In Indonesia, main legal framework for insolvency is governed by Law No.37 of 2004 on Bankruptcy and Suspension of Debt Payment (“Bankruptcy Law”). Please note that in this context, we use the term ‘bankruptcy’ for both individual and corporate debtors. Therefore, reference to ‘bankruptcy’ or ‘insolvency’ in this advice is interchangeable.
The Bankruptcy Law prescribes two insolvency processes, namely bankruptcy and suspension of debt payment obligations, which is commonly referred to as PKPU (Penundaan Kewajiban Pembayaran Utang).
Bankruptcy
In a bankruptcy proceeding, the debtor or creditor may file a petition by providing evidence that the debtor:
- Has at least two creditors; and
- The debtor has failed to pay at least one due and payable debt.
The Bankruptcy Law also does not recognise a grace period; meaning that once a debt is due and payable, a creditor can file for bankruptcy against the debtor. The Bankruptcy Law, however, requires the applicant to prove the two foregoing elements in a straightforward manner.
Following a bankruptcy declaration by the Commercial Court, a supervisory judge and a receiver will be appointed to manage and supervise respectively the assets of the bankrupt debtor, and such debtor, by law, no longer has the right to control and manage its assets.
Once the debtor has been declared bankrupt, the bankrupt debtor can still submit a composition plan, unless the debtor was declared bankrupt because it has failed to fulfil a composition plan that was agreed in a PKPU or failed to obtain creditors’ approval on composition plan in a PKPU. In the latter case, theoretically, the bankruptcy would directly be followed by liquidation.
PKPU
PKPU, in essence, provides a debtor with a specified period of court sanctioned relief from creditor enforcement. By imposing a moratorium on the debtor’s obligation to satisfy debt payments during the course of the court-mandated suspension period, PKPU provides a debtor with a chance to avoid bankruptcy proceeding by allowing it to prepare and submit a composition plan to restructure its outstanding debt to its creditors for their approval.
Requirements for a creditor filing a petition for PKPU are similar to the requirements for filing a petition for bankruptcy. Once granted by the Commercial Court, a PKPU can last for a maximum of 270 days, consisting of:
- A temporary PKPU: 45 days (or as may be extended by the creditors) from the date on which the decision on the temporary PKPU is made; and
- A permanent PKPU: up to 270 days from the date on which the decision on the temporary PKPU is made.
As part of its decision to commence a PKPU, the Commercial Court will appoint a supervisory judge, along with an administrator who will, jointly with the debtor, manage the debtor’s assets (implementing a debtor-in-possession approach).
Throughout the interim PKPU period, the debtor must submit a composition plan for consideration and voting by its creditors. Both secured and unsecured creditors with valid claims are eligible to participate in this voting process. For the composition plan to be approved, the debtor needs to meet the requisite voting threshold.
If the debtor is not ready to present the composition plan during the interim PKPU, it has the option to request for a permanent PKPU. The decision regarding a permanent PKPU will likewise be contingent upon creditors’ votes, adhering to the threshold as voting for a composition plan.
In order for a composition plan to be approved, it requires both:
- A simple majority of unsecured creditors present, provided that they represent at least 2/3 of the value of all accepted unsecured claims held by the concurrent creditors present at the meeting; and
- A simple majority of the secured creditors present, provided that they represent at least 2/3 of the value of all accepted secured claims held by the secured creditors present at the hearing or meeting are required.