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Jakarta Post

Bankruptcy law, old wine in a new bottle

Indonesia’s Bankruptcy Law stands alone as being solely focused on the interests of creditors (secured creditors, preferred creditors and unsecured creditors).

Petrus Richard Sianturi (The Jakarta Post)
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Jakarta
Thu, December 14, 2017

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Bankruptcy law, old wine in a new bottle Indonesia’s Bankruptcy Law stands alone as being solely focused on the interests of creditors (secured creditors, preferred creditors and unsecured creditors). (Shutterstock/File)

S

ince its enactment in 2004, Law No. 37 on bankruptcy and the suspension of obligation for payment of debts, also known as the 2004 Bankruptcy Law, has not functioned as a balanced and fair rule for the handling of bankruptcy cases.

Indonesia’s Bankruptcy Law focuses too much on the protection of creditors’ rights, while in other countries, bankruptcy laws have shifted to focus on the equal protection of all parties. Countries such as the Netherlands, the United Kingdom, the United States, India and Slovenia have implemented bankruptcy laws that aim to accommodate the interests and rights of “good faith” debtors.

Indonesia’s Bankruptcy Law stands alone as being solely focused on the interests of creditors (secured creditors, preferred creditors and unsecured creditors).

As the enactment of the 2004 Bankruptcy Law was intended to replace Law No. 4 of 1998, there was an expectation that the adjudication of disputes involving two or more creditors would also guarantee the debtor’s rights. However, the philosophy behind the 2004 Bankruptcy Law did not change from the previous rules.

The 2004 Bankruptcy Law is just “old wine in a new bottle,” as can be observed in the clause on bankruptcy petitions. Article 2, paragraph 1 stipulates that “A debtor having two or more creditors and failing to pay at least one debt, which has matured and become payable, shall be declared bankrupt through a court decision, either at their own petition or at the request of one or more of their creditors.”

The provision of “at least one debt, which has matured and become payable,” poses a problem because all debtors who are late in paying their debts can be directly requested to go into bankruptcy without distinguishing between “debtors who cannot pay because of certain circumstances” and “debtors who display bad faith and do not want to pay their debts.”

However, this distinction is very important in this business and investment climate. As business moves dynamically, there may be certain conditions (e.g. falling sale figures due to declining market demand or other technical issues such as the implementation of contracts) that make a debtor unable, or simply late, to pay their debt. These particular conditions do not necessarily mean a debtor does not intend to pay their debts.

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