Insolvency Law at Indonesia
Indonesia's insolvency framework is primarily governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (UUK), which provides mechanisms for both corporate and individual debtors to address financial distress. The system emphasizes restructuring over liquidation, aiming to preserve business operations and maximize creditor recovery. (Suspension of Debt Payment Obligations (PKPU) – Queen Law Firm)
⚖️ Key Legal Mechanisms
1. Suspension of Debt Payment Obligations (PKPU)
PKPU serves as a court-supervised debt restructuring process, allowing debtors to negotiate with creditors to reorganize their debts. It comprises two phases: (Recent Developments in Bankruptcy Law and Suspension of Debt Payments in Indonesia - SSEK Law Firm, Suspension of Debt Payment Obligations (PKPU) – Queen Law Firm)
Temporary PKPU: Lasts up to 45 days, during which the debtor prepares a composition plan. (Suspension of Payment in Indonesia (PKPU): A Vital Pre-Insolvency Tool - Kenny Wiston Law Offices)
Permanent PKPU: If creditors approve the plan, it extends up to 270 days, facilitating the implementation of the restructuring terms. (Suspension of Payment in Indonesia (PKPU): A Vital Pre-Insolvency Tool - Kenny Wiston Law Offices)
During PKPU, creditors cannot initiate enforcement actions, and the debtor retains control over assets, subject to court-appointed administrators' supervision. (Suspension of Payment in Indonesia (PKPU): A Vital Pre-Insolvency Tool - Kenny Wiston Law Offices)
2. Bankruptcy
If PKPU fails or creditors reject the composition plan, the debtor may be declared bankrupt. In bankruptcy: (Bankruptcy Law and Suspension of Debt Payments in Indonesia)
A court-appointed receiver manages and liquidates the debtor's assets. (Bankruptcy and Suspension of Debt Payment in Indonesia | Lim & Co)
The debtor loses control over assets and operations.
Creditors' claims are settled according to legal priorities.
🧑⚖️ Court and Administrative Oversight
Both PKPU and bankruptcy proceedings are overseen by the Commercial Court, with the involvement of: (Bankruptcy and Suspension of Debt Payment in Indonesia | Lim & Co)
Administrators: Appointed to manage the debtor's affairs during PKPU. (Bankruptcy Law and Suspension of Debt Payments in Indonesia)
Receivers: Appointed to liquidate assets in bankruptcy. (Bankruptcy and Suspension of Debt Payment in Indonesia | Lim & Co)
Supervisory Judges: Monitor the process to ensure compliance with legal provisions.
🏦 Special Provisions for Financial Institutions
Under Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (P2SK Law), petitions for bankruptcy or PKPU involving financial institutions such as banks, insurance companies, and pension funds can only be filed by the Financial Services Authority (OJK). This centralization aims to maintain financial system stability. (Provisions for Filing Petitions for Bankruptcy and Suspension of Debt Payment Obligation in the Financial Sector After Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector is Enacted - IR Global)
📈 Trends and Considerations
Increasing PKPU Cases: There has been a rise in PKPU filings, indicating a growing preference for restructuring over liquidation. (The Indonesian insolvency and restructuring landscape)
Efficiency Measures: Recent reforms, including the Supreme Court's Circular Letter No. 2 of 2016, aim to enhance the efficiency and transparency of bankruptcy and PKPU proceedings. (Bankruptcy Law and Suspension of Debt Payments in Indonesia)
Employee Claims Priority: Unpaid employee wages are given high priority in creditor claims, often surpassing secured creditors. (The Indonesian insolvency and restructuring landscape)
📚 Resources
Law No. 37 of 2004 (UUK): Official Text
Law No. 4 of 2023 (P2SK Law): Official Text
For specific legal advice or assistance with insolvency proceedings in Indonesia, consulting with a legal professional experienced in Indonesian bankruptcy law is recommended.
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