Debt-related disputes in Indonesia are not always resolved through ordinary debt collection or civil litigation. Depending on the circumstances, creditors and debtors may use bankruptcy proceedings or a Suspension of Debt Payment Obligations, commonly known in Indonesia as PKPU, under Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations.

Bankruptcy and PKPU proceedings are special legal proceedings handled by the Indonesian Commercial Court. They may involve Indonesian companies, individuals, creditors, debtors, secured creditors, foreign companies, investors, and other parties with an interest in the debtor’s obligations or assets.

ILS Law Firm provides bankruptcy and debt restructuring legal services in Indonesia and may represent either the applicant filing a bankruptcy or PKPU petition or the respondent facing such proceedings.

Bankruptcy and PKPU Lawyers in Indonesia

In Indonesian bankruptcy and PKPU proceedings, the parties generally include the applicant filing the petition and the respondent against whom the petition is filed.

ILS Law Firm may represent:

1. creditors filing a bankruptcy petition against a debtor;
2. creditors filing a PKPU petition against a debtor;
3. debtors filing for PKPU as part of a debt restructuring strategy;
4. debtors responding to bankruptcy petitions;
5. debtors responding to creditor-initiated PKPU petitions; and
6. creditors participating in an ongoing bankruptcy or PKPU proceeding.

Our representation may extend to claim registration, debt verification, creditors’ meetings, restructuring negotiations, voting on a composition plan and other proceedings before the Commercial Court.

Each case should be assessed individually based on the contractual relationship, debt documentation, maturity of the debt, number and classification of creditors, security interests, financial position of the debtor and the commercial objective of the client.

Bankruptcy Law in Indonesia

Bankruptcy proceedings in Indonesia are primarily governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations.

Under Article 1 point 1 of the Bankruptcy Law, bankruptcy constitutes a general attachment over all assets belonging to the bankrupt debtor, with the administration and liquidation of those assets being conducted by a court-appointed Curator under the supervision of a Supervisory Judge.

Bankruptcy therefore does not simply mean that a company has ceased operating or has become commercially insolvent. Bankruptcy is a legal status arising from a decision of the Commercial Court.

Requirements for Filing Bankruptcy in Indonesia

Article 2 paragraph (1) of Law No. 37 of 2004 provides the principal requirements for declaring a debtor bankrupt.

A debtor may be declared bankrupt if:

1. the debtor has two or more creditors; and
2. the debtor has failed to fully pay at least one debt that has become due and payable.

A bankruptcy petition may be filed by the debtor itself or by one or more creditors, subject to specific statutory rules applicable to certain regulated entities.

The Bankruptcy Law also adopts a broad definition of debt. A debt may include an obligation that can be expressed in monetary terms, whether denominated in Indonesian currency or foreign currency, arising from an agreement or from law and which the debtor is required to perform.

For a bankruptcy petition, the Court must grant the petition where facts or circumstances are summarily proven to establish that the requirements under Article 2 paragraph (1) have been satisfied.

This concept of simple or summary proof is one of the characteristics distinguishing bankruptcy proceedings from ordinary civil litigation.

Must a Bankruptcy Petition Be Filed Through a Lawyer?

As a general rule, yes.

Article 7 paragraph (1) of Law No. 37 of 2004 provides that a bankruptcy petition under Article 6 must be filed by an advocate.

Specific exceptions apply to certain public authorities and institutions expressly authorised under the Bankruptcy Law.

Accordingly, a creditor or debtor seeking to commence bankruptcy proceedings will generally require an Indonesian advocate to file and handle the petition before the Commercial Court.

What Is PKPU in Indonesia?

PKPU stands for Penundaan Kewajiban Pembayaran Utang, generally translated into English as a Suspension of Debt Payment Obligations.

Its principal purpose is to provide a legal framework in which the debtor may propose a composition or restructuring plan to its creditors.

Under Article 222 of Law No. 37 of 2004, PKPU may be initiated by a debtor with more than one creditor or by a creditor.

A debtor that is unable, or anticipates that it will be unable, to continue paying debts that have become due and payable may request PKPU for the purpose of proposing a composition plan involving payment of part or all of its debts.

A creditor that anticipates that the debtor will be unable to continue paying a debt that has become due and payable may likewise petition for PKPU so that the debtor is given an opportunity to propose a composition plan.

Must a PKPU Petition Be Filed Through an Advocate?

Yes.

Article 224 paragraph (1) expressly provides that a PKPU petition must be submitted to the Commercial Court and signed by both the applicant and its advocate.

Legal representation therefore forms an integral part of commencing PKPU proceedings in Indonesia, whether the applicant is a creditor or the debtor itself.

Bankruptcy vs PKPU in Indonesia

Although both mechanisms concern debt, bankruptcy and PKPU serve different legal and commercial purposes.

In bankruptcy, the debtor’s assets become subject to a general attachment and their administration and liquidation are conducted by a Curator under the supervision of a Supervisory Judge.

PKPU is primarily designed to provide an opportunity for the debtor and its creditors to negotiate and vote on a composition or restructuring plan.

During PKPU, the debtor does not completely lose control of its assets. However, the debtor may not perform acts of management or ownership over all or part of its assets without the consent of the court-appointed Administrator.

For this reason, the choice between bankruptcy, PKPU, ordinary civil proceedings, arbitration, negotiation or another debt recovery mechanism should be based on both the legal circumstances and the client’s commercial objective.

Temporary and Permanent PKPU

The Indonesian Bankruptcy Law distinguishes between temporary PKPU and permanent PKPU.

Where a PKPU petition is filed by the debtor, the Commercial Court must grant temporary PKPU no later than three days after registration of the petition and appoint a Supervisory Judge and one or more Administrators.

Where the petition is filed by a creditor, the Court must grant temporary PKPU no later than 20 days after registration of the petition.

Following the temporary PKPU decision, the debtor and known creditors are summoned to attend a hearing to be held no later than the 45th day following the temporary PKPU decision.

If permanent PKPU is approved, the PKPU period together with any extensions may not exceed 270 days from the date on which temporary PKPU was granted.

Debt Restructuring and Composition Plans

A central feature of PKPU is the composition plan proposed by the debtor.

Depending on the financial and commercial circumstances, a restructuring proposal may involve matters such as:

• rescheduling payment obligations;
• instalment payments;
• extending maturity dates;
• partial repayment;
• revised commercial arrangements; or
• another restructuring mechanism that can lawfully be agreed with creditors.

The precise contents of a composition plan will depend on the debtor’s financial position, the debt structure, the types of creditors involved and the debtor’s realistic repayment capability.

An effective restructuring strategy must therefore consider not only what the debtor can afford to offer, but also whether the proposal is capable of securing the statutory creditor voting thresholds.

Voting on a PKPU Composition Plan

A composition plan does not become binding merely because it has been proposed by the debtor.

Article 281 of Law No. 37 of 2004 requires approval from the relevant creditor groups based on both the number of creditors and the value of their claims.

In general terms, approval requires:

1. more than one-half of the concurrent creditors present and entitled to vote, representing at least two-thirds of the value of the claims represented at the meeting; and
2. more than one-half of the secured creditors present, representing at least two-thirds of the value of the secured claims represented at the meeting.

PKPU is therefore not merely a court proceeding. Negotiations with creditors, preparation of the restructuring terms and voting strategy can become critical elements of the process.

Homologation of the Composition Plan

If the composition plan obtains the required creditor approval, it must proceed to court approval, commonly referred to as homologation.

The Commercial Court still has the authority, and in certain circumstances the obligation, to refuse homologation under Article 285 of Law No. 37 of 2004.

Among other grounds, homologation must be refused where implementation of the composition is insufficiently secured or where the composition was achieved through fraud, collusion with one or more creditors or other dishonest means.

Once homologated and legally binding, the composition has the legal consequences prescribed by the Bankruptcy Law.

What Happens if the PKPU Plan Is Rejected?

The bankruptcy risk associated with PKPU must be carefully considered before commencing or responding to PKPU proceedings.

Under Article 289 of Law No. 37 of 2004, where the composition plan is rejected, the Supervisory Judge must notify the Commercial Court and the Court must declare the debtor bankrupt in accordance with the statutory procedure.

There are also other circumstances under the Bankruptcy Law in which termination or failure of PKPU may result in the debtor being declared bankrupt.

A PKPU strategy should therefore be prepared with both successful restructuring and the potential consequences of failed negotiations in mind.

Classification and Priority of Creditors

Creditors in Indonesian bankruptcy proceedings are generally discussed in terms of secured or separatist creditors, preferred creditors and concurrent creditors.

Secured creditors typically include creditors holding security rights such as pledge, fiduciary security, mortgage or land mortgage rights.

Article 55 of the Bankruptcy Law generally permits holders of such security rights to enforce their rights as though bankruptcy had not occurred, subject to statutory stay periods and other restrictions under the Bankruptcy Law.

However, payment priority cannot be understood simply by assuming that secured creditors will always rank above every other claim.

Constitutional Court Decision No. 67/PUU-XI/2013 established important protections for employees where an employer becomes bankrupt.

Under that decision, unpaid wages are prioritised over all types of creditors, including secured creditors and certain claims of the State. Other employment-related entitlements are prioritised over other claims except those of secured creditors.

Priority issues in an Indonesian bankruptcy should therefore be assessed by reference to the nature of each individual claim and the applicable laws and court decisions.

Filing and Verification of Creditor Claims

Creditors should not assume that no further action is required merely because a debtor has been declared bankrupt or has entered PKPU.

In bankruptcy proceedings, creditors submit their claims to the Curator together with documentation showing the nature and amount of the claim and the relevant supporting evidence.

The Curator verifies the claim against available records and information from the bankrupt debtor.

Where a dispute arises regarding the existence, amount or ranking of a claim, the issue may proceed through the claim-verification dispute mechanism provided under the Bankruptcy Law.

In PKPU proceedings, creditors likewise submit their claims to the Administrator for inclusion in the list of claims relevant to creditors’ meetings and voting on the composition plan.

Representing Applicants in Bankruptcy and PKPU Proceedings

ILS Law Firm may represent creditors or debtors seeking to commence bankruptcy or PKPU proceedings in Indonesia.

Our services may include:

• reviewing contracts, invoices and debt documentation;
• analysing whether statutory filing requirements are satisfied;
• preparing demand letters where appropriate;
• preparing the bankruptcy or PKPU petition;
• filing proceedings with the Indonesian Commercial Court;
• representing the client at court hearings;
• presenting evidence regarding the debt and other creditors;
• communicating with creditors, Curators or Administrators;
• attending creditors’ meetings;
• advising on restructuring and composition proposals;
• assisting with negotiations; and
• representing the client through the relevant court stages within the agreed scope of engagement.

Representing Respondents in Bankruptcy and PKPU Proceedings

ILS Law Firm may also represent debtors that have received a bankruptcy or PKPU petition filed by a creditor.

Our representation may include:

• reviewing the petition filed against the debtor;
• assessing whether the alleged debt exists and is due and payable;
• analysing whether the statutory requirements have been satisfied;
• preparing the debtor’s legal response;
• representing the debtor before the Commercial Court;
• preparing documentary evidence;
• considering PKPU as a potential response where the debtor is facing a bankruptcy petition;
• developing a debt restructuring strategy;
• preparing or reviewing a composition plan;
• negotiating with creditors; and
• advising during creditor voting and homologation proceedings.

The Elucidation of Article 224 expressly states that where a debtor is the respondent to a bankruptcy petition, that debtor may apply for PKPU.

Accordingly, responding to a bankruptcy petition does not necessarily mean that the debtor’s only strategy is to seek dismissal of the petition. Depending on the circumstances, PKPU and restructuring may also need to be considered.

Why Legal Representation Matters

Bankruptcy and PKPU proceedings in Indonesia operate differently from ordinary civil litigation.

They involve relatively short statutory timelines, specific evidentiary requirements, creditor meetings, filing and verification of claims, statutory voting rules, the appointment of Curators or Administrators and the possibility that the debtor may ultimately be declared bankrupt.

Decisions made at an early stage may significantly affect the legal and financial position of the parties throughout the proceedings.

A complete review of the debt documents, creditor structure, security documents and the debtor’s financial position should therefore be conducted before deciding whether to commence or respond to bankruptcy or PKPU proceedings.

Bankruptcy and Debt Restructuring Services for Foreign Clients

ILS Law Firm assists foreign clients with claims, investments, contracts and business relationships involving Indonesian parties.

Foreign creditors may require assistance in understanding Indonesian bankruptcy procedures, filing claims, responding to restructuring proposals and protecting their position during creditor meetings.

Foreign-owned companies operating in Indonesia may likewise require advice when facing payment difficulties, creditor claims or restructuring proceedings.

Initial consultations can be conducted remotely in English, meaning overseas clients do not necessarily need to travel to Indonesia simply to obtain preliminary legal advice.

Each matter nevertheless requires individual legal assessment before determining whether bankruptcy, PKPU, civil litigation, arbitration, negotiation or another enforcement mechanism is appropriate.

Bankruptcy and PKPU Lawyer Fees in Indonesia

Legal fees for filing and handling a bankruptcy or PKPU petition through ILS Law Firm start from US$11,500.

The final legal fee may depend on the complexity of the case, value and structure of the debt, number of creditors, volume of documents, level of dispute between the parties, scope of legal representation and the stages of proceedings required.

The scope of work and applicable professional fees will be discussed with the client before the engagement begins.

Consult a Bankruptcy and Debt Restructuring Lawyer in Indonesia

If you are a creditor considering filing a bankruptcy or PKPU petition, a debtor facing proceedings initiated by a creditor, or a company considering debt restructuring in Indonesia, ILS Law Firm can provide an initial legal assessment of your matter.

Online consultations can be arranged through Zoom, Google Meet, WhatsApp Call or video call, allowing overseas clients to consult our legal team without being physically present in Indonesia.

To arrange a consultation:

Telephone / WhatsApp: +62 813-9981-4209
Email: info@ilslawfirm.co.id

ILS Law Firm
Bankruptcy, PKPU and Debt Restructuring Lawyers in Indonesia