Adopting the UNCITRAL Model Law: A Turning Point for Indonesia’ s Insolvency Landscape
By Chrisandya Sinurat 1- NextGen Class of 2024
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Indonesia ' s long-standing intention to adopt the UN- CITRAL Model Law on Cross-Border Insolvency(“ Model Law”) appears to be progressing. Recently, a discussion involving INSOL, the Asian Development Bank( ADB), the Indonesian Receivers and Administrators Association( AKPI), and Indonesia Jentera School of Law(“ Discussion”) was held to enhance understanding of the Model Law and to assess the potential implications of its adoption. This initiative aligns with broader legislative reforms aimed at making Indonesia more attractive to foreign investment.
Historical Overview of Indonesia’ s Bankruptcy Regime
Indonesia follows a civil law legal system influenced by Continental Europe, particularly
30 the Netherlands. To date, Indonesia’ s bankruptcy law has undergone two major reforms. The original bankruptcy framework was established in 1906 through the Bankruptcy Ordinance( Faillissements-verordening) under the former Netherlands Indies legislation. This ordinance was later adopted as Indonesian law following the country’ s independence.
In the aftermath of the 1998 Asian financial crisis, the Indonesian government amended the ordinance by enacting Government Regulation in Lieu of Law No. 1 of 1998, which was later ratified as Law No. 4 of 1998. This reform
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The author would like to extend its gratitude to Kevin Omar Sidharta for his valuable insights, which significantly contributed to the preparation of this article. was carried out in accordance with conditionalities imposed by the International Monetary Fund( IMF). The most recent amendment came with the promulgation of Law No. 37 of 2004(“ Indonesian Bankruptcy Law”) 2.
Current Framework: Domestic Insolvency Proceedings
Under the current law, two forms of court-sanctioned proceedings are available to debtors:
Bankruptcy proceedings, which are aimed at liquidation; and
Suspension of Payments( Penundaan Kewajiban Pembayaran Utang or“ PKPU”) proceedings, which are designed to allow debt restructuring and business continuity.
Although these two forms are procedurally distinct, they are often intertwined; restructuring efforts may arise out of a bankruptcy proceeding, and a PKPU process may lead to liquidation if the restructuring fails.
Limited Provisions on Cross-Border Insolvency
Despite the progress in domestic insolvency law, Indonesia’ s legal regime remains underdeveloped in its treatment of cross-border insolvency. The current Bankruptcy Law contains only three provisions that specifically addressing cross-border situations. These provisions generally prohibit unsecured creditors from enforcing claims against a debtor’ s
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The author uses the term“ Indonesian Bankruptcy Law” deliberately, as the term“ insolvency” under this law carries a different meaning than in many other legal systems. In Indonesia, insolvency does not serve as a test or requirement for the declaration of bankruptcy. Instead, it refers to a specific legal condition—“ the state of being insolvent at law”— which arises once bankruptcy or PKPU proceedings have commenced.
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