Indonesian Legal Review: Bankruptcy

Legal Updates
Indonesian Legal Review: Bankruptcy
3 June 2016

Indonesia's Law No. 37 of 2004 regarding Bankruptcy and Suspension of Debt Payment Obligations (the Bankruptcy Law) sets forth the requirements for filing a bankruptcy petition. The essential requirement is that there must be two or more creditors and at least one mature but unpaid debt for a bankruptcy action to be initiated against a debtor.

The Bankruptcy Law provides that if the debtor is a securities company, stock exchange, clearing and guarantee institution, or a depository and settlement institution, the bankruptcy petition may only be submitted by the Capital Market Supervisory Board (Bapepam). If the debtor is an insurance company, a reinsurance company, a pension fund or a state-owned enterprise, the bankruptcy petition may only be submitted by the Minister of Finance.

These provisions, reserving the filing of a bankruptcy petition to Bapepam and the Minister of Finance, were delegated to the Financial Services Authority (the OJK) pursuant to Law No. 21 of 2011 regarding the OJK (the OJK Law), so that now the OJK has the authority concerning bankruptcy petitions for all such companies.

However, this delegation raises the issue under the Bankruptcy Law of whether the OJK has such authority even if the requirements of two creditors and one unpaid debt are not satisfied. This issue arose in the 2015 decision of the Commercial Court at the Central Jakarta District Court in Case No. 04/PDT-SUS-PAILIT/2015/PN.NIAGA.JKT.PST. Jo. Case No. 27/Pdt.Sus.PKPU/2015/PN. NIAGA.Jkt.Pst, which involved the OJK's petition for bankruptcy against the insurance company PT Asuransi Jiwa Bumi Asih Jaya (BAJ).

The OJK asserted that there were at least two or more creditors and at least one unpaid debt that was due and unpayable, rather than unpaid, because BAJ was insolvent under statutory standards and was therefore unable to pay claims on the policies it had issued, in addition to having failed to comply in general with the OJK's statutory solvency requirements applicable to insurance companies. As a result, the OJK revoked BAJ's business license on the ground that BAJ did not have the capability to maintain its solvency level.

Upon the bankruptcy petition filed by the OJK, BAJ filed what is known as an absolute competence exception, arguing that the Commercial Court at the Central Jakarta District Court did not have jurisdictional authority to adjudicate a bankruptcy petition filed by the OJK. BAJ argued that under Law No. 40 of 2014 regarding Insurance (the New Insurance Law), any dispute between an insurance company and policyholder(s) must be settled, if possible, through mediation conducted by the Indonesian Insurance Mediation and Arbitration Body (Badan Mediasi dan Arbitrase Asuransi Indonesia or BMAI).

BAJ also argued that the OJK did not have legal standing to file a bankruptcy petition under Article 51(1) of the New Insurance Law, insofar as unpaid creditors were required to submit an application to the OJK before the OJK could file an application to the bankruptcy court, and no creditor had done so. It also argued that a judgment issued by the state administrative court, concerning the revocation of BAJ's business license by the OJK pursuant to a Decision of the Board of Commissioners of the OJK, Number KEP-112/D.05/2013 dated October 18, 2013, regarding Revocation of Business License in the Life Insurance Sector, was not final because the decision had been appealed to but not decided by the Supreme Court of Indonesia.

BAJ further argued that an insurance policy was in any case not a debt and the insurance policyholder was not a creditor under the New Insurance Law.

On April 1, 2015, the Commercial Court at the Central Jakarta District Court ruled that BAJ's claim that the OJK lacked absolute competence to bring the bankruptcy petition was incorrect and that it had the authority to bring such proceedings. However, in the examination of the merits of the case, the Commercial Court ruled on April 16, 2015, that the authentication of the insurance claims in this case was not simple and therefore the bankruptcy petition was rejected.

The OJK appealed to the Supreme Court and on August 28, 2015, the Supreme Court accepted the OJK's appeal and declared BAJ bankrupt. The effect of the Supreme Court's decision appears to mean that the OJK has the authority to file bankruptcy petitions against the financial companies and insurance companies noted above and that there need not be two creditors and one unpaid debt as a condition for doing so.

This Supreme Court decision is not necessarily the end of the debate. Stare decisis (the concept of controlling precedent) is not an accepted jurisprudential principle in Indonesia and future Supreme Court panels could make a contrary decision based on essentially the same facts.

This article is from SSEK's Indonesian Legal Review, which looks at recent legal and regulatory developments in almost 50 sectors, from Airports to Tourism. This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user's own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

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