Bankruptcy as debt collection
Bankruptcy could be an effective option in recovering an unpaid debt from an Indonesian party.
An alternative or sometimes serving as a prelude to bankruptcy is the PKPU (Penundaan Kewajiban Pembayaran Utang – Suspension of Debt repayment Obligation) a process which is somewhat akin to US Chapter 11 Bankruptcy process – temporary suspension of debt obligations.
There are also views that PKPU is preferable over bankruptcy to creditors because such proceedings are subject to a more rapid examination and adjudication than bankruptcy.
The end game for PKPU is bankruptcy unless a debt restructuring plan could be secured within 315 days (45 days plus 270 days).
It is the looming threat of bankruptcy following the PKPU that the creditor hopes to convey to the debtor as leverage if no resolution is reached during the PKPU stage.
A more assertive creditor with a take no prisoners attitude may prefer the bankruptcy process at the outset. This could be that a PKPU initiated restructuring outcome may lead to a debt composition requiring the creditors to take a haircut on the receivables.
From 2019 data made available by the five commercial courts (Central Jakarta, Medan, Semarang, Surabaya and Makassar), there were 129 bankruptcy petitions and 346 petitions for suspension of payments (PKPU). In 2020, there were 114 bankruptcy petitions and 635 PKPU cases in total.
The data suggests that there may be a greater willingness for debts of company to be restructured rather than let the company proceed to its demise with bankruptcy.
The data could also suggests that unrepentant Indonesian debtors may be under a sense of security that it is too much hassle for creditors to pursue claims before the courts in Indonesia.
What is the time frame under the bankruptcy and PKPU process?
A bankruptcy proceeding has to be resolved within 60 calendar days of the date the application was made, while a PKPU proceeding must be resolved within 20 calendar days at most, depending on the applicant.
How is the bankruptcy process initiated?
Bankruptcy is initiated by a petition to the Commercial Court.
Basis for the petition is that the applicant is owed a debt from the debtor that remains unpaid. It is necessary to show that the debt is due and passed the deadline for payment.
Also, There must be shown that there are debts owed to two creditors.
Quite often, bankruptcy petitions get rejected because petitioners fail to summarily prove the the existence of debts that are due and payable. This could be due to rebuttals from the debtors on the existence of the debts or maturity.
What happens to the debtor when a bankruptcy petition is filed?
The ordinary business operations of the company continues. The debtor company may continue to incur liability.
Time frame for bankruptcy order to be granted
In the event that the petition is granted, the court order will appoint a Supervisory Judge and a receiver (Kurator).
The Court is required to render its judgment on the Bankruptcy petition within sixty (60) days from filing of the petition.
If the Court is to accepts the petition as satisfying the requirements of the Bankruptcy Law, the court will declare the debtor to be a bankrupt (the Bankrupt Debtor) and appoint a Receiver (Kurator) and a Supervisory Judge.
What happens when a bankruptcy order is made?
A Receiver will be appointed who will take over control of the company business and operations. His main responsibility is to recover assets of the company including calling in the debts of the company. With the consent of the receiver, the directors may continue to operate the business.
Order of pay out of the debtor’s estate
The pay out is in the following order:
Preferred creditors –
Employees’ salary and severance pay.
receiver/administrator fee.
Court appointed experts fee
bankruptcy expenses incurred during payment suspension process.
Post-bankruptcy/suspension of spending .
Rental of the bankrupt premises.
What is suspension of debt payment obligations (PKPU)?
PKPU is a court sanctioned moratorium on debt claims against the company. PKPU can be initiated by either the debtor or creditor filing a petition for suspension with the court. A request for suspension (PKPU) can also be filed by the debtor in response to the creditor filing of bankruptcy petition.
What is the process under an application for PKPU?
Bankruptcy and PKPU proceedings is a possible debt collection option to creditors because such proceedings are subject to a quicker examination and adjudication than a civil lawsuit.
A bankruptcy proceeding has to be resolved within 60 calendar days of the date the application was made, while a PKPU proceeding must be resolved within 20 calendar days at most, depending on the applicant.
Key challenge in filing bankruptcy
Because of the requirement to prove the existence of another creditor in addition to you as a claimant, many bankruptcy could not take off because of difficulty in finding another creditor unless one is dealing with a notorious debtor.