The Complexities of Bankruptcy Law in Indonesia: A Case Analysis

Bankruptcy and the Suspension of Debt Payment Obligation Law is a crucial element of any legal system as it deals with the financial stability of individuals and entities. In most countries following the common law system, bankruptcy is typically initiated when a debtor is insolvent. However, Indonesia has adopted a unique approach to the law, incorporating the concept of the presumption of insolvency. In this newsletter, we will explore Indonesia's Bankruptcy and the Suspension of Debt Payment Obligation Law as regulated in Law No. 37 Year 2004 (“Law 37/2004”) and discuss a recent case involving PT Pembangunan Perumahan (Persero) Tbk ("PTPP") that raises questions about the relative competence of Commercial Courts.

In Indonesia, the Bankruptcy and the Suspension of Debt Payment Obligation Law, as regulated in Law 37/2004, departs from the conventional insolvency-based approach. Instead, it adheres to the principle of the presumption of insolvency. This principle is based on two legal facts:

1. Debtors who have two or more creditors.
2. Debtors who do not pay off at least one debt that is due and collectible.

When both of these conditions are met subjectively and cumulatively, the debtor can be declared bankrupt by the Commercial Judge. This unique approach reflects the Indonesian legal system's emphasis on debt repayment and creditor protection.?

To avoid bankruptcy, debtors in Indonesia have the option to apply for Suspension of Debt Payment Obligations (PKPU). PKPU serves as a mechanism for debtors and creditors to negotiate and reach an agreement to settle their debts before the last resort of bankruptcy is imposed by the court. One common form of a composition plan within PKPU is debt restructuring, which may involve paying all or part of the debt to creditors.

Recent developments in the Indonesian Bankruptcy and Suspension of Debt Payment Obligation Law have drawn public attention due to a Commercial Court Decision issued by the Makassar Commercial Court Judges Decision number 9/Pdt.Sus-PKPU/2023/PN.Niaga.Mks involves the state-owned company PT Pembangunan Perumahan (Persero) Tbk., which is legally domiciled in East Jakarta. According to Presidential Decree 97/1999, there are only five Commercial Courts in Indonesia, each with a specific jurisdiction covering certain provinces. Further, the authority of such Commercial Court is determined by the debtor's legal domicile, as clearly stated in Article 3 paragraph (1) of Law 37/2004.

Additionally, Supreme Court Chairman's Decree No. 109/KMA/SK/IV/2020 outlines the criteria for submitting PKPU applications to specific Commercial Courts. These criteria include: (i) the legal domicile of the debtor, (ii) the last legal domicile of the debtor if they have left Indonesia, (iii) the domicile of the firm if the debtor is a shareholder, (iv) the domicile or head office of the debtor if they operate a business in Indonesia but are not domiciled there, and (v) the legal domicile as per the Articles of Association for legal entities.

However, the legal facts seem to indicate that the debtor's legal domicile, as stated in the Articles of Association, is in East Jakarta, which falls under the jurisdiction of the Commercial Court at the Central Jakarta District Court. Therefore, Makassar Commercial Court Judges Decision has raised concerns because it appears to challenge the established boundaries of the Commercial Court's jurisdiction.?

The unique presumption of insolvency principle and the jurisdictional boundaries of Commercial Courts create room for interpretation and potential legal disputes. This case underscores the need for careful consideration of legal arguments and the importance of adherence to established legal principles within the Indonesian bankruptcy framework.