Suspension of Payment in Indonesia (PKPU): A Vital Pre-Insolvency Tool

Jack Wiston

The Indonesian corporate landscape has seen significant changes over the past years, particularly in how businesses address financial distress. Among the available mechanisms is the Penundaan Kewajiban Pembayaran Utang (PKPU) — a pivotal pre-insolvency procedure. As international businesses and stakeholders engage more deeply with Indonesia, understanding PKPU becomes crucial. This article provides an overview, grounded in the relevant regulations and legal implications.

Statutory Basis:

At its core, PKPU is governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Payment (the “Bankruptcy Law“). The process is an effort to provide a legal pathway for companies to negotiate debt settlements or restructuring without immediate recourse to bankruptcy.

Initiation:

Both debtors and creditors can initiate a PKPU procedure. Debtors typically trigger PKPU when they anticipate liquidity issues, while creditors can request it when they ascertain a debtor’s default.

Process & Timeframes:

Upon submission of a PKPU request, courts are statutorily mandated (under Article 226 of the Bankruptcy Law) to make a decision within three days. If granted:

• A temporary PKPU phase of 45 days commences, focused on fostering negotiations between debtors and creditors.
• If a consensus emerges, parties may seek a permanent PKPU phase that lasts a maximum of 270 days, facilitating the implementation of the agreed terms.

Court-appointed Administrators:

Court-appointed administrators, as per Article 227 of the Bankruptcy Law, are instrumental in overseeing negotiations. They act as impartial arbiters ensuring both the fairness of discussions and adherence to the stipulated legal framework.

Legal Protections:

During the PKPU, the Bankruptcy Law offers substantial protections. Notably, Article 231 prohibits the diminishment of the debtor’s assets, ensuring that creditors cannot initiate separate or new lawsuits about pre-existing debts.

Consequences of PKPU:

The optimal outcome is a binding debt restructuring agreement. It’s worth noting that, under Article 286, even dissenting creditors must adhere to the agreement. However, should negotiations falter, the spectre of bankruptcy looms for the debtor.

The PKPU in Practice:

While PKPU provides a structured path for companies seeking a reprieve, it is not without challenges. The expedited timelines, though designed for efficiency, can strain both creditors and debtors. Additionally, the optics of entering PKPU can affect future business relationships.

Developments in PKPU Law:

In the ever-evolving legal landscape of Indonesia, constant adaptations are made to reflect the contemporary needs of businesses and the economy. An area that has witnessed significant reform in recent times is the PKPU law.

One notable development came with the passage of Law No. 11 of 2020 on Job Creation (the “Job Creation Law“). This transformative piece of legislation introduced noteworthy changes to the extant Bankruptcy Law, yielding profound implications for PKPU. 

Changes include:

• Inclusion of Micro and Small Businesses: The Job Creation Law has democratised access to PKPU by extending its scope beyond just medium and large enterprises. Micro and small businesses, which constitute a considerable segment of the Indonesian economy, can now leverage PKPU as a means of navigating financial distress.
• Expedited PKPU: In a bid to streamline procedures and enhance efficiency, the Job Creation Law introduced the concept of ‘expedited PKPU’. This simplified process is designed to expedite negotiations between debtors and creditors, culminating in quicker resolutions and a reduced administrative burden.
• Facilitation for Debtors: Historically, several prerequisites tethered the initiation of PKPU for debtors. The Job Creation Law has made this initiation more accessible by discarding certain stipulations. This move reflects an intent to facilitate businesses in availing the benefits of PKPU without being enmeshed in onerous requirements.

In effect, the Job Creation Law embodies a proactive approach towards ensuring that businesses of all scales in Indonesia can benefit from the PKPU mechanism. By making it more inclusive, efficient, and accessible, the expectation is a surge in PKPU filings in the ensuing years. This is indicative of Indonesia’s commitment to providing robust support structures for businesses, particularly in times of economic strain.

For those engaged in Indonesian corporate affairs, it would be prudent to stay attuned to the nuances of these developments, given their potential to reshape the financial and operational strategies of businesses in distress.

Summary

PKPU is a valuable tool for both debtors and creditors in Indonesia. It provides a way for debtors to avoid bankruptcy and negotiate a settlement with their creditors, and it provides a way for creditors to recover some or all of their debts.

The Job Creation Law has made PKPU more accessible and affordable for businesses of all sizes. This is likely to lead to an increase in the number of PKPU cases filed in Indonesia in the coming years.

If you are considering filing for PKPU, or if you are a creditor of a debtor who is considering filing for PKPU, it is important to seek legal advice from an experienced lawyer.