In recent years, Indonesian companies have shown both a greater willingness to use foreign restructuring processes, as well as a greater need to do so given the increasingly sophisticated financing structures and investor bases seen for Indonesian businesses. Some of the notable Chapter 15 protection cases include those involving the Duniatex Group in 2020, PT Bakrie Telecom Tbk in 2018, PT Bumi Resources Tbk in 2017, and Berau Capital Resources Pte Ltd (a Singapore SPV of PT Berau Coal Energy Tbk) in 2015. Likewise, Indonesian debtors like PT MNC Investama Tbk have also begun to make use of protections under the Singapore restructuring regime.
Garuda Indonesia, the national airline of Indonesia, is the latest Indonesian debtor to have been granted Chapter 15 protection by the US bankruptcy courts. On October 26, 2022, the US Bankruptcy Court for the Southern District of New York recognized the Indonesian court-supervised restructuring plan for Garuda Indonesia under Chapter 151. Chapter 15 is a powerful and accessible tool for protection under the US Bankruptcy Code for non-US debtors facing litigation claims in the US. Non-US debtors subject to restructuring or liquidation cases outside the US may obtain protections from creditor action in the US by commencing a Chapter 15 case, thereby facilitating the debtor's ability to restructure.
Recognition of foreign proceedings under Chapter 15
A Chapter 15 case is ancillary to a primary restructuring proceeding brought outside the US. Chapter 15 governs the provision of relief under US bankruptcy law to non-US companies and individuals in "foreign proceedings"2 that seek to protect their US-located assets from enforcement proceedings or direct appropriation by individual creditors. Chapter 15 largely adopted the UNCITRAL Model Law on Cross-Border Insolvency and divides foreign insolvency proceedings into two categories: main proceedings and non-main proceedings. Main proceedings are cases pending in the country where the debtor has its centre of main interest. If a US bankruptcy court recognizes a case as a foreign main proceeding, Chapter 15 provides an automatic stay within the territory of the US which is subject only to a limited public policy exception.3 In addition, Chapter 15 provides discretionary relief for non-main proceedings which may also include an automatic stay,4 subject to the requirement that all creditors be "sufficiently protected".5
Requirements and process under Chapter 15
Filing a Chapter 15 case requires that:
(1) a debtor is subject to a foreign proceeding;6
(2) a "foreign representative"7 files a Chapter 15 petition; and
(3) certain English-translated documents accompany the petition.8
In addition, the US bankruptcy court will also likely require the debtor to show some connection to the US in the form of a residence, domicile, place of business or assets in the US.9 However, the US Bankruptcy Court for the Southern District of New York ("SDNY bankruptcy court") has clarified that these requirements should not be prohibitive or onerous. For example, in Berau Capital10 the SDNY bankruptcy court held that an attorney retainer held by the foreign representative's New York counsel and intangible property such as the debtor's contractual rights under a NY law governed indenture was sufficient to provide a basis for Chapter 15 eligibility. Similarly, in BCI Finance11, a minimal retainer placed in the trust account of the foreign liquidator's US counsel and a claim of the debtor in respect of a breach of fiduciary duties by a former director was sufficient. In PT Bakrie Telecom12, a debtor's contractual rights under an indenture containing both a New York choice of law and forum selection clause was sufficient. In Duniatex Group13, a retainer with its US counsel and an indenture governed by New York law was sufficient.
The various SDNY bankruptcy court decisions indicate that even foreign debtors with no substantial property, and only litigation claims against parties in the US, are able to seek Chapter 15 protection.
Automatic stay under Chapter 15
The court will typically grant provisional or interim relief to the debtor following the filing of a Chapter 15 petition and grant permanent relief once the petition is recognized.14 This relief will typically include an automatic stay within the territorial jurisdiction of the US.
The automatic stay operates as a stay applicable to all entities of, among others:
(1) the commencement or continuation of any judicial, administrative or other action or proceeding against the debtor that was or could have been commenced prior to the petition date; and
(2) any act to obtain possession of property of the debtor's bankruptcy estate or to exercise control over property of the estate.15
In addition to staying creditor action, a foreign representative can ask for "additional assistance" from the bankruptcy court once a foreign case has been recognized as a foreign main proceeding. Additional assistance may include enforcing the terms of a plan of reorganization or scheme of arrangement confirmed by a foreign court in the United States. It could also include turning over a debtor's US assets to the foreign representative and providing for the examination of witnesses and the preservation of debtor assets in the US. The type of additional relief can prove crucial, especially if US securities are involved in a foreign proceeding. Indenture trustees based in the US often will not participate in exchange offers and other debt restructurings approved by foreign courts without a US court order.
Restructuring under Indonesian reorganization plan
The Indonesian court-supervised debt restructuring process (Penundaan Kewajiban Pembayaran Utang or PKPU), allows debtors that are unable to pay (or are expected to be unable to pay) some court sanctioned relief from creditor enforcement so the debtor can restructure its debt and develop a reorganization plan with its creditors. PKPU provides two stages: a temporary PKPU of 45 days which may be followed by a permanent PKPU of up to an aggregate of 270 days from the date the temporary PKPU was granted by the court (the "suspension period"). The PKPU process has three key elements: (i) submission of creditors' claims to the administrators; (ii) verification of creditors' claims; and (iii) negotiation of a plan to restructure its outstanding debt (a "PKPU plan").
The PKPU process can be initiated by either the debtor or creditor filing a petition for suspension with the court. Below are some of the requirements for filing such petition.
- If the debtor is a limited liability company, it must obtain approval of its general meeting of shareholders to file a petition for PKPU. No similar consent is required for creditor petitions.
- If a petition is filed by a debtor, the petition should list the nature and amount of the debtor's accounts receivables and debts, accompanied by sufficient evidence. If a petition is filed by the creditor, during the hearing, the debtor will present a list containing the nature and amounts of the debtor's accounts, receivables and debts, accompanied by sufficient evidence and any PKPU plan.
The PKPU process is generally preferred over civil litigation in Indonesia as the timeline is shorter and the process is generally more predictable. The prescribed timeline for a court to render the decision to grant or reject the PKPU is 20 days after a creditor registers a petition with the court clerk, or three days in the case of a debtor filing a petition. If the court grants the PKPU, the court will appoint a supervisory judge and an administrator who, together with the debtor, will jointly manage the debtor assets. The debtor will then require approval from the administrator in the managing of its assets. Throughout the process, the debtor cannot be forced to repay any debts.
A PKPU can be terminated if the PKPU plan for settlement is either approved or rejected by the creditors. If the PKPU plan is rejected, or is not agreed after the expiration of the PKPU, the court will declare the debtor bankrupt. Once a PKPU plan is approved, the court will ratify the PKPU plan and the suspension will expire once the ratification becomes final and binding. Approval of a PKPU plan requires (i) a simple majority of unsecured creditors representing at least 2/3 of the value of all accepted unsecured claims held by the concurrent creditors present at the meeting; and (ii) a simple majority of the secured creditors present representing at least 2/3 of the value of all accepted secured claims held by the secured creditors present at the hearing or meeting.
Chapter 15 recognition of Indonesian reorganization plan
Garuda Indonesia proposed a PKPU plan ("PKPU Plan") to its creditors in June 2022, and the Indonesian court approved the plan in the same month ("PKPU Proceedings"). However, certain aircraft lessors of Garuda Indonesia appealed the validity of the PKPU Plan in the Indonesian Supreme Court.16 Notwithstanding, Garuda Indonesia filed a Chapter 15 petition with the SDNY bankruptcy court on September 23, 2022. Garuda Indonesia established a connection to the US by showing that it has property located within the United States in New York County, a retainer with its lawyers in the US, and certain debt obligations governed by New York law.
On October 26, 2022, the SDNY bankruptcy court recognized the PKPU Proceedings as the "foreign main proceedings". The SDNY bankruptcy court stopped short of granting full force and effect in the US to the order of the Indonesian court approving the PKPU Plan.
As a result, the protection afforded to Garuda Indonesia under Chapter 15 now includes, within the territorial jurisdiction of the US, an automatic stay barring actions against Garuda Indonesia and/or against its property, with a few exceptions in relation to Garuda Indonesia's aircraft lessors including Boeing Company and various entities of Greylag Goose Leasing. Specifically, the Greylag entities filed a limited objection to the Chapter 15 petition asserting that Garuda Indonesia had other undisclosed proceedings with the Greylag entities. As a result of the Greylag entities' limited objection, several modifications were made to the original Chapter 15 Order, including:
- a note that nothing in the Chapter 15 Order limits, modifies or impairs the rights of the Greylag entities with respect to claims asserted against Greylag entities by Garuda Indonesia or any claims asserted against Garuda Indonesia and its affiliates by the Greylag entities, including the Greylag proceedings in four other countries mentioned in the limited objection; and
- a denial of the request for relief and/or additional assistance under sections 1507 and 1521(a) of the Bankruptcy Code. Sections 1507 and 1521(a) provide that the court may "provide additional assistance" or "grant any appropriate relief", respectively, upon recognition of a foreign proceeding. However, this is subject to limitations elsewhere in Chapter 15 including section 1522, which provides that a court may grant relief "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected."