This article provides general legal information as of 12 November 2026 and is not legal advice or a legal opinion on any specific case. For your situation, consult an advocate.

If a company is declared bankrupt, employees rank as a preferred creditor: unpaid wages are paid before all creditors, including secured creditors, while severance and other entitlements rank ahead of all creditors except secured creditors (Article 151 of Law No. 27 of 2026 on Labour Protection, in force since 28 October 2026).[1] Even so, bankruptcy costs and the receiver's fee are generally paid out of the estate first.

Payment Order and the Preferred Creditor Ranking

The payment order from the estate is as follows.

• First: bankruptcy costs and the receiver's fee. These are expenses of administering the estate (Article 189(2) of Law No. 37 of 2004).[2] No article expressly ranks them above wages; this order rests on reasoning from Articles 18(5) and 191 of that Law and Article 1149(1) of the Civil Code.[6] These costs are not charged to collateral that a secured creditor sells itself (Article 191).
• Second: unpaid wages. Paid before all creditors, including secured creditors and state claims (elucidation of Article 151(2)).
• Third: secured creditors (holders of security rights over assets), only from the proceeds of their own collateral.
• Fourth: other entitlements: severance pay, long-service pay (UPMK) and compensation for rights. These rank ahead of all creditors, including tax, except secured creditors (Article 151(3); Constitutional Court Decision No. 67/PUU-XI/2013).[7]
• Fifth: state claims and other preferred creditors.
• Sixth: unsecured (concurrent) creditors.

Secured creditors may enforce their security after a stay of up to 90 days, but must account to the receiver (kurator) for the proceeds (Articles 55(1), 56(1) and 60(1) of Law No. 37 of 2004).[2] Because unpaid wages rank ahead of secured creditors (elucidation of Article 151(2); Constitutional Court Decision No. 67/PUU-XI/2013),[1][7] the receiver or the employees, as a preferred creditor, may demand a share of the collateral sale proceeds to pay unpaid wages (Article 60(2)).

A Bankruptcy Order Does Not End Employment Automatically

From the date the bankruptcy order is pronounced, wages owed both before and after the order are debts of the estate (Article 39(2) of Law No. 37 of 2004). Because the debtor loses the right to manage the estate (Article 24(1)), it is the receiver, not the directors or HR, who dismisses employees, with at least 45 days' notice (Article 39(1)).[2]

Bankruptcy is a ground for termination (Article 231(f) of Law No. 27 of 2026), but the 45-day notice does not replace the termination procedure (elucidation of Article 39(1) of Law No. 37 of 2004): the receiver must still negotiate the intended termination bipartitely for up to 30 working days, because bankruptcy is not an exception (Article 229). Without an agreement or a final and binding ruling of the industrial relations dispute body, the termination is void by law (Article 228(3) to (7)).[1] Because, according to the Supreme Court, the industrial relations court (PHI) has no jurisdiction over termination cases once a company is bankrupt (SEMA No. 7 of 2012),[8] a bipartite agreement is the safest route.

Bankruptcy Severance Is 1 Times the Standard Amount

For a bankruptcy termination, the employee is entitled to severance pay of 1 times Article 232(2), UPMK of 1 times Article 232(3), and compensation for rights under Article 232(4) (Article 240 of Law No. 27 of 2026), calculated on the base wage plus fixed allowances (Article 234).[1]

Example: 6 years and 3 months of service at a monthly wage of Rp8,000,000 give severance of 7 months' wages (Rp56,000,000) and UPMK of 3 months' wages (Rp24,000,000). With 2 months' unpaid wages (Rp16,000,000), the total is Rp96,000,000 excluding compensation for rights.

These rules apply to terminations from 28 October 2026 (Article 313).[1] As there is no specific transitional rule, bankruptcy terminations before that date follow the old rules: 0.5 times severance, 1 times UPMK, and compensation for rights (Article 47 of Government Regulation No. 35 of 2021).[9] In the example above, severance would be Rp28,000,000 and the total Rp68,000,000.

The Amount Received Can Be Lower Than the Claim

• Tax. Severance, UPMK and compensation for rights are subject to final Article 21 income tax in bands of 0%, 5%, 15% and 25%, with the first band up to Rp50 million (Article 4 of Government Regulation No. 68 of 2009).[3] In the first example, the tax is Rp1,500,000.
• Bankruptcy costs and the receiver's fee. The receiver's fee is a percentage, subject to a cap, of the liquidation proceeds excluding debts (Article 2 of Minister of Law Regulation No. 20 of 2025).[4] These costs are not deducted from each employee's claim, but they reduce the funds distributed.
• Insufficient estate. Creditors of the same rank are paid proportionally (Article 1136 of the Civil Code).[6] If the funds for other entitlements cover only 60%, the severance and UPMK in the first example are paid at Rp48,000,000.

Employees Must Lodge Their Claims as Preferred Creditors

Every creditor, including employees, must submit its own claim to the receiver with a written calculation, evidence and a statement of any privilege, and ask for a receipt (Article 115 of Law No. 37 of 2004). HR data is only used by the receiver for cross-checking (Article 116).[2]

The supervisory judge sets the claims deadline within 14 days of the bankruptcy order, and the receiver announces it within 5 days after that (Articles 113(1) and 114).[2] Keep unpaid wages separate from other entitlements, because they rank differently against secured creditors.

Practical Steps for HR and Employees

• HR: prepare each employee's length of service, wages, arrears and remaining leave for the receiver's cross-check.
• HR: help the receiver prepare the termination notice and bipartite negotiation, and prepare the termination documents needed for JKP claims.
• Employees: claim Job Loss Security (JKP) benefits from BPJS Ketenagakerjaan within 6 months of termination; benefits are still paid if the bankrupt company is up to 6 months in arrears on contributions (Articles 39A(1) and 40 of Government Regulation No. 37 of 2021 as amended by Government Regulation No. 6 of 2025).[5]

Frequently asked questions

How long until the receiver pays severance?

There is no fixed deadline. The receiver pays once assets are sold and the distribution list is final (Articles 189 and 201 of Law No. 37 of 2004).[2]

When to get advice

• The company is behind on wages and heading towards PKPU or bankruptcy.
• The receiver disputes or reduces the employees' claims.
• Most company assets are pledged to banks.

SANDIVA supports HR, employees and boards, from calculating termination entitlements to claims for the receiver. Learn more about our Manpower and Bankruptcy and Insolvency services, as well as our PKPU services. Talk to Sandiva about employment matters via our Contact Us page or on WhatsApp at +62 857-5705-1234.

Sources

Bracketed numbers in the text refer to the list below. Accessed 10 November 2026.

[1] Law No. 27 of 2026 on Labour Protection, Article 151 and its elucidation, Articles 228, 229, 231(f), 232, 234, 240 and 313. JDIH BPK RI: Law 27/2026.

[2] Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations, Articles 18(5), 24(1), 39(1) and its elucidation, 39(2), 55(1), 56(1), 60(1) and (2), 113(1), 114, 115, 116, 189, 191 and 201. JDIH BPK RI: Law 37/2004.

[3] Government Regulation No. 68 of 2009 on Article 21 Income Tax Rates on Severance Pay, Pension Benefits, Old-Age Allowances and Old-Age Security Paid in a Lump Sum, Article 1 point 4 and Article 4. JDIH BPK RI: GR 68/2009.

[4] Minister of Law Regulation No. 20 of 2025 on Guidelines for Fees of Receivers and Administrators, Article 2(1)(b) and (2). JDIH BPK RI: Regulation 20/2025.

[5] Government Regulation No. 37 of 2021 on the Job Loss Security Programme as amended by Government Regulation No. 6 of 2025, Articles 39A(1) and 40. JDIH BPK RI: GR 37/2021 and GR 6/2025.

[6] Indonesian Civil Code (KUHPerdata; Burgerlijk Wetboek, Staatsblad 1847 No. 23), Articles 1136 and 1149(1).

[7] Constitutional Court Decision No. 67/PUU-XI/2013, pronounced 11 September 2014, ruling point 1 (review of Article 95(4) of Law No. 13 of 2003, since repealed by Article 311 of Law No. 27 of 2026; its substance is now in Article 151). Constitutional Court: Decision 67/PUU-XI/2013.

[8] Supreme Court Circular Letter (SEMA) No. 7 of 2012, Special Civil Chamber formulation point II (jurisdiction of the Industrial Relations Court over companies declared bankrupt). Supreme Court Decisions Directory: Special Civil Chamber formulations.

[9] Government Regulation No. 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment, Articles 40(2) to (4) and 47 (for terminations before 28 October 2026). JDIH BPK RI: GR 35/2021.