Implementation of Cross Border Insolvency in Indonesia

Jun 08, 2021

The ASEAN Economic Community (“AEC”) is one of the pillars of the agreement to form an ASEAN Community. As a form of integrated economic entity in Southeast Asia, AEC has the intent of creating a single market and production base characterized by the free flow of goods, services, investment and the freer movement of capital. As a result of the free trade activities in the ASEAN Region, business activities such as investment and other trade activities are often carried out across countries. The existence of this international business transaction indirectly provides convenience for business actors in carrying out their business, both domestically and abroad. However, the implementation of these international business transactions cannot be separated from the existence of legal problems that may arise, such as bankruptcy.

In the event that a transnational trade takes place, if a business in that trade fails, it may cause in the debtor's and creditor's assets being in multiple jurisdictions. Cross border insolvency can occur if the bankruptcy issue contains foreign elements in it. Basically, cross-border bankruptcy occurs when the assets or debts of a debtor are located in more than one country, or if the debtor belongs to the jurisdiction of courts in two or more countries.

Regulations regarding cross-border bankruptcy can be seen in several regional and international legislations, such as the European Community Regulation Insolvency Proceedings that applies in the European Union and the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-Border Insolvency which is designed to assist countries to complete bankruptcy laws in their respective countries to be more effective in dealing with cross-border bankruptcy cases. In Indonesia itself, bankruptcy is regulated in Law no. 37/2004 on Bankruptcy and Postponement of Debt Payment Obligations ("Law 37/2004"). However, Law 37/2014 does not yet regulate the mechanism or procedure for cross-border bankruptcy.

Article 212 of Law 37/2004 states that creditors who, after the pronouncement of the declaration of bankruptcy, take full or part of the bankruptcy assets which are located outside the territory of the Republic of Indonesia, which are granted to them with the right to precedence, are obliged to replace the bankruptcy assets with everything they get. This shows that Law 37/2004 recognizes bankruptcy assets that are outside the territory of Indonesia. However, in practice, carrying out general confiscation or execution of assets outside the territory of Indonesia is not binding.

This is because Indonesia adheres to the principle of territoriality, which is the principle that limits bankruptcy decisions only to parts of property that are located within the territory of the country where the decision is stipulated. Thus, the impact of adhering to this principle is that the implementation and / or execution of bankruptcy assets based on a bankruptcy decision that is decided outside the jurisdiction of Indonesia cannot be implemented in the jurisdiction of Indonesia, or vice versa.

There are several steps that can be implemented by Indonesia to regulate bankruptcy across national borders. One of them is by making bilateral agreements between Indonesia and other countries. This bilateral agreement will arrange to facilitate cross-border cooperation and coordination to execute bankruptcy decisions and bankruptcy budgets. By carrying out this bilateral agreement, the two countries can cooperate and acknowledge the bankruptcy decision in one of these countries to be executed in another country. This agreement will also be based on the principle of reciprocity in which in the event that a bankrupt company is liquidated in the country where the company is located, the legal effects or consequences of the liquidation of the company in the jurisdiction of one country may apply in the territory of another country.

In addition there too, considering that bankruptcy across national borders is not yet the norm of business law in Indonesia, then Indonesia could make amendments to Law 37/2004 to cover bankruptcy across national borders. This can be done by adopting the UNCITRAL Model Law on Cross-Border Insolvency. However, it should be noted that in order for the execution of the bankruptcy assets and the decision on bankruptcy to be recognized by Indonesia and other countries, Indonesia is still required to form a bilateral agreement with other countries. (aaj/rid)


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(Tulisan di atas adalah merupakan artikel dan tidak dapat dianggap sebagai advis atau opini hukum dari penulis dan/atau kantor hukum K&K Advocates).


Aldi Andhika Jusuf


K&K Advocates

Rahma Atika


K&K Advocates