(a) To what extent is this type of business 'finance' technique practised in this economy?

The capital leasing business has been permitted since 1974, when the MOF first permitted capital leasing companies to be formed in Indonesia. Further development of the leasing business took place with the issuance of MOF Decree No. 1169/KMK.01/1991 Regarding Leasing Business Activities (November 27, 1991) ("MOF Decree No. 1169"). MOF Decree No. 1169 provides that the leasing business is financing in the form of provision of capital goods through leasing with an option (i.e., finance lease) as well as leasing without an option to purchase (i.e., an operating lease), for use by lessees for a certain period based on periodic payments. Practically, leasing transactions can be conducted in the form of:

(i) direct leases (for capital goods procurement);

(ii) sale and lease back (for additional working capital or other purposes);

(iii) leveraged leases (conducted by the lessee to procure capital goods for a transaction which requires significant, long term financing; and

(iv) vendor leases (by an agreement with a supplier/dealer of certain capital goods).

Leasing is considered as an alternative financing technique in the manufacturing, transportation, construction, mining, agricultural and other sectors.

(b) If default is made what are the rights of the owner of the property to recover the leased property?

The rights of the owner to recover the leased property are regulated by the terms of the lease agreement. Article 9 of MOF Decree No. 1169 states that a lease agreement may provide that the lessor has the right to recover the leased property and to terminate the agreement due to an event of default by the lessee.

In the case of a vendor lease, the supplier/vendor may provide a buyback guarantee. If the lessee cannot fulfill its obligations, then the supplier/vendor has the right to repossess the leased property.

(c) Does the exercise of these rights require court process?

Yes. Since the leased property is under the control of the lessee, the lessor must file a Revindicatoir Beslag (a request for seizure of the leased property) with the District Court. The claim proposed by the lessor to the Court may contain the demand that the lessee should be obligated to fulfill his obligations as required by the agreement indemnifying the lessor against any expenses, damages, and interest incurred due to the event of default. The lessor may also file a Conservatoir Beslag, a seizure of the lessee's property, if the lessor can show the lessee may dispose of his assets or flee the jurisdiction.

(d) How effective in actual practice is the process of recovery (list any relevant impediments, such as the right of access to the place where the equipment is situated; the right to physically take the equipment away from the place; and so forth)?

In actual practice, it is difficult to recover leased equipment from lessees if they are not willing to voluntarily surrender the leased equipment. This difficulty is primarily due to inefficiencies in the Indonesian judicial system. Other difficulties include the fact that the equipment may be difficult to locate, particularly if the lessee is uncooperative or the equipment is in a remote area.

(e) What effect does the commencement of insolvency proceedings in respect of the corporate debtor have on the recovery of leased property?

Commencement of insolvency proceedings against a debtor which has possession of leased property will result in an automatic stay of any repossession proceedings. Eventually, however, the lessor's ownership interest should be recognized and the leased property should be returned to the lessor. We note that Article 7 of MOF Decree No. 1169 provides that lessors are obligated to put labels on leased capital goods by stating their names and addresses and that such capital goods are subject to lease agreements. The labels must be so positioned that the leased capital goods can be easily distinguished. During the lease term, the lessee shall be responsible for keeping the labels affixed to the capital goods leased.

(f) Is it usual for an equipment lease to be supported by guarantees (sureties) for payment of lease charges; default penalties; and so forth?

There is no set rule or pattern in such a case.