The giants of Asia – Indonesia, China, and India – raise many opportunities and challenges for insolvency practitioners. Baker McKenzie’s own Andi Kadir spoke this morning about some of the solutions to those problems, showcasing his significant experience with insolvency reforms and opportunities in Indonesia.
Andi highlighted the benefits of the Penundaan Kewajiban Pembayaran Utang regime as a restructuring tool in Indonesia. A PKPU is a debtor in possession mechanism, somewhat like a blend of a US Chapter 11 administration with aspects of the insolvency laws of the Netherlands.
- PKPUs have proved popular since their introduction in Indonesia, with a significant uptake in their use across 2016. In an Indonesian context, the debtor in possession format has significant attraction due the prevalence of family controlled businesses. The process leaves the owners of the business with some control over any restructuring and therefore more willing to engage with the process.
- The decision to appoint is made promptly by a Court at the request of either the company or a creditor. It gives the parties 270 days to reach an agreement on the future of the company, failing which it automatically enters bankruptcy. It has proved a very effective mechanism to address insolvency issues and restricting proposals for larger companies. By comparison, formal enforcement processes which involve the Courts can often take years to reach resolution, and foreign Court processes (e.g. Chapter 11) are of limited utility as any judgement by a foreign court will typically not be enforceable in Indonesia.
- The PKPU process also provides a framework for foreign investors to deal with creditors of the company who may not be willing to cooperate in an informal restructure.
- Significant steps are being undertaken to address concerns regarding the speed and integrity of the Indonesia courts. Andi noted that judges dealing with insolvency matters are now required to receive specific training in insolvency issues before hearing a case, there is greater oversight of judges through the Judicial Commission, and there is now greater transparency in the public sphere of the reasons and decisions of judges.
The panel also discussed a number of other points:
- Warren Hogan, (Principal Adviser, Treasury, Australian Commonwealth Government) highlighted the significance of the economies of Indonesia, China and India having reached the position of middle income economies, now facing the challenge of attempting to move to high income economies.
- The panel noted the significant challenges facing China in managing bad debt. The total of non performing loans aggregated with “special mention” loans is currently approximately 5.5% of all current loans. Problems of shadow banking, and a lack of transparency in reporting of actual non performing loans were also highlighted. The initiatives in China to address some of the challenges by launching an information website for bankrupt enterprises and setting up bankruptcy courts are covered in our recent update: http://www.bakermckenzie.com/en/insight/publications/2016/10/prc-launches-information-website/
- The panel also noted the challenges of India’s new Insolvency and Bankruptcy Code, and its recent demonetarisation initiative. You can find out more about the Code here: http://restructuring.bakermckenzie.com/2017/01/18/india-indias-new-comprehensive-insolvency-and-bankruptcy-code/
The challenges discussed by the panellists highlighted the need for legal advisers with real industry experience in those jurisdictions.