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Overview of restructuring and insolvency activity

In court-supervised restructuring, the terms negotiated between debtors and (key) creditors and each of their financial and legal advisers mainly comprise haircuts, instalments, extensions of maturity (grace periods), debt-to-equity conversions, sales of part of a debtor's assets, potential investment plans from investors or any combination of these. It is also customary to apply different restructuring terms to different groups of creditors. In certain court-supervised restructuring cases involving a group of companies as a debtor with significant assets, a financial auditor or consultant, acting as an expert, may be appointed by the supervisory judge at the debtor's expense to carry out financial due diligence over the debtor's accounts to provide creditors with a more accurate picture of the debtor's financial state of health.

Based on the court case tracking system (SIPP) for five commercial courts (Central Jakarta, Medan, Semarang, Surabaya and Makassar), in 2021, 117 bankruptcy petitions and 625 suspension of debt payment obligations (PKPU) petition filings were recorded. In 2020, there were 114 bankruptcy petitions and 635 PKPU cases in total. It is evident that the number of bankruptcy petitions filed increased slightly from 114 in 2020 to 117 in 2021. PKPU petition filings dropped slightly from 635 in 2020 to 625 in 2021.

If the number of cases in 2019, 2020, 2021 and 2022 is examined over the same period (January to the end of April), bankruptcy petition filings were 52, 35, 47 and 34, respectively, and PKPU petition filings were 133, 144, 282 and 155 in those years.2 This shows that PKPU legal recourse is still more popular than bankruptcy as a means of debt restructuring in Indonesia.

Recent legal developments

In April 2020, the Supreme Court issued Decree No. 109/MA/SK/IV/2020 on Use of a Guide Book for Resolving Bankruptcy and PKPU Cases, dated 29 April 2020 (the Later Guide), which revoked and replaced Supreme Court Decree No. 3/KMA/SK/I/2020 on the same, dated 14 January 2020 (the Guide), which contains controversial provisions that restrict a secured creditor's right to file a PKPU petition against its debtor – a feature clearly permitted in the IBL.

The Later Guide imposed various obligations on commercial court personnel to update information on ongoing bankruptcy and PKPU cases (announcements and court decisions) in the SIPP and administration systems. It also provided clarification on how the IBL should be implemented for issues that in the past were implemented differently in different cases:

It is confirmed that OJK is authorised to file for bankruptcy or a PKPU petition against a bank. The IBL provides that Bank Indonesia (BI), the Indonesian central bank, is the only party that can file such a petition against a bank. In 2013, the function, task, and authority in regulation and supervision of financial services activities in the banking sector were transferred from BI to OJK based on Law No. 21 of 2011 on OJK. There has yet to be a precedent of a bankruptcy or PKPU petition being filed against a bank by either BI or OJK.

The Later Guide provides further guidance on technical issues and on the implementation of which the IBL was not clear:

  1. the requirement to submit the latest financial statement audited by a public auditor as evidence for a voluntary bankruptcy filing by a debtor that is a legal entity;
  2. data on creditors obtained from OJK through the Financial Information Services System website would not carry sufficient evidentiary weight to prove the existence of more than two creditors, unless supported by other proof establishing the existence of the debt;
  3. several features recognised by the Indonesian civil procedural law (i.e., demurrers (unless on court competence), replies, rejoinders, interventions and counterclaims) are not recognised in a bankruptcy or PKPU case examination;
  4. upon permission or an order of the judge, and at the expense of the bankruptcy petitioner, the court may facilitate a bankruptcy petitioner's request to have other creditors that have been cited in the petition summoned by the court to attend an evidentiary hearing;
  5. a formal objection to claim verification in the bankruptcy proceedings must be raised in the formal claim verification meeting for a subsequent adjudication process to be allowed to proceed;
  6. when a bankruptcy estate is in a state of insolvency, this will be reflected in the minutes of the creditors' meeting to be uploaded to the court tracking system, and no separate supervisory judge's order is required;
  7. if the secured creditors themselves are unable to sell the collateral within two months of the state of insolvency, the collateral must be handed over to the receiver to be sold at public auction;
  8. if the sale at public auction does not materialise, a private sale at the supervisory judge's approval may be carried out by the receiver after two attempts to hold a public auction, as evidenced by the minutes of auction; and
  9. the end of bankruptcy proceedings does not automatically dissolve a company; the receiver will act as liquidator in the process of revoking legal entity status, certificate of registration and tax identification.

In 2021, two developments occurred. First was enactment of Ministry of Law and Human Rights Regulation No. 18/2021 on Guidelines for Receiver/Administrator Fees, which introduced an hourly rate of 4 million rupiahs per hour for a receiver in bankruptcy, with maximum fees capped in accordance with the following tiered rules:

Bankruptcy concluding with composition
Value of debt to be paidFee
Up to 50 billion rupiahs5%
Above 50 billion rupiahs to 250 billion rupiahs3%
Above 250 billion rupiahs to 500 billion rupiahs2%
Above 500 billion rupiahs to 1 trillion rupiahs15 billion rupiahs
Above 1 trillion rupiahs20 billion rupiahs
Bankruptcy concluding with liquidation
Liquidation value outside debtFee
Up to 50 billion rupiahs7%
Above 50 billion rupiahs to 250 billion rupiahs5%
Above 250 billion rupiahs to 500 billion rupiahs3%
Above 500 billion rupiahs to 1 trillion rupiahs25 billion rupiahs
Above 1 trillion rupiahs30 trillion rupiahs

It also introduced a change to the maximum administrator's fee in PKPU to 7.5 per cent of the value of debt to be paid, if the PKPU concludes with composition, and 5.5 per cent if the PKPU concludes without composition.

Second, on 15 December 2021, the Constitutional Court rendered a decision in case No. 23/PUU-XIX/2021 (MK Decision 23/2021), which included a declaration that Articles 235(1)5 and 293(1)6 of the IBL were against the 1945 Indonesian Constitution and did not have binding effect, to the extent that they were not imbued with the following meaning: 'The filing of a cassation petition is permissible against a PKPU decision filed by a creditor and rejection of the composition plan offered by a debtor.'

According to Article 285(4) of the IBL, filing for cassation by a creditor is possible only when the composition plan is approved by the creditors and confirmed by the commercial court (Court). Should the composition plan be rejected by the creditors, no cassation filing is possible. Under Article 290 of the IBL, should the Court have declared a debtor bankrupt, all bankruptcy provisions, as stated in Chapter II (Bankruptcy), except for the cassation filing provision, would apply. Further, Article 293(1) of the IBL provides that in respect of a Court decision based on Chapter III (PKPU), no legal remedy is available, except as is otherwise regulated by the IBL. Based on the foregoing, the provision under Article 285(4) of the IBL is effectively an exception to Article 293(1) of the IBL.

It is viewed that MK Decision 23/2021 has indirectly caused the provision under Articles 285(4) and 290 of the IBL to be amended such that a petition for cassation may be filed against a Court decision that declares a debtor in PKPU bankrupt following rejection of the proposed composition plan. How the Supreme Court would decide contrariwise, and how a final settlement would be reached for all creditors, given that the new norm set out in MK Decision 23/2021 has not yet been tested, might give rise to some uncertainty.

Significant transactions, key developments and most active industries

In 2019 and 2020, the most notable restructuring cases were the PKPU of a Central Java-based group of textile companies, the Duniatex Group, comprising six companies,7 followed by the PKPU of its owner, Sumitro,8 acting as a personal guarantor securing various liabilities of the group. Both proceeded at the Semarang Court. The market was shocked by the Duniatex PKPU, which commenced in September 2019, given that as recently as March 2019 the group issued US$300 million-worth of senior notes due to mature in 2024 at the Singapore stock exchange. The Duniatex Group's total debt was 22.36 trillion rupiahs (approximately US$1.5 billion).

From a procedural perspective, these two PKPU cases, initially supervised by two different supervisory judges, one for each case, are unique. The two sets of administrator teams appointed for each separate PKPU case managed to coordinate and align the restructuring process of both PKPU cases, as they are commercially connected. This accommodated the creditors of each party to the PKPU, some of whom overlapped and some of whom were totally different. From an international perspective, the PKPU of the Duniatex Group filed petition for recognition of foreign proceedings under Chapter 15 of the US Bankruptcy Code,9 from the US Bankruptcy Court, Southern District of New York (US Bankruptcy Court),10 and also filed an application with the High Court of Singapore for an order that the PKPU proceedings be recognised in Singapore.11 From a commercial perspective, the restructuring terms on offer were unprecedented, as the US$300 million senior noteholders, which were previously secured merely by a pledge of bank account, are being offered with additional collateral.12

A breakthrough in this area, and a novel informal approach, was an attempt to encourage all parties to use online meeting platforms for creditor meetings to discuss and negotiate the terms and conditions of the composition plan and the holding of online court hearings because of the covid-19 emergency. This was unprecedented and led to the establishment of a 'new normal' in restructuring and bankruptcy practice, now applied to subsequent cases.

In recent key developments, an Indonesian court in a PKPU petition case rendered a decision by referring to and basing it on a foreign court judgment in its considerations. Under Indonesian general legal principles, foreign court decisions are not enforceable in Indonesia (however, Indonesian judges have broad fact-finding powers, and the judgments of the Indonesian courts might not always be consistent).

In May 2021, PT Pan Brothers Tbk (Pan Brothers) was the subject of a PKPU petition filed by Maybank Indonesia with the Jakarta Commercial Court (Jakarta Court).13 Responding to the petition, Pan Brothers filed a moratorium application with the Singapore High Court (SHC) in early June 2021. SHC rendered an order to grant a moratorium to Pan Brothers and its subsidiaries on debt settlement for syndicated creditors. In July 2021, the Jakarta Court rejected the PKPU petition on the basis that the SHC moratorium order bound Pan Brothers and there would be overlap in the debt settlement process if the PKPU petition were granted. Subsequently, Maybank filed a bankruptcy petition against Pan Brothers in August 2021. However, the Jakarta Court rejected the petition on the basis that the case could not be summarily proven because of the Singapore moratorium process.14 Later, Pan Brothers succeeded in having its pre-packaged scheme sanctioned by SHC in January 202215 and obtained recognition of its Singaporean scheme before the US Bankruptcy Court.16

Another case that followed the content of the SHC decision was the PKPU of a Central Java-based group of textile companies, PT Sri Rejeki Isman, Tbk (Sritex Group).17 On 19 April 2021, Sritex Group was the subject of a PKPU petition filed with Semarang Commercial Court by its trade creditor, CV Prima Karya, and, on 6 May 2021, the petition was granted by the court. On 21 April 2021, a Singapore subsidiary of Sritex Group, Golden Mountain Textile and Trading Pte Ltd (Golden Mountain), made an application to the SHC for a moratorium. Golden Mountain is an intercompany creditor of Sritex Group,18 under Senior Notes due 2024 (Notes) issued by Golden Legacy Pte Ltd (Golden Legacy), another Singapore subsidiary of Sritex Group, unconditionally and irrevocably guaranteed by Sritex. Upon receiving the proceeds of the Notes, Golden Legacy used them as a capital injection in Golden Mountain, and Golden Mountain then lent those proceeds to Sritex Group.

In May 2021, the SHC rendered a moratorium order, which included a requirement that Golden Mountain lodge a claim in the PKPU proceedings and exercise its right to vote in the PKPU proceedings of Sritex Group. This was to be in a manner that reflected the voting instructions of each individual holder of the Notes that cast its votes in a manner that would be (1) expressed by the trustee in accordance with the Golden Legacy indenture or (2) obtained through other customary procedures as may be appropriate, including through the clearing systems.

In June 2021, Sritex Group filed a Chapter 15 petition for recognition of foreign proceedings (both Indonesian and Singaporean proceedings) with the US Bankruptcy Court. On 6 July 2021, the court-appointed administrator of Sritex Group rendered a list of claims against Sritex Group that rejected the claim submitted by the trustee of the Notes on the basis of the SHC moratorium order, and accepted Golden Mountain's claim submissions instead.

In the aviation sector, the most notable restructuring case involved Indonesian national flag carrier PT Garuda Indonesia (Persero), Tbk (Garuda). Similar to other airlines in the world during the covid-19 pandemic, Garuda suffered huge financial losses since 2020, and gross mismanagement and graft by previous directors compounded its problems.19

The government attempted to save Garuda in 2020 through government capital participation, which is estimated to amount to around US$570 million. In the same year, Garuda Indonesia secured approval of US$500 million from global sukuk holders to extend the maturity date of its obligations under its global sukuk. In June 2021, Garuda Indonesia further managed to obtain approval from various state-owned banks, airport operators, oil and gas companies, and enterprises, as well as local private banks for rescheduling its debts.

On 9 July 2021, Garuda was the subject of a PKPU petition filed by PT My Indo Airlines. Due to the covid infections peaking at this time, the Jakarta Court took the unprecedented approach in handling the case by rendering its decision on 21 October 2021, taking more than three months since registration of the PKPU petition. This approach violated an IBL provision that requires a court decision on involuntary PKPU to be rendered within 20 calendar days (PKPU petition process timeline). The Jakarta Court rejected the case as the PKPU requirements could not be summarily proven.20

Interestingly, one day after the PKPU petition decision was rendered, another was filed against Garuda by PT Mitra Buana Koorporindo.21 This time, the Jakarta Court again violated the PKPU petition process timeline and granted Garuda PKPU on 9 December 2021, thereby marking maybe one of the largest debts subject to PKPU in Indonesia's commercial history. The Jakarta Court ultimately issued an unprecedented decision by appointing a six-member administrator team for Garuda (as proposed by the PKPU petitioner and Garuda).

Initially, Garuda planned for dual Indonesia–UK restructuring.22 However, at the time of writing (almost six months since commencement of the PKPU process), Garuda has not yet commenced UK restructuring. In April 2022, the Indonesian Parliament agreed to allocate state capital to Garuda of 7.5 trillion rupiahs from the 2022 state budget to rescue the airline,23 provided that the PKPU process resulted in successful debt restructuring approved by the creditors. Negotiations between Garuda and creditors are still ongoing and the PKPU is expected to be completed this year.