Indonesia's Civil Code is strongly influenced by the Dutch legal system which prevailed during the colonial period before independence in 1945. Since independence the Indonesian legislative body has enacted laws which replace some parts of the old colonial laws. However, Indonesia also continues to maintain the provisions of these laws for which new Indonesian laws have not yet been issued and which do not conflict with any prevailing Indonesian legislation.

Therefore, those provisions in the Dutch Herziene Indonesische Reglement (HIR) and Rechtsreglement Buitengewesten (RBg) which relate to imprisonment for debt still have application in the Indonesian legal system. However, in the course of post-colonial history the Indonesian Supreme Court has issued circulars restricting specific applications of the Dutch colonial laws.

The relevant Dutch laws do have specific provisions in regards to debt imprisonment, but Supreme Court circulars had suspended the operation of these provisions as the application of the dated Dutch laws was deemed inappropriate to the economic development of the nation. Under this rationale, the Supreme Court circulars SEMA 2 of 1964 and, particularly, SEMA 4 of 1975 overturned all Dutch laws relating to imprisonment for debt. As such, the collection of an outstanding debt could only proceed in accordance with the applicable provisions of the Indonesian Civil Code.

However, Indonesia has recently gone through a serious economic crisis that first began in 1997. Even today the country has not fully recovered from the impact of the crisis. Harsh economic conditions have ensured that companies of all sizes have faced insolvency and/or bankruptcy. The collection processes to date have created difficulties in reaching settlements of debts owed to banks and other financial institutions. The crisis has brought a huge amount of cases to be settled, both in and outside of the courts.

Where the amount of the debt is substantial and involves considerable loans provided by international financial institutions, the Indonesian Supreme Court has deemed it necessary to reinstate stipulations regarding imprisonment for debt. The court has been particularly inclined to apply this mechanism for debtors and their guarantors who have demonstrated ill faith and have deliberately refused all effort of settlement despite the fact that they are known to have the ability to repay.

Within the framework of the present developments, the Indonesian Supreme Court has issued a regulation (PERMA 1 of 2000) which revokes the two previous SEMA circulars and re-enacts the old Dutch HIR and RBg provisions, with some adjustments. The implementation of this Supreme Court regulation thus allows the application of imprisonment for debt as an effective legal means for a creditor when dealing with indebtedness amounting to Rp1 billion (approximately $ 100,000) or more. Where such an outstanding debt exists, the debtor and/or its guarantor faces potential imprisonment of six months, which can be extended by six months for each debt owed up to a maximum of three years.

The legislative provisions stipulate that the law is not applicable to a debtor or its guarantor who has reached the age of 75, although it may be applied to persons who have inherited the debt from such a debtor or its guarantor if they have demonstrated bad faith in settling the debt.

A creditor may make a request for imprisonment for debt through a civil law suit at the district court where the debtor is domiciled. If the debtor has signed a deed of indebtedness which includes the words "In the name of justice under the Almighty God," a request for imprisonment for debt may be applied for independently of any civil suit.

A debtor may only be imprisoned for debt by means of a court judgment, whether final and binding or conditional. In exceptional cases where the state is the debtor or guarantor, the sentence will be given in accordance with the decision of the chairperson of the district court.

A debtor or guarantor who has been sentenced to imprisonment for debt may be released from the sentence in any of the following circumstances:

  • if the party that requested imprisonment permits the release;

  • if the debtor settles all debts, including interest accrued, court costs, custodial costs and maintenance, that were previously paid for by the party that requested imprisonment; or

  • if the party that requested imprisonment cannot pay for the cost of the sentence.

Imprisonment for debt is not to be considered as a sentence in lieu of debt. The debt itself remains to be fully recoverable, regardless of the debtor's time served in prison. With the re-enactment of the old Dutch laws, it is expected that present and future debtors will respond quite differently to demands for the settlement of debts. This change may contribute considerably to the recovery and growth of the Indonesian economy.

For further information on this topic please contact Maku Maramis at Lubis Ganie Surowidjojo by telephone (+62 21 831 5005) or by fax (+62 21 831 5015) or by e-mail ([email protected]).
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