Legal Certainty in Bankruptcy & Debt Suspension Proceedings: Analysis of Circular Letter Number 3 of 2023

Circular Letter Number 3 of 2023, issued by the Supreme Court Chamber (“Circular No. 3/2023”), sheds light on crucial aspects related to the formulation of results from the 2023 Plenary Meeting. Among the key discussions, the Circular addresses the formulation within the Civil Chamber, particularly focusing on Part 2 of the Special Civil Code, letter a, concerning Bankruptcy and Suspension of Debt Payment Obligations. This essay examines the provisions outlined in the Circular, particularly those related to Foreclosed Collateral, also known as AYDA, and its implications on the legal landscape.

The regulations governing the acquisition of AYDA are underscored in Article 12A, paragraph (1) of Law 4/2023, which states that Commercial Banks have the authority to acquire a portion or the entirety of the collateral, whether through auction or by means outside of auction, contingent upon the collateral owner's voluntary surrender or authorization to sell outside of auction in situations where the debtor customer fails to fulfill obligations to the bank. The acquired collateral must be promptly disbursed under the stipulated conditions.

In addition, Article 1 number 15 of the Financial Services Authority Regulation Number 40/POJK.03/2019 defines AYDA as an asset acquired by the bank through various means, including purchase through auction or voluntary surrender by the collateral owner. The acquisition of AYDA stems from the debtor's failure to fulfill obligations to the bank. The legal framework provided by this article establishes a foundation for understanding the treatment of AYDA within the context of debt repayment.

The Circular No. 3/2023 provisions on AYDA present a structured approach to handling foreclosed collateral in the event of bankruptcy or debt suspension. Notably:

a) AYDA is not construed as a sale and purchase of collateral objects; instead, it is regarded as a voluntary handover of collateral to the bank for subsequent debt repayment.

b) The bank retains the status of a separatist creditor as long as AYDA remains unsold. However, once the AYDA object is sold, and there are outstanding receivables, the bank assumes the status of a concurrent creditor.

c) The Supervisory Judge relies on the Financial Information Services System (SLIK) to determine the debtor's status.

This distinction emphasizes the nature of AYDA as a measure to facilitate the recovery of debts rather than a direct sale. This provision also clarifies the bank's evolving roles and statuses throughout the debt recovery process.

The Circular No.3/2023 formulation addresses the polemic surrounding the valuation of receivables in bankruptcy or debt suspension processes. Disagreements between debtors and creditors regarding bill values often lead to delays in the proceedings, impacting all creditors involved. The provisions in Circular No. 3/2023 provide legal certainty by establishing a framework that guides the verification of bills in bankruptcy or debt suspension process under Law No. 37 Year 2004 concerning Bankruptcy and Postponement of Debt Payment Obligation related to a non-performing loan which the Bank held Foreclosed collateral (AYDA) from its Debtors. This, in turn, assures the parties, which originates from certainty in the assessment of claims, that the Debtors will restructure in a debt suspension process or Bank’s estimation to the maximum recovery value from a bankruptcy process, benefiting all stakeholders.

The formulation of Circular No.3/2023 to the implementation of AYDA is a crucial guide in navigating the complexities of bankruptcy and debt suspension proceedings. The provisions related to AYDA offer a nuanced understanding of foreclosed collateral, emphasizing its role as a tool for debt recovery. By addressing key issues such as the status of the bank and the use of SLIK for debtor status determination, the Circular promotes legal certainty and efficiency in resolving disputes. Ultimately, this legal framework contributes to an equitable and impartial bankruptcy or debt suspension process for the creditors and debtor(s).

Author: Ramos Sidjabat | [email protected]

If you have any questions on this matter, please contact: Martin Patrick Nagel | +62817150384 | [email protected]