20
Apr2022
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Cross Border Insolvency in Insolvency Law in Indonesia

The development of the world economy, including in the Southeast Asian region and in member countries of the Association of Southeast Asian Nations (Asean), resulted in the decreasing boundaries between countries in carrying out economic activities. It facilitates business actors to conduct cross-country transactions in expanding their business.

One of the problems that may occur from these activities is financial problems that lead to bankruptcy. This problem becomes complex when the debtor is bankrupt and has assets located in a number of countries.

The word Bankruptcy or Bankruptcy, which comes from the French: “Failite” or congestion, is a process by which a debtor has financial difficulties to pay his debts to his creditors. After going through the court process and declared bankrupt by the decision of the Commercial Court, the debtor’s property can be distributed to the creditors in accordance with the applicable laws and regulations.

In Indonesia insolvency is regulated in Law No. 37 of 2004 on Bankruptcy and Review of Debt Payments (PKPU). Article 1 paragraph (1) of the Law states that “Bankruptcy is a general confiscation of all the wealth of the Bankruptcy Debtor whose management and settlement is carried out by the Curator under the supervision of the Supervisory Judge as stipulated in the Law”.

Article 21 of the Law states that “Bankruptcy covers the entire wealth of the Debtor at the time the verdict of the bankruptcy statement is pronounced as well as everything obtained during bankruptcy”.

Bankruptcy Law is the legal basis for resolving disputes that arise between debtors and creditors related to debt problems that have matured. This is evidenced by the failure of the debtor to pay his debts to more than one creditor. As a consequence of the bankruptcy decision, the court appoints a curator who will manage all assets belonging to the debtor and sell them through the state auction house or private sale.

The problem arises when it is known that the assets belonging to the debtor of bankruptcy turned out to be located, not only in one country where the bankruptcy decision was handed down. It would be difficult for curators to manage and manage those assets if the existence of the debtor’s assets was outside the jurisdiction of the country where the bankruptcy ruling was read. Problems will be more complex when there is an intersection between more than one jurisdiction of state law or better known as cross-border insolvency or cross-border insolvency.

Cross-border insolvency can occur if the insolvency problem contains foreign elements in it. Basically cross-border insolvency occurs when the assets or debts of a debtor are located in more than one country, or if the debtor includes the jurisdiction of the courts of two or more countries.

Law No. 37 of 2004 regulates about the general confiscation of all the wealth of bankruptcy debtors located outside the territory of Indonesia. In addition, Article 212 of the Law states;

“Creditors who after the verdict of the bankruptcy statement are spoken, take the repayment of all or part of their receivables from objects that include bankruptcy property located outside the territory of the Republic of Indonesia, which is not entrusted to him with the right to take precedence is obliged to replace to the bankruptcy property everything he obtained”

But in practice, carrying out public confiscation or execution of property that is outside the jurisdiction of Indonesia is non-binding.

The Problem of Execution of Bankruptcy Property in Cross-Border Insolvency

Cross-border insolvency can never be separated from the problems that arise in various cases of bankruptcy, especially those that cross the jurisdiction of a country. Problems that are often faced in the execution process cannot be separated from the recognition and enforcement. In this case, the implementation contains a broader and deeper meaning when compared to recognition.

In Indonesia as specified in Article 436 Rv of Reglement Op De Burgelijke Rechtsvordering states that except in the cases specified by Article 724 of the Code of Trade Law and legislation, no decision can be made by foreign judges or foreign courts within the territory of the Republic of Indonesia.

This confirms that the enforceability of the court’s decision as determined by Article 431 Rv which regulates:

  • Court decisions in Indonesia only apply and are valid for execution in Indonesian territory;
  • Has no execution power abroad;
  • Vice versa, the decisions of foreign court judges are not binding and not recognized in Indonesia.

By referring to Article 431 Rv, the author believes that the curator cannot carry out the execution of the debtor’s property outside the jurisdiction of the Republic of Indonesia. Carrying out foreign court rulings on Indonesian territory is considered a violation of the principle of Indonesia as an independent and sovereign country. This is due to the enactment of the principle of territoriality adopted by Indonesia, which requires that decisions set abroad, cannot be directly implemented in other regions on its own power.

The principle of territoriality states that as a result of a bankruptcy declaration, the process and termination of bankruptcy is limited to the territory of the country, where the court handling the bankruptcy is located.  Consequently,  a country’s bankruptcy ruling can only apply to the country, where the bankruptcy ruling was issued.

The case of bankruptcy involving immovable objects located abroad is regulated under International Civil Law (HIP), in particular Articles 17-18 AB. This article states that immovable goods are regulated under the laws and regulations of the country or place where the goods are located (AB. 18).

Settlement of cross-border insolvency cases that were not previously stated in agreements on receivable debts, which include dispute resolution, can be done in several ways, namely court proceedings, bilateral agreements, diplomatic relations, or the UNCITRAL Model Law on Cross Border Insolvency with Guide to Enactment. If it is going to be settled through the court proceedings,  a country must submit a bankruptcy ruling that is decided by the state to the country where the bankruptcy estate is located and undergo a more complicated process more complicated if  the case involves countries that have different legal systems.

Bilateral agreements between Indonesia and other countries faciliatate the settlement of the problem of the execution of debtor’s insolvent assets located outside the jurisdiction of Indonesian law because that the existing bankruptcy law does not facilitate the authority to reach debtor assets abroad.

Therefore, according to the author, there must be a cross border insolvency agreement or bilateral agreement on insolvency across national borders.

 

Author / Contributor:

 Zerico Sandyaksa, S.H., M.H.

Associate

Contact:

Mail       : zerico@siplawfirm.id

Phone    : +62-21 799 7973 / +62-21 799 7975

 

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