need the support of everyone to return the function of the courts of law as a bastion of justice.