In the era of economic globalization, it is not uncommon for a multinational company to have assets scattered across various countries. However, highly complex legal issues arise when such a foreign company is declared bankrupt in its home country (e.g., Singapore, the United States, or Australia), while still possessing valuable assets such as factories, properties, shares, or funds in bank accounts within the jurisdiction of Indonesia.
For foreign creditors or foreign liquidators, the crucial question is: Can a bankruptcy decision from a foreign court be directly used to seize and execute the debtor’s assets located in Indonesia?
The answer is no.
This article will explore the practical challenges of cross-border insolvency in Indonesia and the appropriate legal steps for foreign creditors to secure their rights.
Legal Barriers: The Principle of Territoriality in Indonesia
Many foreign creditors assume that a commercial court decision from the debtor’s home country applies universally. Unfortunately, the bankruptcy legal system in Indonesia (based on Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations) adheres to a strict principle of territoriality.
Furthermore, Indonesia has not yet ratified the UNCITRAL Model Law on Cross-Border Insolvency. The legal implications of this situation are highly significant:
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No Automatic Recognition: A bankruptcy decision rendered by a foreign court is not automatically recognized within the legal territory of the Republic of Indonesia.
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No Direct Execution: Foreign liquidators or curators do not have the legal authority to directly seize, sell, or execute the debtor’s assets located in Indonesia.
If a foreign liquidator forces the seizure of assets in Indonesia without following national legal procedures, such actions can be categorized as an unlawful act (tort).
Practical Steps for Executing Assets in Indonesia
Although Indonesian courts do not automatically recognize foreign bankruptcy decisions, foreign creditors do not lose their rights whatsoever. The right to the receivable remains valid, but creditors need the appropriate “legal vehicle” within the Indonesian jurisdiction.
The following are litigation strategies that can be pursued to execute these assets:
1. Filing a New Bankruptcy Petition at the Indonesian Commercial Court
This is the most aggressive and effective resolution path. Foreign creditors can use the foreign court decision (or other debt acknowledgment documents) as evidence to file a new Bankruptcy or Suspension of Debt Payment Obligations (PKPU) petition at the Commercial Court in Indonesia.
The absolute requirements for filing this petition according to Article 2 paragraph (1) of the Bankruptcy Law are:
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There are at least 2 (two) or more creditors.
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There is a debt that is due and payable.
If this petition is granted, the Indonesian Commercial Court will appoint an Indonesian Receiver (Curator). It is this local receiver who has the legal authority to execute the debtor’s assets in Indonesia and distribute them to the creditors, including foreign creditors.
2. Civil Lawsuit (Breach of Contract)
Alternatively, if the bankruptcy requirements (such as simple proof or the 2-creditor rule) are deemed difficult to fulfill, foreign creditors can file a regular civil lawsuit based on breach of contract (default) at the District Court. In this process, it is highly crucial to apply for a Conservatory Attachment (Conservatoir Beslag) beforehand so that the debtor’s assets in Indonesia are not transferred or hidden while the trial process is ongoing.
3. Execution of Security Interests (Separatist Creditors)
If foreign creditors hold security rights over assets in Indonesia (e.g., Mortgage over land and buildings, or Fiduciary Duty over machinery), their position is much stronger. Foreign creditors (as separatist creditors) have the right to execute the collateral as if no bankruptcy occurred, through the execution auction mechanism in Indonesia.
