Legal Analysis of the Urgency of Cross-Border Insolvency Regulation, Legal Reform Steps, and the Role of BKPM and DANANTARA in the Indonesian Investment Ecosystem

Posted 18 July 2025

Kenny Wiston

INTRODUCTION

This memorandum provides a comprehensive legal analysis of the urgency for cross-border insolvency regulation in Indonesia, the necessary legal reform steps beyond the adoption of the UNCITRAL Model Law, and the expected roles of BKPM (Indonesia Investment Coordinating Board) and Danantara (Badan Pengelola Investasi Daya Anagata Nusantara). The analysis is grounded in the current Indonesian legal framework, highlighting the risks and challenges faced by investors due to the absence of comprehensive cross-border insolvency provisions. The memorandum also addresses the synergy between regulatory and institutional actors in strengthening Indonesia’s investment climate and legal certainty.

Urgency of Cross-Border Insolvency Regulation for Attracting Investors

The Indonesian bankruptcy regime, as stipulated in Law Number 37 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations (UU Kepailitan dan PKPU), adopts a limited universality principle (Articles 212, 213, and 214). This principle normatively extends the effect of Indonesian bankruptcy decisions to all debtor assets, including those abroad.
However, execution of assets located outside Indonesia is constrained by the jurisdiction of foreign states. Without international recognition or treaties, Indonesian court decisions cannot be automatically enforced abroad.
The absence of explicit cross-border insolvency regulation, as acknowledged in the elucidation of Article 229 of Law No. 37/2004, means that foreign court decisions are not enforceable in Indonesia unless supported by statutory provisions, bilateral, or multilateral agreements, as regulated in Article 436 of the Reglement op de Burgerlijke Rechtsvordering (Rv).
Indonesia has not yet adopted any binding international treaty on cross-border insolvency, nor the 1997 UNCITRAL Model Law. This legal vacuum exposes foreign investors to significant legal risks in cases involving cross-jurisdictional assets, undermining investor confidence due to the lack of legal protection and certainty of asset execution.
The universality principle in Law No. 37/2004 conflicts with the territoriality principle in private international law, resulting in uncertainty for creditors and investors seeking to recover claims or secure assets abroad.
Comprehensive cross-border insolvency regulation and the adoption of international agreements or the Model Law are therefore urgent to enhance investor confidence, legal certainty, and creditor protection, in line with the objectives of Law No. 37/2004 to support national economic growth.
Strengthening the cross-border insolvency legal framework will create a more conducive and competitive investment climate for Indonesia globally.

Legal Reform Steps Beyond Adoption of the Model Law

In addition to adopting the UNCITRAL Model Law 1997, Indonesia must undertake several legal reforms to strengthen the cross-border insolvency regime and enhance legal certainty for investors:
1. Harmonization and Revision of Bankruptcy Law
  - Revision of Law No. 37/2004 is necessary, as identified in the 2023 Government Work Plan through Presidential Regulation No. 108 of 2022, to explicitly regulate the recognition and enforcement of foreign bankruptcy decisions and inter-jurisdictional cooperation mechanisms.
2. Drafting Bilateral or Multilateral Treaties
  - Indonesia should formulate and ratify bilateral or multilateral treaties with key investment partner countries to provide a legal basis for the recognition and enforcement of foreign court decisions, as mandated by Article 436 Rv and the elucidation of Article 229 of Law No. 37/2004.
3. Strengthening Inter-Agency and Judicial Cooperation
  - Effective cooperation mechanisms between commercial courts and relevant authorities in other countries should be established, following the Model Law principles of local court access, recognition of decisions, assistance in foreign insolvency proceedings, and coordination of concurrent insolvency processes.
4. Capacity Building and Legal Infrastructure Development
  - Human resource capacity in international civil law and insolvency must be enhanced, and integrated information systems developed to support cross-border data exchange, as also targeted in Presidential Regulation No. 108 of 2022.
5. Stakeholder Socialization and Advocacy
  - The government, professional associations, and business actors must conduct socialization and advocacy to build shared understanding and support for legal reform in cross-border insolvency.

These steps must be implemented simultaneously to create an effective cross-border insolvency system, provide legal certainty, and increase Indonesia’s investment attractiveness.

Expected Role and Contribution of BKPM and Danantara

BKPM (Indonesia Investment Coordinating Board):
- Acts as the government agency responsible for coordinating and implementing investment policies, including the issuance of principal and business licenses, as regulated by Presidential Regulation No. 90 of 2007 jo. Presidential Regulation No. 86 of 2012 and Presidential Regulation No. 27 of 2009.
- Has authority to delegate licensing to specific zones, such as Free Trade and Free Port Zones, under BKPM Regulation No. 8 of 2013 and No. 9 of 2013.
- Coordinates cross-sectoral investment policies and serves as a liaison between central and regional governments and business actors.
- Is mandated to create a conducive investment climate through licensing simplification, investment promotion, and facilitation of investment obstacles, as stipulated in Law No. 25 of 2007 on Investment.
Danantara (Badan Pengelola Investasi Daya Anagata Nusantara):
- Established as Indonesia’s second sovereign wealth fund, tasked with managing and optimizing state assets through the consolidation of assets from seven major SOEs, as regulated in Law No. 1 of 2025 and Government Regulation No. 10 of 2025.
- Focuses on investments in strategic sectors such as mineral processing, artificial intelligence, renewable energy, and food production, to drive national economic growth.
- Must coordinate with relevant ministries and agencies and may cooperate with domestic and foreign organizations (Article 30 of PP No. 10/2025).
- May obtain funding through loans and grants and recruit human resources from civil servants and/or SOE employees (Articles 31 and 32 of PP No. 10/2025).
- Aims to enhance SOE efficiency, transparency, and global competitiveness through integrated asset management.
Synergy between BKPM and Danantara:
- BKPM acts as regulator and facilitator, while Danantara serves as an institutional investor managing and allocating funds to national priority sectors.
- Their coordination is crucial to ensure effective implementation of national investment policies, with Danantara as the executor of strategic investments and BKPM as the regulator, supervisor, and promoter.

The Relationship between BKPM, Danantara, and Cross-Border Insolvency

BKPM’s Role in Investment and Investor Protection:
- BKPM is mandated to coordinate and implement investment policies, including licensing and the delegation of authority to special zones, as per Presidential Regulations and Law No. 25/2007 (Articles 27 and 28).
- It is responsible for creating a conducive investment climate, legal certainty, and facilitating the resolution of investment obstacles.
Danantara’s Authority in State Asset Management:
- Danantara is established as a sovereign wealth fund to manage and optimize state assets, with authority to invest in strategic sectors, obtain funding, and cooperate with domestic and foreign entities, as regulated in Law No. 1/2025 and Government Regulation No. 10/2025.
- The structure of investment and operational holdings is specifically regulated to ensure efficient and integrated state asset management.
Cross-Border Insolvency Challenges in the Investment Context:
- The current Indonesian bankruptcy law does not comprehensively regulate cross-border insolvency. Indonesian bankruptcy decisions are not automatically recognized or enforceable abroad without international treaties or foreign recognition (Articles 212-214 and elucidation of Article 229 of Law No. 37/2004, Article 436 Rv).
- The absence of cross-border insolvency regulation creates legal risks for investors, particularly in asset protection and enforcement across jurisdictions, potentially reducing foreign investment interest.
Synergy and Legal Reform:
- BKPM, as regulator and facilitator, must ensure legal certainty and investor protection, including in cross-border insolvency matters.
- Danantara, as an institutional investor and state asset manager, must consider cross-border insolvency risks in all cross-jurisdictional investment decisions and promote good corporate governance and legal risk mitigation.
- Their synergy is essential to advocate for legal reform, draft international agreements, and strengthen institutional capacity in cross-border insolvency.

CONCLUSION

The urgency to strengthen Indonesia’s cross-border insolvency legal framework is paramount to support the roles of BKPM and Danantara in attracting investment and protecting both state and investor interests. It is recommended that Indonesia prioritize the adoption of the UNCITRAL Model Law, revise Law No. 37/2004, and develop international treaties to ensure legal certainty and effective asset protection. BKPM and Danantara must synergize in advocating for legal reform, institutional capacity building, and the implementation of good governance in cross-jurisdictional investments, in full compliance with Indonesian law.

Prioritize the adoption of the UNCITRAL Model Law and revision of Law No. 37/2004.
Formulate and ratify bilateral/multilateral treaties on cross-border insolvency.
Strengthen the synergy between BKPM and Danantara in legal reform advocacy and investment governance.

ATTACHMENT OF LEGAL BASIS

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