Indonesia: Qua Vadis Legal Protection For Insolvency Administrator
This article is focusing on the urgent need of legal protection in the form of immunity rights for administrator when performing trusteeship duties on bankruptcy estate. This is based on the fact that the current bankruptcy regulation does not clearly provide sufficient protection which in reality causes legal actions against administrator, in the form criminal report and/or civil proceedings. In general, from various fact findings, media and information gathered, most of legal actions made against receiver or administrator by debtor or creditor of bankruptcy estate are aiming to prevent settlement process of bankruptcy estate. Regulations that supports and provides protection on administrator on duty would at least provide comfort when functioning without entirely losing the rights to pursue legal action against such administrator from the relevant parties.
The past year, there is growing intense discussion on the revision of the current Law No 37/2004 regarding Bankruptcy and Suspension of Obligation for Payment of Debts (hereinafter referred as “Bankruptcy Law”), in which experts from the government, legal academicians and practitioners alike have gathered and conferred on several aspects of the Bankruptcy Law which are in need to be altered. They are in sound that there are at least several issues in the current Bankruptcy Law that can be categorized on the below points:
- Conditions to state bankruptcy, in which the current law considered only to be based on presumption and lacking the evaluation of real capability of the debtor in fulfilling its obligations;
- Simple authentication, as part of the conditions that must be fulfilled in pursuing state of bankruptcy, whereas the current law considered to silent in setting the parameter on “simple” itself;
- Automatic stay, whereas debtor lose any authorities and possession rights upon being declared as bankrupt. However, in practice, there is the existing window of time between the submission of petition until the decision during bankruptcy court proceedings that can be used by certain debtor in transferring and/or taking certain actions on its assets to be avoided from bankruptcy process;
- Certain rights of secured creditors, the ones withholding securities over assets, which although already being placed as special under law but its certain rights need to be revised to ensure fairness during bankruptcy process;
- Otoritas Jasa Keuangan (“OJK”/Financial Service Authority) role on bankruptcy against banking institution;
- Bankruptcy petition against state owned enterprise or regional owned enterprise;
- Position and supervision on bankruptcy administrators, focusing on their professionalism also legal protection during functioning;
- Criminal confiscation during bankruptcy process;
- The right for creditor to claim for suspension of payment, which can be misused to create bankruptcy status against debtor;
- Labor fees ranking, in which after the issuance of Constitutional Court Decision No. 67/PUU-XI/2013 must be incorporated into the revision of law;
- Cross border insolvency, which is absent from the current Bankruptcy Law due to legal principles;
- Bankruptcy assets management, covering the selling of assets and disclosure of management from administrator to debtor;
Others put the focus on the few points such as the amendments on the conditions that have to be met to declare bankruptcy, while some put the focus on the need to add cross border insolvency regulations to be in line and update with global business changes and challenges. However, the writer would like to put the focus on an aspect of one of the above key challenges discussion point, which is the position and supervision on bankruptcy administrators, specifically on the legal protection on administrator against criminal prosecution during administering bankruptcy estate. This is an alarming issue on its implementation since the current Bankruptcy Law being introduced back in 2004. Even as this article is being written, media have just informed that an administrator was made into suspect and then is detained by police investigators over a company’s bankruptcy matter. Setting aside whether the actions taken are legally founded or the administrator is wrongfully accused, there is the wariness criminalization against trusteeship.
World Bank earlier this year released its list of Ease of Doing Business Index for the year of 2018, in which Indonesia jumped from 91st position in 2017 into the 72nd. This marks significant improvement for business in Indonesia, and 1 (one) indicator for the ranking move is the insolvency resolving condition. This could also be shown from the growing trend of suspension of payment (Penundaan Kewajiban Pembayaran Utang/hereinafter referred as “PKPU”) and bankruptcy cases in 5 (five) established Indonesian commercial courts. Back in 2017, Central Jakarta Commercial Court processed the total of 230 PKPU and bankruptcy cases, while upon writing this article, the current number is 184 PKPU and bankruptcy cases combined in the same court. Surabaya Commercial Court came close in second, processing 59 PKPU and bankruptcy cases in 2017, while this year it currently administers 50 PKPU and bankruptcy cases. Medan Commercial Court in 2017 registered 18 PKPU and bankruptcy cases on its list while currently registered 22 PKPU and bankruptcy cases. Semarang Commercial Court currently deals with 32 PKPU and bankruptcy cases. Makassar Commercial Court processed just 3 PKPU and bankruptcy cases last year while currently processing 11 PKPU and bankruptcy cases. These numbers could be the evidence that PKPU and bankruptcy proceedings have become prima donna in settling owed obligations cases in recent years.
The growth in cases also reflects on the escalation of participants for receiver and administrator certification program for professional each year which sold out in minutes when registrations are opened, similar to K-Pop concerts. Also the growing numbers of certified receivers/administrator from the 3 (three) sanctioned associations in Indonesia, Asosiasi Kurator dan Pengurus Indonesia (“AKPI”), Ikatan Kurator dan Pengurus Indonesia (“IKAPI”) and Himpunan Kurator dan Pengurus Indonesia (“HKPI”). All are hopeful to get their portion on handling insolvency matters which promise high financial benefits at the end.
“With great power comes great responsibility”, a phrase made famous from a superhero movie does indeed become meaningful in the insolvency world. As an administrator for bankruptcy estate, one is expected independency, receives significant and varied amount of obligations from dealing with relevant parties (debtor, creditors, and courts), securing and managing also settling bankruptcy estate. Administrator duties more like the amalgamation of directorship, auditor, and liquidator as one. Article 16, article 69 par (1) to (5), article 74 par (2), article 202 par (3) of Bankruptcy Law sets out the responsibilities and duties of administrator, in which can be categorized amongst others as follows:
- Securing bankruptcy estate;
- Inventory of bankruptcy estate;
- Submitting civil claim for the benefit of bankruptcy estate;
- Continuing debtor’s business;
- Submitting request to supervisory judge to positioned debtor’s legal entity management or its commissioner detained;
On the other hand, in practice, an administrator may also be faced with obstacles when performing duties, from being reported to ethical board of association to facing civil claim or criminal report. Article 72 of Bankruptcy Law regulates that administrator shall be responsible for any faults or negligence in performing its management and/or settlement duties which causes loss to the bankruptcy estate, which in the practice often used as arguments made against administrator.
In practice, challenges made against administrator on duty may occur in the form of:
- Denied from accessing bankruptcy estate (acquiring documents; entering and securing properties; gathering assets);
- Criminalization, being reported to the police based on the reasons of either breaking and entering (Article 167 Indonesian Criminal Code/Kitab Undang-undang Hukum Pidana (hereinafter referred as “KUHP”)), defamation (Article 310 KUHP), embezzlement (Article 372 KUHP), falsifying documents or information stated on documents (Article 263 KUHP);
- Civil litigation, tort claims made against administrator actions or documents released in relation to bankruptcy estate and its management;
In which from the above list, criminalization being the biggest and frequent adversary in the insolvency process. It almost becomes customary to hear or read news on colleagues declared as criminal suspects when administering bankruptcy estate. Administrators for PT Metro Batavia (under bankruptcy), PT Meranti Maritime (under bankruptcy), and PT Bumi Asih Jaya (under bankruptcy), to name a few; have all shared similar experience being stated as criminal suspects.
There are several factors that can be labeled as the ground factors for legal actions against trusteeship:
- The lack of knowledge of parties involved, whereas although the current Bankruptcy Law is already more than 10 (ten) years of implementation, it is still considered as unknown territory in the local business field. Administrator often faced with the duties to educate debtor (including its board of directors, commissioner, and shareholders) on the legal implications of being declared as bankrupt, the realization of transfer of control and boundaries included which must be recognized and put in place. This fact is also added with the still unfamiliarity of bankruptcy practice by some legal consultants and advocates alike, especially in the regions outside the commercial courts are domiciled. Lack of knowledge could lead to incorrect advise which could lead to unfounded legal action;
- Conflict of interest between parties involved, whereas during management of bankruptcy estate, administrator must also be able to balance the interest of creditors and its debtor. However, the parameter could be unclear when there are many parties and factors are involved. For example, secured creditor would prefer to get the highest return when executing assets could be confronted with the view of administrator that such revenues from executed assets should also partially be used for other preferred/concurrent creditors. Little discomfort on any decision and/or instruction made can sparks into dissatisfaction;
- Distrust, whereas parties involved in bankruptcy proceedings lacks in acknowledging that administrator must be independent, upholding integrity and objectivity as requested by its respective association ethical code also Bankruptcy Law;
Legal actions based on the abovementioned factors as said on the beginning of this article mostly are aiming to prevent settlement process of bankruptcy estate, since legal actions are time consuming. However, there is also the concerning fact the lack of understanding from the parties submitting legal actions whereas the additional time needed to process such claims consequently resulting in the increase of time in completing the bankruptcy settlement process and therefore increase in costs (increase of costs in securing assets and bankruptcy fees).
Article 28 D point (1) of the Constitution of the Republic of Indonesia clearly determines that; “Every person shall have the right of recognition, guarantees, protection and certainty before a just law, and of equal treatment before the law,” an article that echoed one of the most famous isonomy legal principle, which is equality before the law. Considering that the administrator have performed duties within legal boundaries, coordinating frequently with supervisory judge and/or other courts’ officials or even with police institution, and providing clear information to its debtor and creditors, should have ensured the administrator position clear from possibilities of any legal action made against. However, the writer is in the opinion that the law itself should have been apparent in providing protection for dutiful administrator, which is absent from the current Bankruptcy Law. Article 72 of Bankruptcy Law states “any faults and negligence”, however the explanation of the article does not specify the categorization of such faults. The current Bankruptcy Law lacks from providing protection on administrator when performing duties over bankruptcy estate. One form of legal protection that should be applicable on this issue is the establishment of specific immunity rights for administrator on duty over bankruptcy estate.
Realizing on the fact that majority of administrator are advocates, there is the opinion that immunity rights that is granted to advocate as regulated under Article 16 of Law No. 18/2003 regarding Advocates (hereinafter referred as” Advocates Law”) can be automatically applies to administrator. However, Article 16 of Advocates Law specifically determines that; “Advocates may not be prosecuted civilly or criminally if they perform their profession in the good faith for the interest of defending a client in the trial.” From this article, there are 2 (two) conditions that should be fulfilled, the first being in the good faith, and second as in the trial. Understanding the nature of administrator duties also covers on performing obligation outside court, should be a supporting argument to ensure the availability of specifically crafted and designed immunity protection on bankruptcy law. One might argue that cooperation, coordination and workshops between administrator associations and law enforcements are already frequently held to avoid misunderstanding and misinterpretation of administrator duties, and therefore to decrease the numbers of criminal report submitted. However the addition of clear immunity rights for administrator is also in dire need. Article 24 par (1) of Bankruptcy Law regulates that; “A Bankrupt Debtor shall by law forfeit his right to control and manage his assets included in his bankruptcy as of the date of the pronouncement of the bankruptcy declaration decision”, and in connection with Article 16 of Bankruptcy Law such control is transferred to administrator. The weight of this obligation must be coated with certain legal status that protects the duty bearer.
Foreign countries have recognize and implemented immunity rights for trusteeship, determines that judges and administrators generally entitled to immunity for actions performed in their official capacity, and in order to keep pace with the ever-changing commercial business, the next Indonesian bankruptcy law must also be adapt and incorporate such right in its specifications.
On discussion of the draft changes of Bankruptcy Law, the writer recognizes the desire from Government to take control on authorizing administrator with argument that by taking charge on the selection then the registered administrator will be firmly selected and highly qualified rather than with the current election that relies on each association standard and qualifications. James Purba, current Chief of AKPI once even proposed an involvement of Government by setting curriculum or standardization of administrators from different association to ensure similar qualities. However, often witnessed that government participation on professional organization would resulted in additional unnecessary bureaucracy or the inability to keep up with the pace needed, adding with the fact that Government via the Ministry of Law and Human Rights already is involved at least on the aspect of BHP and administrative certification.
There are 2 (two) aspects that can ensure administrator is dutiful and compliant with regulations when managing bankruptcy estate, which are:
- Effective supervision from each own respective association, to ensure ethical conduct and regulations are fulfilled. One option that could be pursued is the obligation on each administrator to report on bankruptcy estate(s) currently handled to association for administrative and control purposes. Currently, there is also the lack of obligation from administrator to inform its respective association where the administrator is registered to and belong when being assigned on handling bankruptcy estate, which therefore resulted in the lack of supervision from association to track down; (i) administrator effectiveness and performance on duty, (ii) effectiveness and fairness on distribution of payment or fees to creditors and other beneficiaries, or (iii) obligation of administration and reports to court, supervisory judge or debtor. Excellent and effective supervision from association will also be useful to avoid the possibility when Indonesian judicial system was not functioning well upon bankruptcy proceedings.
Sudeson Tandra, current Chief of HKPI offers another option for effective supervision by creating a singular Common Ethical Board from the existing associations, initiated by Government, and optional members from academicians and universities scholars. This could be preferable rather than having to form a new Government agency for this purpose
- Available and complete legal protection for administrator when performing their trusteeship duties as repeatedly mentioned in this article. On one side, there should be additional improvement of relationship between association with legal enforcer, police or prosecutor. Regular joint training and/or seminars should be escalated to develop acknowledgment that administrator is the extension of the hand of court when performing duties, and most importantly, to create memorandum of understanding between associations and legal enforcers similar to the existing memorandum of understanding with other professional associations such as notaries and advocates. Additionally, in the practice field, there is the demand to ensure administrators from BHP have similar qualities with associations’ administrators, at least on working pace aspect.
On the other side, the revision of bankruptcy law that provides legal protection on administrator on duty which then will definitely presses down if not diminished criminalization against administrator entirely. In brief, one could argue that by performing duties under regulations is itself a justification (te uitvoering van een wettelijke voorschrift). An example that can be use is also the existing immunity rights in place under Article 50 KUHP as the safety net for administrator who performs duties set out under Bankruptcy Law and appointed by a court’s decision.
It is therefore necessary to establish provisions, specific rules that set the standard and parameter on legal protection for the profession of administrator, especially considering the weight of administrator duties and the sacred role administrator possesses as the agent of courts’.
In the end, the writer urges administrator available associations to lead the way in administering changes for modern bankruptcy law to compete with the evolving global legal and business industries; in one of the main focus is the call for action to ensure immunity rights for administrator when performing duties on bankruptcy estate.
Daniel Alfredo is the Senior Partner of Legisperitus. His practices focus on commercial litigation, criminal litigation and bankruptcy. He received a bachelor degree in law and master degree in business law from Universitas Indonesia.
 Article 1 point 5 of Law No 37/2004 regarding Bankruptcy and Suspension of Obligation for Payment of Debts stipulates Curator shall mean the Orphan’s Chamber or an individual appointed by the court to manage and liquidate the assets of Bankrupt Debtor under the supervision of Supervisory Judge as provided for herein. In this article, curator means certified administrator, and limited to individual administrator (or administrators) from professional field (advocate or accountant), or administrator from Orphan’s Chamber/Probate Court/Balai Harta Peninggalan (“BHP”), a special agency under the Ministry of Law and Human Rights, of bankruptcy estate.
 Potret Kepailitan di Indonesia, https://kabar24.bisnis.com/read/20171229/16/722050/potret-kepailitan-di-indonesia.
 This excludes administrators from BHP which are state officials, appointed by Government and assigned on a special agency under the Ministry of Law and Human Rights.
 Article 1 point 5 jo article 70 point 1 of Bankruptcy Law states that Curator shall mean the Orphan’s Chamber or an individual appointed by the court to manage and liquidate the assets of Bankrupt Debtor under the supervision of Supervisory Judge as provided for herein. In this article the term curator is replaced with administrator and focuses on administrator consists of individual or individuals.
 Freisy Maria Kukus, Perlindungan Hukum Terhadap Profesi Kurator Dalam Perlara Kepailitan, as published on Lex Privatum, Vol III/ No. 2/Apr-Jun/2015
 Nataniel Arabov, A Privilege: The Boundaries of Immunity for Bankruptcy Judges and Trustees, https://www.abi.org/member-resources/blog/a-privilege-the-boundaries-of-immunity-for-bankruptcy-judges-and-trusteeshttps://www.abi.org/member-resources/blog/a-privilege-the-boundaries-of-immunity-for-bankruptcy-judges-and-trustees
 “a liquidator is a representative of the court and entrusted with the reputation of the court for impartial dispatch of her or his duties”. Andrew Keay, The Law of Company Liquidation, Fourth Edition, Sydney, LBC Information Services, 1999, as mentioned on http://bhpsurabaya.com/2014/hak-imunitas-profesi-kurator-dan-pengurus/
 Article 50 KUHP stipulates that, “Not punishable shall be the person who commits an act for the execution of a statutory provision.”
Daniel Alfredo, SH, MH, has been a lawyer for more than 10 years. His practices focus on commercial litigation, criminal litigation and bankruptcy. He received a bachelor degree in law and master degree in business law from Universitas Indonesia.
Search ADVOC News
Family Businesses and Divorce - How will my business be treated if I divorce or separate? Zoe Porter, head of our s… https://t.co/47ZBukbasx
Community Infrastructure Levy Webinar - This focused on the updated practice guidance and amendments to the Communi… https://t.co/Z1B9vbyxBI
Join us on Day 3 and Day 4 of The ‘Unusual’ Crammer, where we'll look at the ‘Unusual Circumstances’ and ‘Unusual O… https://t.co/LwSoyPoko2