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Beware of bad faith debtors
A moratorium on the filing of bankruptcy and PKPU petitions would damage the credit system and could be abused by debtors in bad faith.
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The Indonesian Employers Association (Apindo) has demanded a three-year moratorium on the filing of bankruptcy and PKPU petitions as a result of the pandemic. (Courtesy of/kontan.co.id)
T
he government, which is considering a moratorium on the filing of petitions under Law No. 37/2004 on bankruptcy and suspension of debt payment (PKPU), should realize that the law is designed to serve the interest of both lenders and borrowers. It cannot benefit one party at the expense of the other.
True, the pandemic-induced economic recession since 2020 has led many corporate borrowers into financial distress, and the number of bankruptcy and PKPU petitions filed at court has indeed more than doubled. The latest figure from the Central Jakarta District Court as of August exceeded 400.
But the government should be careful in addressing the demand from the Indonesian Employers Association (Apindo) for a three-year moratorium on the filing of bankruptcy and PKPU petitions because such a drastic policy would damage the credit system and could be abused by borrowers in bad faith.
A moratorium could also heighten the risk of tax arrears since corporate taxpayers, knowing that the government as a creditor cannot take extremely punitive measures against overdue tax obligations during the moratorium period, may be tempted to fall back on their tax obligations.
The law administers court-supervised insolvency and debt-restructuring procedures. Both are intertwined as debt restructuring could emerge from bankruptcy proceedings even when the primary objective is liquidation, while liquidation could result from PKPU due to insolvency.
PKPU is different from conventional debt-restructuring schemes as the PKPU process works under court supervision, involves debtors and all creditors and proposes a plan of reorganization to keep the debtor’s business alive and pay creditors over time. The scheme thus gives legal certainty to creditors and debtors.
The problem is that many businesses often hesitate to use the PKPU scheme perhaps because of the high legal costs or stigma of exposure to the public. The government also needs to look into what debtors often claim as the extremely easy requirement for creditors for filing a petition. The law does not require an insolvency test as the petitioner is merely required to prove there are two creditors who are filing the petition and one of the debts is already overdue.
If the government, supported by its majority control of the House of Representatives, is considering issuance of a government regulation in lieu of law (Perppu) to amend the 2004 Bankruptcy and PKPU Law, the amendments should be much broader than simply enacting a moratorium.
Any amendment of the law should also review the requirements for filing petitions at court and look into the problems as to why businesses hesitate to go through the PKPU process. Any moratorium on bankruptcy and PKPU petition should not last longer than one year and should be limited only for borrowers in the business sectors hardest hit by the pandemic.
A blanket moratorium would not only cause a big glut of litigation cases, which would overwhelm court resources but also could be used by debtors in bad faith. Our biggest concern is that a blanket moratorium up to three years could damage the credit system, which plays a vital role in pumping lifeblood into the economy.
