The global pandemic has undoubtedly affected several companies in Indonesia, reducing their ability to maintain cash flow. This situation has developed into a trend where creditors have to make more efforts to collect their debts.
Based on the prevailing laws, creditors have a range of legal actions available to recover outstanding debts from companies or individuals that are unable to fulfill their financial obligations. If these actions fail to yield results, insolvency proceedings like bankruptcy or Suspension of Payment (PKPU) may become necessary. Understanding these debt recovery mechanisms and the broader insolvency framework is crucial for both creditors and debtors in Indonesia.
When a debtor defaults on payments, creditors in Indonesia can pursue a variety of legal avenues to recover their debts. These legal actions are governed by the Civil Code, the Bankruptcy Law, and other regulations. Here are some of the key methods creditors can use:
Civil Claim
One of the most common legal actions to recover debts is through a Civil Claim. This involves the creditor filing a formal claim through the relevant District Court to seek payment for the outstanding debt.
To initiate such action, the creditor must provide evidence of the debt, such as contracts, invoices, or promissory notes, which proves the debtor’s obligation to pay. The court will review the evidence and, if it finds the debtor at fault, the court would issue a judgment ordering the debtor to settle the debt.
Once the decision is rendered in favor of the creditor, the creditor can take steps to enforce the decision by filing an execution petition, which typically involves garnishment, asset seizure, or other enforcement actions.
Please note that Civil Claim process may take a significant amount of time including the appeal stage at High Court, Cassation at the Supreme Court and ultimately through the extraordinary legal remedies in form of Civil Review which also on the Supreme Court. Each stage may take 6 (six) to 12 (twelve) months to be examined by the relevant Judges, however, please also note that after the Cassation Decision, the decision has matured into a final and binding decision, therefore the creditor has the rights to execute the decision in accordance to the Cassation Decision.
Alternative Dispute Resolution (ADR)
In certain cases, creditors may choose to pursue an alternative dispute resolution (ADR), such as arbitration, to resolve debt disputes outside of the formal court process.
In cases where a contract contains an arbitration clause, creditors can pursue debt recovery through arbitration. Arbitration is a more confidential and quicker process than traditional litigation, with a final decision that is enforceable in Indonesian courts.
Suspension of Payment (Penundaan Kewajiban Pembayaran Utang “PKPU”) Claim
Based on Laws no. 37 on Bankruptcy and Suspension of Payment (PKPU) (“Bankruptcy & PKPU Law”), A creditor may opt to file Suspension of Payment (PKPU) claim if they believe that a debtor is temporarily unable to meet its obligations, but the business has the potential for recovery. PKPU offers an alternative to bankruptcy claim, allowing for debt restructuring rather than liquidation.
The court could grant a PKPU if the debtor is facing financial distress but needs time to reorganize. The debtor is given temporary relief from creditor actions, which provides them with an opportunity to negotiate new terms for repaying debts which will be proposed by the debtor and approved by creditors, offering extended repayment periods, debt reductions, or other adjustments.
PKPU gives creditors a chance to recover part of their debts through the restructuring process, rather than through the lengthy and uncertain bankruptcy procedure. However, it requires cooperation from the rightful creditors to approve the proposed restructuring plan.
Bankruptcy Claim
When a debtor is unable to meet its obligations and is in a state of insolvency, creditors can file a bankruptcy petition under Bankruptcy & PKPU Law. A creditor can initiate a bankruptcy petition if the debtor fails to pay a debt over than IDR 500 million.
Once the court declares the debtor bankrupt, a Receiver(s) is appointed to manage the liquidation of the debtor’s assets and distribute the proceeds to creditors. Secured creditors are paid first, followed by unsecured creditors. However, the process can take a significant amount of time, depending on the complexity of the debtor’s estate.
Creditors with secured claims will typically have higher priority in receiving payment from the proceeds of asset sales, while unsecured creditors, such as suppliers and employees, will often receive only a portion of their claims, if anything.
Challenges
Debt recovery and Bankruptcy & PKPU proceedings in Indonesia can be time-consuming. Court processes for enforcing judgments, liquidating assets, or approving restructuring plans often face delays. In many cases, especially in bankruptcy, creditors may recover only a portion of the outstanding debt. The distribution of proceeds depends on the debtor’s remaining assets, and unsecured creditors often face significant losses. Additionally, debt restructuring under PKPU can be a complex process requiring approval from a majority of creditors. The negotiations can be challenging, especially if different creditors have conflicting interests.
Debt recovery and insolvency are interconnected issues that affect both businesses and creditors in Indonesia. While creditors have several legal avenues to pursue debt recovery, such as civil lawsuits, asset seizures, and bankruptcy filings, insolvency procedures like bankruptcy and PKPU provide a formal mechanism to deal with financial distress. Navigating these processes can be complex, but understanding the available options and recent legal reforms can help stakeholders protect their interests and maximize debt recovery in Indonesia’s evolving legal landscape.
