Indonesia. Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring

Transcription

1 Indonesia Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring

2 Table of Contents I. Introduction to the Indonesian...1 A. Historical Overview...1 B. Indonesian Bankruptcy System: Between Liquidation and Reorganization...1 II. Suspension of Payment Under the Bankruptcy Law...1 III. Why Suspension of Payment?...1 A. Creditors Perspective...1 B. Debtors Perspective...2 IV. Suspension of Payment Proceedings...2 A. Commencement of Suspension of Payment Proceedings...2 B. Composition Plan...3 C. Effectiveness and Effects of the Composition Plan...3 D. Effects of Suspension of Payments...3 E. Provisional Suspension of Payments...3 F. Verification Meeting...4 G. Permanent Suspension of Payment...4 H. Termination of Suspension of Payment...5

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4 I. Introduction to the Indonesian Bankruptcy System A. Historical Overview Bankruptcy systems have long existed in Indonesia. The first codified bankruptcy law was introduced in 1905 when Dutch colonial rulers introduced Faillisementverordening, Staatsblad 1905 No. 217 (the 1905 Bankruptcy Rules ). After Indonesia became independent in 1945, these 1905 Bankruptcy Rules remained in effect until, in 1998, the Indonesian bankruptcy system was overhauled through the Peraturan Pemerintah Pengganti Undang-Undang No.1 Tahun 1998 tentang Perubahan atas Undang-Undang Kepailitan ( PERPU ). According to the PERPU s elucidation, the aim of the PERPU was to provide a more adequate and efficient system in bankruptcy proceedings. Today, bankruptcy issues are stipulated under Law No. 37 of 2004 dated 18 October 2004 on Bankruptcy and Suspension of Payments (the Bankruptcy Law ). The Bankruptcy Law replaces the PERPU. It provides several changes to the Indonesian bankruptcy framework and attempts to provide a legal mechanism for settlement of debts through the courts in an effective way. B. Indonesian Bankruptcy System: Between Liquidation and Reorganization There are basically two types of bankruptcy in the Indonesian bankruptcy system. The first is a liquidation type of bankruptcy as stipulated in Chapter II (Articles 2-221) of the Bankruptcy Law. The second is a reorganization type of bankruptcy as stipulated in Chapter III (Articles ) of the Bankruptcy Law. In this booklet we will focus on the reorganization type of bankruptcy or suspension of payment. II. Suspension of Payment Under the Bankruptcy Law In a suspension of payment the debtor, upon a request by the creditor or by the debtor itself, is given temporary relief by the court to restructure its debts and continue in business, and ultimately to satisfy its creditors. In practice, however, suspension of payment proceedings are not used optimally in bankruptcy proceedings. The purpose of the suspension of payment is to release the debtor from its payment obligations by suspending the debtor s entire payment obligations for a specified time (maximum 270 days). During the suspension of payment period, the debtor is given an opportunity to propose and negotiate a settlement plan to its creditors. In the settlement plan, the debtor can propose how it will settle part or all of its payment obligations to its creditors. Please note that a suspension of payment can be easily converted into a bankruptcy if it becomes clear that the suspension will not be successful, as will be discussed below. III. Why Suspension of Payment? A. Creditors Perspective When a debtor who still has business prospects experiences liquidity problems, liquidating the debtor s assets could be the least favorable option for a creditor. The creditors may prefer to save the debtor but at the same time ensure that the debtor performs its payment obligations. Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring 1

5 Suspension of payment could be the answer for the situation mentioned above. The suspension of payment gives the debtor breathing space and allows the debtor to reorganize its debts to its creditors while at the same time continuing its business. Unlike a private restructuring, if a suspension of payment fails or the debtor fails to perform the agreed composition, it could lead to the debtor s automatic bankruptcy. The creditors are also involved in the debt reorganization process with the debtor. In practice, the creditors can negotiate the terms of the composition plan with the debtor. The creditors also have the power to approve or disapprove the composition plan proposed by the debtor. Furthermore, the Bankruptcy Law provides that the debtor has to finalize the composition plan, including obtaining the court s decision to ratify the plan, within 270 days. This provision is aimed at ensuring efficiency and prevents a debtor from abusing the suspension of payment proceedings. B. Debtors Perspective The debtor can hope for a fresh start through the suspension of payment proceedings. In suspensions of payment, the debtor will be provided with maximum legal protection of the reorganization and continuance of its business. At the beginning of the reorganization process the debtor, who has a better understanding of its own financial condition, is free to propose the terms of its composition plan with its creditors. In a suspension of payment, every executory action against the debtor must be postponed and any court attachment against the debtor s assets is nullified when the court grants the suspension of payment. Further, the judges in non-bankruptcy related cases involving the debtor could postpone any of their decisions on the cases until the suspension of payments ends. The other advantage of suspension of payment proceedings is that the debtor will have more relaxed voting requirements for the approval of a permanent suspension of payment and the composition plan. One specific characteristic of debt reorganization through suspension of payment is that when the composition plan has been approved by the creditors and ratified by the court, it will bind all of the creditors, including those who do not agree with it. IV. Suspension of Payment Proceedings A. Commencement of Suspension of Payment Proceedings The petition for suspension of payment must be signed by the petitioner and its legal counsel admitted to practice before the court. If the petitioner is the debtor itself, the petition must be accompanied by a schedule comprising the nature of its debts/claims and the creditors to whom these debts are owed (i.e., the creditors names and addresses, and the amount of receivables), as well as other relevant documentary evidence. If the petition is filed by a creditor, the court must summon the debtor (through the court bailiff) using registered mail at least seven (7) days before the hearing. Under the Bankruptcy Law, a debtor may also file a petition for suspension of payment after a petition for bankruptcy declaration has been filed against it. If petitions for both suspension of payment and bankruptcy are reviewed by a court at the same time, the petition for suspension of payment prevails and must be decided first. Although it is not a legal remedy as such (like an appeal or a civil review), a petition for suspension of payment will effectively postpone the bankruptcy process for a certain period of time. Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring 2

6 B. Composition Plan The Bankruptcy Law requires a debtor petitioning for the suspension of payment to submit its settlement or composition plan with its creditors at the time or after the debtor files the petition for suspension of payment. A composition plan with creditors is an agreement made between the debtor and its creditors for the settlement or arrangement for a discharge of the debts of the debtor. The composition plan should set out the proposed time-table under which the debtor will pay its debts and also state whether the debts will be fully or partially paid. The debtor and all of its creditors are free to agree to the terms of payment. The Bankruptcy Law does not contain any requirements for the contents of the composition plan. The composition plan will be aborted automatically if after its submission but before its approval by the creditors, the suspension of payment is terminated (at the end of its intended period or earlier, by the court upon its own initiative, or upon request of either the Supervisory Judge, the administrator, or one or more of the creditors, on any of the grounds stipulated in Article 255 of the Bankruptcy Law). The suspension of payment may also be terminated by the court upon request of the debtor on the grounds that the assets of the debtor are sufficient to allow it to pay its debts. C. Effectiveness and Effects of the Composition Plan In order to be valid and effective, a composition plan must be approved in a creditors meeting by: (a) (b) affirmative votes of more than half (1/2) of the concurrent creditors which are present in the meeting, provided that the concurrent creditors voting in favor hold at least two-thirds (2/3) of all accepted or provisionally accepted unsecured claims held by the concurrent creditors present in the meeting; and affirmative votes of more than half (1/2) of the secured creditors which are present in the meeting, provided that the secured creditors voting in favor hold at least two-thirds (2/3) of all claims held by the secured creditors present in the Please note that votes are taken only from the creditors present in the meeting. The composition plan, once it has been ratified, will bind all of the creditors. It also binds creditors who voted against the composition plan and creditors who were not present or represented at the voting hearing. Secured creditors who were present at the meeting and who voted against the composition plan will be compensated with the amount of the minimum value of their security. D. Effects of Suspension of Payments One effect of a suspension of payment is that the debtor cannot be forced to pay its debts within the suspension of payment period. Unlike in a bankruptcy, a debtor in a suspension of payment may still manage or dispose of its assets and even obtain loans and secure its unsecured assets, provided that those acts have been authorized by the administrator and/or the Supervisory Judge. E. Provisional Suspension of Payments Within three (3) days (if the petition was submitted by a debtor) or twenty (20) days (if the petition was submitted by a creditor) after the registration of a petition for suspension of payment, the court is obliged to issue its decision on the petition for provisional suspension of payment, and (if the petition is granted) appoint a Supervisory Judge and an administrator(s). The provisional suspension of Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring 3

7 payment is effective from the date of the suspension of payment order until the date of the next court hearing determined in the order, but this period shall not exceed 45 days. Immediately after the provisional suspension of payment has been declared, the court, through the administrator, summons the debtor and all recognized creditors by registered mail or courier, to attend a hearing held at the latest 45 days after the granting of the provisional suspension of payment. Under the Bankruptcy Law, the hearing is technically called a judge s deliberation meeting. If the court grants the petition, the administrator must announce that decision. This announcement should be made no later than 21 days before the planned hearing, and should include an invitation to attend the hearing, stating the date, place and time of the hearing, the name of the Supervisory Judge and the name and address of the administrator, as well as the composition plan (if any). Notwithstanding the administrator s obligation to summon the creditors to attend the hearing, each creditor will have the right to attend, even if it did not receive the summons. F. Verification Meeting Once appointed, the administrator will arrange a verification meeting or meetings to verify the amount of each creditor s claim. The aim of this meeting is to determine the calculation of the number of votes that each creditor has received. A verification meeting should be attended by the Supervisory Judge, the administrator, the debtor and the creditors. G. Permanent Suspension of Payment If the composition plan is not available at this first hearing or the creditors have not yet cast votes on the composition plan, the creditors, at the request of the debtor, must decide whether or not to grant a permanent suspension of payment, so that the debtor and the creditors may continue to negotiate the composition plan during the permanent suspension of payment period. If the permanent suspension of payment is agreed on, the period of suspension of payment and any subsequent extension thereof may not exceed 270 days. If it is not agreed on, or if on the expiry of the suspension of payment there is no decision on the composition plan, the administrator must notify the court, which will forthwith declare the debtor bankrupt. The permanent suspension of payment will be granted if it is approved by: (a) (b) a simple majority of the unsecured creditors (or their proxies) present, provided that the majority represents at least two-thirds (2/3) of the value of all accepted unsecured claims held by the concurrent creditors present at the hearing or meeting; and a simple majority of the secured creditors (or their proxies) present, provided that the majority represents at least two-thirds (2/3) of the value of all accepted secured claims held by the secured creditors present at the hearing or meeting. Should there be any disagreement among the administrator and the creditors on the creditors voting rights, it would be settled by the Supervisory Judge. As mentioned above, if the creditors decide not to grant or extend the permanent suspension of payment, the debtor will be declared bankrupt immediately. It is therefore crucial for the debtor or the creditor (depending on who has submitted the application) to ensure at the outset (before submitting the application for suspension of payment) that a sufficient number of creditors (or their proxies) who represent the qualified acknowledged debt claims will be present at the hearing or meeting and will approve the granting of the permanent suspension of payment. The court will then have to ratify the approved suspension of payment. Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring 4

8 H. Termination of Suspension of Payment A suspension of payment may be terminated by the court on a request submitted by either the administrator, the Supervisory Judge, or any of the creditors, or on the court s own initiative, if: 1. the debtor, in bad faith, takes action during the suspension of payments which is detrimental to its assets or the interests of its creditors; 2. during the suspension of payments, the debtor performs actions of management or transfers rights to any part of its assets, without authorization from the administrator; 3. the debtor fails to do what the court ordered at the time or after the suspension of payment was granted, or fails to do what the administrator requires in the interests of the debtor s assets; 4. the debtor s assets are in such a state that a suspension of payments will no longer be feasible; 5. the debtor is in such a condition that it cannot be expected to fulfill its obligations to the creditors on time. For further infomation, please contact: Timur Sukirno Partner Tel: timur.sukirno@bakernet.com Hendronoto Soesabdo Associate Tel: hendronoto.soesabdo@bakernet.com Court-Sanctioned Debt Restructuring: The Way Forward For Future Debt Restructuring 5

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