Indonesian Bankruptcy Law was initially enacted through Government Regulation in Lieu of Act No. 1 of 1998 which was then approved by the Indonesian Parliament as law and became Law No. 4 of 1998 which then further amended by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Repayment Obligation (“Bankruptcy and PKPU Law”). Since then, there was no amendment to the Bankruptcy and PKPU Law.

While global crisis gives unfavorable effects to national economic and may lead business actors to fail in repaying their debts to continue their business operation, foreign investors are reluctant to lend capital to Indonesian entities on the basis due to lack of legal certainty. In some cases, a group of Indonesian debtors was using PKPU as a venue to write their debts off. One of Indonesian court controversial decisions was rendered by the Commercial Court at Central Jakarta District Court in a court-supervised Suspension of Debt Repayment (“PKPU”) of PT Asmin Koalindo Tuhup (“AKT”) case. In March 2016, the administrator in the AKT PKPU rejected a $628 million claim by Standard Chartered Bank as lender under a facility agreement on grounds that the debt was null and void because the debtor itself failed to make a required regulatory filing with the Ministry of Energy and Mineral Resources at the time it borrowed the funds. This further affirmed by the Supreme Court at the cassation level ruling that Standard Chartered Bank is the creditor of Borneo instead of AKT since AKT is the only guarantor of the debts owed by Borneo to Standard Chartered Bank. This decision, unfortunately, is not the first strange Indonesian court decision related to an international loan. There was similar history which became an indicator of how non-conducive the Indonesian legal system could be to foreign investment and investors. In 2014, the administrator in PT Bakrie Telecom’s PKPU rejected a $380 million claim by The Bank of New York Mellon as trustee of USD bonds issued to international investors. The administrators instead recognized intercompany claim in respect of the same debt and allowed the debtor’s owned SPV to vote the claim on the basis that PT Bakrie Telecom’s direct creditor is the SPV who issued the bonds, not the trustee and/or bondholders. These precedents show us the importance of the strict rules and procedure under the Bankruptcy and PKPU Law, in particular, the role of administrators and supervisory judge. The PKPU administrators play a key role in PKPU proceedings and are given broad authority under Bankruptcy and PKPU Law, among other things, the administrators have the power to determine the validity of claims, resolve voting disputes, supervise the negotiation of the debtor’s proposed composition plan and co-manage the debtor’s assets during the duration of the PKPU proceeding. While the administrators managed such matters, the supervisory judge plays a role as the gatekeepers that determine whether the administrators have acted their role properly, so that a transparent court proceeding could be reached. In response to certain transparency issues in the case handling of bankruptcy and suspension of debt repayment in court, on 25 April 2016 Supreme Court has issued a Circular Letter Number 2 of 2016 on Handling Efficiency and Transparency for Bankruptcy Cases and Suspension of Debt repayment Obligation Cases by Courts (“Circular Letter”). In essence, the Circular Letter aims to ensure greater legal certainty and efficiency in handling bankruptcy or PKPU cases by commercial courts. To achieve this, the Circular Letter sets out two main provisions, Firstly, redefining of working procedures and the requirement to appoint receivers (for bankruptcy cases) or administrators (for PKPU cases); Secondly, reaffirmation of the timeline for hearing bankruptcy or PKPU cases. In regards of the appointment of Receivers or Administrators, the Circular Letter states that any prospective receiver or administrator should be independent, should not have any conflicts of interest with the disputing parties, and should not currently be handling more than three bankruptcy or PKPU cases. Further, if the applicant proposes more than one receiver, then the Commercial Court may establish a receiver team based on the interests of the parties concerned. Supreme Court also emphasizes that the supervisory judge has the authority to 1) request information on the ongoing cases from the receivers, and 2) oblige the receiver to submit a working schedule at a creditors’ meeting. If the receiver fails to provide information relating to the case after receiving two requests from the judge or fails to adhere to the working schedule, then the supervising judge has the authority to summon and request an explanation from receivers which ultimately lead to the proposal to change the receivers. In addition, the Supreme Court also adds a formal requirement for bankruptcy or PKPU petition that is filed by the debtor. It is stated in the Circular Letter that the application must be completed with the approval letter from creditors on the nominated receivers/administrators. However, to follow this up, the Supreme Court may need to issue a clarification on the procedure to implement this scheme.