A Brief Look at Suspension of Debt Payment Obligations in

Expert Guide
Bankruptcy & Restructuring
March/April 2013
Clifford Chance - Ogier - Akerman - Dickinson Wright LLP - Otterbourg, Steindler, Houston & Rosen
A Brief Look at Suspension of Debt Payment
Obligations in Indonesia By Michael S. Carl and Dewi Savitri Reni
A
s part of its groundbreaking restructuring, Indonesian shipping company PT
Arpeni Pratama Ocean Line Tbk in early
2012 completed a court-supervised debt
moratorium and restructuring process
known as a Suspension of Debt Payment Obligations (Penundaan Kewajiban Pembayaran Utang,
or “PKPU”). This was just one of the highest profile examples of this debt-restructuring tool that
has gained a great deal of attention from Indonesian businesses and the courts recently.
PKPU is part of Indonesia’s 2004 Bankruptcy Law
and provides creditors and debtors with an avenue
to avoid liquidation bankruptcy. A PKPU gives a
debtor the opportunity to prepare, negotiate and
submit a composition plan to its creditors for their
approval. The composition plan details how outstanding debts are to be restructured and typically
provides, among other things, for rescheduled and
extended payment terms, perhaps with a grace period, reduced interest rates and a waiver of penalties and overdue interest. More sophisticated restructurings, including debt buybacks and equity
conversions, are also possible.
As regulated under the Bankruptcy Law, a PKPU
may be initiated by either the debtor or a creditor. If it is the debtor which initiates PKPU proceedings, and the debtor is a limited liability company, the debtor must first obtain the approval of
its General Meeting of Shareholders. If the debtor
is an individual, the debtor must obtain the consent of his or her spouse unless there is a prenuptial agreement. If it is the creditor which initiates
PKPU proceedings, the shareholder approval and
spousal consent requirements do not apply.
A debtor’s petition for a PKPU may also originate in response to a creditor’s petition to put the
debtor in liquidation bankruptcy. Where a creditor submits a petition to the Commercial Court
for the debtor’s liquidation bankruptcy, the debtor may respond by petitioning the Commercial
Court for a PKPU. The shareholder approval and
spousal consent requirements do not apply where
the debtor is responding to a creditor bankruptcy
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petition. If the debtor’s PKPU petition is granted,
the creditor’s bankruptcy petition is automatically
stayed for the term of the PKPU.
There is no insolvency test that must be satisfied to
qualify for a PKPU (or for liquidation bankruptcy,
for that matter) in Indonesia. However, there are
nonetheless two requirements that must be satisfied. The first requirement for a successful PKPU
petition (or, again, for liquidation bankruptcy) is
that the debtor have at least two outstanding debts
of which at least one must be due and payable but
not yet paid. The second requirement is that the
unpaid debt must be capable of “simple proof.”
The term “simple proof ” means that the debt must
not be subject to messy contract defenses requiring complicated legal proceedings to resolve.
In cases where it is a creditor which submits a
PKPU petition, the Court must summon the
debtor not later than seven days before the first
hearing. If it is the debtor which submits a PKPU
petition, the debtor must provide the Court with
a list of its secured and unsecured creditors, the
amount of each loan and evidence of the loans.
Once the PKPU is registered with the Clerk of the
Court, the Court must render its decision within
20 days if the petition is submitted by a creditor
or within three days if the petition is submitted by
the debtor.
The Bankruptcy Law divides a PKPU into two
stages, a Temporary PKPU (PKPU Sementara or
“PKPU-S”), potentially followed by a Permanent
PKPU (PKPU Tetap or “PKPU-T”). The maximum period of a PKPU-S is 45 days from the time
the PKPU petition is granted by the Commercial
Court. If followed by a PKPU-T, then the maximum period for both the PKPU-S and the PKPUT together is 270 days.
The Bankruptcy Law is clear that there is no appeal from a Court decision granting or rejecting a
PKPU petition.
If it is the debtor rather than a creditor which initiates the PKPU proceedings, the debtor must additionally prove to the Court that it is unable to pay
the unpaid debt. This is to ensure that the proceedings are bona fide.
The Bankruptcy Law requires that a PKPU petition be submitted through a licensed advocate
and that both the PKPU petitioner and its advocate sign the petition. In the event the debtor is
a bank, securities company, insurance company,
pension fund or state-owned enterprise, a special
rule applies so that only a relevant government
regulatory agency, namely Bank Indonesia, the Indonesian Capital Market and Financial Institution
Supervisory Agency or the Minister of Finance,
may submit the PKPU petition.
If the Commercial Court grants the PKPU petition, the PKPU decision will be announced in the
State Gazette and two newspapers determined by
the Supervisory Judge. The newspaper announcements will include the initial schedule for the conduct of the PKPU proceedings and invite creditors
to register for the PKPU.
Creditors have the option whether or not they
wish to register for the PKPU proceedings. If
they register, they will gain the right to vote on the
proposed composition plan after registering their
claims and providing evidence supporting their
claims for verification. Whether or not a creditor chooses to register for and participate in the
PKPU, the Bankruptcy Law provides that all of
the debtor’s creditors (and not just those creditors
who register for and participate in the PKPU) will
be bound by any composition plan which is eventually approved by those creditors who do partici-
pate in the PKPU proceedings and legalised by the
Commercial Court.
If the debtor submits a composition plan to creditors during the PKPU-S, the debtor may choose
near the end of the PKPU-S either to put that plan
to a creditor vote or to request that the creditors
vote to extend the PKPU-S into a PKPU-T so that
the debtor may have more time to prepare and negotiate the composition plan.
Whether the vote is on a composition plan or to
extend the PKPU-S into a PKPU-T, the vote is
conducted by class. There are two classes, secured
and unsecured creditors.
The Bankruptcy Law requires that a majority in
number and at least ⅔ in value of the members
of each class in attendance vote to approve the
composition plan or to extend the PKPU-S into a
PKPU-T, as relevant. These same voting requirements apply to any subsequent debtor requests to
extend the PKPU-T (up to the 270-day maximum
provided by law) or to approve the composition
plan during the term of the PKPU-T.
Each time there is a creditor vote, the Supervisory
Judge will forward the vote results to the full Panel
of Judges for the PKPU proceedings for ratification.
A successful vote and judicial ratification means
an approved composition plan or extension of the
PKPU, as relevant.
By contrast, any failed vote means the Panel of
Judges must terminate the PKPU proceedings and
must additionally place the debtor in liquidation
bankruptcy. Except in very limited circumstances, there is no second chance once creditors vote
against a proposal to approve a composition plan
or to extend a PKPU. The debtor must therefore
be very careful in determining the timing and circumstances of any vote.
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Michael Carl is a senior foreign advisor at SSEK with
nearly 20 years of experience
practicing law in Southeast
Asia. He specialises in securities, mergers and acquisitions, and banking transactions. He led the SSEK team
that served as Indonesian
counsel in the restructuring of Indonesian shipping
company PT Arpeni Pratama Ocean Line, one of the
most complex restructurings in Indonesian history. The
Arpeni project was named Asian Restructuring Deal of
the Year for 2012 by the International Financial Law
Review and an Asian-MENA Counsel Deal of the Year.
Michael received his J.D. in 1994 from the University of
California at Berkeley (Boalt Hall) School of Law and
is a member of the California State Bar. He obtained
an M.A. in economics from the University of Hawaii
in 1990. While in Hawaii, he was a graduate fellow at
the East-West Center. Prior to entering legal practice in
Singapore, Michael spent a year studying Indonesian
commercial law at Gadjah Mada University in Yogyakarta. He received an Indonesian law degree in 2012
from Atma Jaya University in Jakarta. He is fluent in
Indonesian and proficient in Thai. Michael Carl can be
contacted by telephone on +62 21 304 16700, 521 2038
and via email on [email protected]
Dewi Savitri Reni is a senior
associate at SSEK. Her areas
of practice include debt restructuring and insolvency,
oil and gas, shipping law,
mergers and acquisitions,
and civil litigation. She was
the lead associate in the PT
Arpeni Pratama Ocean Line
restructuring. Vitri received
her LL.B. from the University
of Indonesia, where she was honored as the Leading Student for both the Faculty of Law and the university. She
earned her LL.M. in 2008 from the University of California at Berkeley (Boalt Hall) School of Law, which she
attended on a Fulbright scholarship.
Dewi Savitri Reni can be reached by telephone on
+62 21 304 16700, 521 2038 and via email on
[email protected]
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