(a) What is the underlying philosophy of the insolvency law of this economy? (For example is it distributive, rehabilitative or penal?)

The philosophy of the Bankruptcy Law is both distributive and rehabilitative. The Bankruptcy Law allows the concept of corporate reorganization with the approval of a required number of unsecured creditors, failing which the company will be liquidated and its assets distributed to creditors.

(b) Are there elements of more than one philosophy present in the insolvency law of this economy?

Please see our answer above.

(c) Briefly describe the relevant elements, and if applicable, any penal sanctions available.

There are no penal sanctions in the Bankruptcy Law. We note that there are criminal law provisions for non-payment of debt that leads to a company's insolvency. Please see Section B above.

(a) In which judicial category is insolvency law classified in the legal system of this economy? (For example civil, commercial or administrative.)

The judicial classification of insolvency law is not clear under Indonesian law but also is not a particularly meaningful characterization. Indonesian law is based upon European civil law traditions. Bankruptcy rules (prior to the enactment of the Bankruptcy Law) were included as part of the Commercial Code.

(b) Which Courts, tribunals or administrative bodies in this economy are competent to exercise jurisdiction in insolvency matters?

There is a right of appeal directly to the Supreme Court, which has exclusive jurisdiction over bankruptcy appeals. The Commercial Court is specifically empowered by the Bankruptcy Law to deal with petitions for bankruptcy declarations and for suspension of payments of debts.

(c) Are any limitations placed on the jurisdiction of any of these bodies?

The Commercial Court has been established at the Central Jakarta District Court to deal with bankruptcy matters. Since there is currently only one Commercial Court, its jurisdiction covers all of Indonesia (Article 281(3) of the Bankruptcy Law). However, when other Commercial Courts are established outside of Jakarta, the competent Commercial Court will be the court having jurisdiction over the debtor's domicile.

(a) What types of insolvency procedure are available in the legal system of this economy for the administration of corporate debtors in financial difficulty? (For example bankruptcy, liquidation (winding up), receivership, restructuring or other forms of administration.)

Pursuant to the Bankruptcy Law, insolvency procedures available in the Indonesian legal system for the administration of corporate debtors can be taken through the Commercial Court by (i) the filing of a bankruptcy petition by debtor or creditors and/or (ii) the filing of an application for suspension of loan payments by the concerned debtor. A bankruptcy petition is determined by the Commercial Court, which can decide to accept the petition by declaring that the debtor is bankrupt, reject the petition, or approve the suspension of loan payments proposed by the debtor.

In the event the Court accepts the bankruptcy petition, the settlement of the loan repayment will be undertaken by a receiver under the supervision of a Supervisory Judge. Within the settlement process, it is possible that the corporate debtor is restructured and reorganized by the receiver in order to maximize and increase, if possible, the value of bankrupt assets. Following the settlement of the loan repayment with bankrupt assets, the insolvent corporate debtor can either be liquidated or stay dormant but remain in existence as a legal entity.

The Commercial Court can approve a permanent suspension of loan repayments. (See Article 217 of the Bankruptcy Law.)

(b) Briefly describe the main features of each type of insolvency procedure for corporate debtors: including, for example the manner in which each procedure is initiated and administered, and the aims of each procedure.

Article 1 of the Bankruptcy Law provides that a debtor with two or more creditors which does not pay at least one of the loans which are due and payable shall be declared bankrupt upon the decision of the Commercial Court, on a petition of either the debtor or of one or more of its creditors.

The purpose of filing a bankruptcy petition is as an alternative for creditors to submitting a lawsuit to the District Court to obtain payment from the corporate debtor for debts owed to the creditors. The assets and property of the corporate debtor will be liquidated and distributed to the creditors.

A debtor which sees that it will not be able to pay its debts may apply for a suspension of the obligation to pay such debts, for the general purpose of submitting a composition plan which will include an offer of payment of all or a part of the debts due to its unsecured creditors.

The following is the procedure for filing a bankruptcy petition and the suspension of debt repayment petition:

(i) the filing of a bankruptcy petition;

(ii) the Commercial Court hearing;

(iii) the filing of a request for suspension of payments;

(iv) the decision on the temporary suspension of payments;

(v) the decision on the bankruptcy petition;

(vi) the discretion of the Court concerning the bankruptcy petition;

(vii) cessation;

(viii) the appointment of a Supervisory Judge and a Receiver;

(ix) the payment of bankruptcy costs;

(x) the publication of the bankruptcy decision;

(xi) the management of the bankrupt assets by the receiver under the supervision of a supervisory judge and a Creditors Committee, if applicable;

(xii) the verification of debts and claims on debts;

(xiii) the sale of goods from the bankrupt assets;

(xiv) the distribution of payments resulting from the sale of the bankrupt assets to unsecured creditors;

(xv) the objections by dissatisfied creditors;

(xvi) the possibility of a settlement proposal;

(xvii) the acceptance of the settlement proposal;

(xviii) the suspension of payments:

(a) the Commercial Court decision;

(b) the temporary suspension of payments for a maximum period of 45 days;

(c) the proposal for a permanent suspension of payments;

(d) the negotiation between creditors and the debtor;

(e) the acceptance or refusal of the proposal for the permanent suspension of payments;

(f) the court hearing concerning acceptance or refusal of the permanent suspension of payments;

(g) the court legalization of an accepted permanent suspension of payments;

(h) the permanent suspension of payments for a maximum period of 270 days;

(i) the formation of a Creditors Committee;

(j) the preparation of a general list of acknowledged and un-acknowledged creditors and their claims on debts;

(k) the appointment of the administrator;

(l) the appointment of the expert(s) required to assist the administrator in handling the management and settlement of the debtor's assets and business;

(m) the management acts by the debtor under the supervision of the administrator and the supervisory judge;

(n) the settlement of payments to creditors;

(o) the termination of suspension of payments;

(p) the bankruptcy decision; and

(q) the settlement of payments to creditors as set forth in points (viii) to (xv) above;

(xix) the end of the bankruptcy settlement.

(c) Identify the relevant legislation governing each type of insolvency procedure available for corporate debtors.

The relevant insolvency procedure legislation for corporate debtors:

1. Staatsblad No. 217 of 1905 juncto Staatsblad No. 348 of 1906, as amended by Law No. 4 of 1998 regarding Amendments to the Bankruptcy Law (the "Bankruptcy Law");

2. Law No. 1 of 1995 regarding Limited Liability Companies (the "Company Law");

3. Law No. 9 of 1992 regarding Insurance (the "Insurance Law").

(a) Is it usual or customary in respect of a corporate debtor which is insolvent to attempt to negotiate an informal administration before formal insolvency procedures are commenced?

It is customary in Indonesia for debtors and creditors to try to negotiate a settlement of their debts before formal insolvency procedures are commenced. In part, this is because there was no effective bankruptcy law or the courts were perceived as ineffective in implementing the law. In the past, public litigation was seen as an irreparable breach in the business relationship and which ran contrary to cultural norms in dispute resolution. However, agreement to an informal administration, where a third party assumes control of the company before the commencement of formal bankruptcy proceedings, has not been done in Indonesia or, if done, has been extremely rare.

When an application for bankruptcy has been filed, a debtor who is unable or expects that it will be unable to continue paying its debts, may attempt negotiation with the general intention of presenting a settlement proposal that includes an offer to pay all or part of its debts to creditors. If this cannot be achieved informally, the debtor may request a formal suspension of payments under the Bankruptcy Law.

(b) In relation to each type of insolvency procedure available in the legal system of this economy, who may commence the procedure? (For example the corporate debtor, secured creditors, unsecured creditors, directors, shareholders, the State.)

There is only one type of insolvency procedure in Indonesia. An individual or company can be declared bankrupt at the request of:

(i) the debtor;

(ii) one or more creditors; or

(iii) the public prosecutor.

If the debtor is a bank, the petition for a declaration of bankruptcy may only be filed by BI, and if the debtor is a securities company, the petition for a declaration of bankruptcy may only be filed by Bapepam.

(c) On what basis may each type of insolvency procedure be commenced, or what requirements must be satisfied before the procedure may be commenced? (For example non-payment of debts; balance sheet/cash flow insolvency; trading losses; resolution by directors to enter insolvency procedure.)

Pursuant to Article 1 of the Bankruptcy Law, a debtor having two or more creditors and failing to pay at least one mature debt may be declared bankrupt through a court decision. Therefore, the insolvency procedure is commenced based on non-payment of a debt. Before the procedure may be commenced, the debtor is required to have two or more creditors and must have failed to pay at least one mature debt.

(d) How is each type of insolvency procedure commenced? (For example by application to the Court, by administrative act, by written notice to the business organization.)

Pursuant to Article 4 of the Bankruptcy Law, a petition for a declaration of bankruptcy must be submitted to the Court through the Registrar's Office. The insolvency procedure is thus commenced by this application.

The Clerk of the Court must register the petition for declaration of bankruptcy on the date the petition is filed and must submit such petition to the chairman of the district court no more than 24 hours from the date of registration. Within a period of 48 hours from the date of registration of the petition, the court must determine the day of the hearing.

(e) What is the usual time period between the commencement of formal insolvency proceedings and the declaration or imposition of a formal administration on the corporate debtor?

A decision must be made on the petition for declaration of bankruptcy within 30 days from the date of the application. The court decision must be made public. At that time, formal administration of the debtor will have commenced.

(f) How effective is the judicial or court system (or administrative system) in relation to the handling of formal insolvency proceedings?

The Commercial Court was established on August 21, 1998. Before the promulgation of the new Commercial Court, insolvency cases were handled by the ordinary civil courts. Few bankruptcy cases have so far arisen in Indonesia under either the old or new systems. Therefore, it is too early to say how effective the Commercial Court will be in handling formal insolvency proceedings. However, to date the experience has been disappointing to lenders because major cases have been decided against lenders for reasons that are not consistent with international norms.

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what is the effect on the corporate debtor, its constituent parts and its business relationships of initiation of the relevant insolvency procedure?

(For example, how does initiation of the insolvency procedure affect:

- the powers of management of the debtor;

- the interests of owners/shareholders of the debtor;

- contracts to which the debtor is a party;

- legal proceedings to which the debtor is a party;

- remedies available to persons in contractual (non-debt) relationships with the debtor?

There is only one proceeding, namely the bankruptcy proceeding, in which there are two alternative procedures, i.e., a suspension of payments (in effect a reorganization) or the liquidation of the bankrupt debtor's estate.

It would be useful to define the terms "bankruptcy" and "insolvency" in the Indonesian context. A debtor having two or more creditors and failing to pay at least one debt which has matured can be declared bankrupt by a court decision instituted by either the debtor or a creditor.

Under the Bankruptcy Law, the bankruptcy declaration does not mean the debtor is insolvent. (This may be in contrast to the use of those terms in other jurisdictions, where a state of insolvency may lead to a declaration of bankruptcy. In Indonesia, the bankruptcy declaration occurs first).

Once the debtor is declared bankrupt, the debtor may propose a reconciliation plan. If this plan is accepted by the creditors, then the insolvency does not occur. However, if at the creditors' meeting on the verification of claims, no reconciliation plan is offered, if the offered reconciliation plan is rejected, or if the ratification of the reconciliation plan is rejected by the supervisory judge, then the bankrupt estate of the debtor is deemed insolvent by law.

The following are the effects of bankruptcy proceedings on the corporate debtor, its constituent parts and its business relationships:

1. After the Application for Bankruptcy Is Made But Before the Bankruptcy Declaration Is Issued: Any creditor or the Attorney General may request the court to seize all or part of the debtor's assets or to appoint a temporary receiver to supervise the management of the debtor's businesses, payments to creditors, transfers or encumbrances of the debtor's assets. The receiver's approval is required for the above acts.

2. After The Bankruptcy Declaration Is Issued: The following are the specific effects on the debtor:

(i) forfeiture of the debtor's right to manage its assets;

(ii) all assets of the debtor are subject to the jurisdiction of the Commercial Court and to bankruptcy proceedings including those assets acquired during the bankruptcy proceeding;

(iii) any contract entered into by the bankrupt debtor after the bankruptcy declaration is issued cannot be paid with the assets of the bankrupt estate, unless there is a benefit to the bankrupt estate from such contract;

(iv) A lawsuit concerning the rights and obligations of the bankrupt debtor on his assets shall be filed against or by the receiver or the Balai Harta Peninggalan ("BHP"), the state receiver, if no other receiver is appointed;

(v) the bankruptcy declaration will cause any court decision in effect prior to the bankruptcy declaration, against any part of the assets of the debtor, to be immediately suspended and no decision may be executed (i.e., enforced) against the bankrupt debtor or its assets;

(vi) any decision of confiscation, whether or not executed, is nullified by law;

(vii) if at the time of the bankruptcy declaration, there is an agreement by both parties which has not been fulfilled by both parties, the debtor's counterparty may petition the receiver to confirm that the agreement will be performed; and

(viii) employees of the bankrupt debtor may resign or the receiver may dismiss them subject to employment periods stipulated in employment contracts and subject to their rights under manpower laws. Six weeks' termination notice must be given. As from the effective date of the bankruptcy declaration, remuneration to employees is a debt of the bankrupt estate.

Pursuant to Article 102 of the Bankruptcy Law, if the bankrupt is a limited liability company, a mutual insurance company, a securities company, a cooperative, or other business entity which has the status of a legal entity, or an association or a foundation, then the provisions of Articles 84 through 88 of the Bankruptcy Law apply to the management of such entity, and Article 101(1) applies to the Board of Directors and the Board of Commissioners.

Article 3(1) of the Indonesian Company Law provides that shareholders of a limited liability company are not individually responsible for agreements made on behalf of the Company and are not responsible for a company's losses that exceed the nominal value of the shares subscribed.

In certain cases, it is possible for the shareholders to lose their limited liability. Please see our discussion on Section B above. We note that in addition to the situations enumerated therein, the founding shareholders of a company may be personally liable for the company's debts if the company has not been established under the Company Law.

Article 90(2) of the Indonesian Company Law provides that where the bankruptcy occurs due to the mistake or negligence of the Board of Directors and the company's assets are inadequate to cover the losses caused by such bankruptcy, each member of the Board of Directors is jointly responsible for such losses. However, if a member of the Board of Directors can prove that the bankruptcy was not due to his mistake or negligence, he is not jointly responsible for the losses.

(b) If another insolvency procedure has already been initiated in relation to the corporate debtor, how does the initiation of a second procedure affect the first?

As previously noted, there is only one insolvency procedure. As also noted, the bankruptcy proceedings may be stayed if the debtor makes an application for a suspension of payments. If two bankruptcy proceedings are brought against the same debtor, it is unclear how this would be resolved under the Bankruptcy Law. At present, the situation of two bankruptcy cases against the same debtor is unlikely to happen because there is only one Commercial Court, located in Jakarta, Indonesia. If two applications were filed against one debtor, we believe the actions would be combined, and if not combined, the first in time would prevail.