In business law practice, bankruptcy is often perceived as a condition that is entirely detrimental to the debtor. Naturally, a debtor who is obligated to settle payment while experiencing financial difficulty becomes increasingly pressured when a bankruptcy petition is suddenly filed by a creditor.

It is not uncommon for a bankruptcy petition to be viewed as an instrument of pressure used by creditors to obtain rapid debt settlement, without regard for the debtor's condition. Whereas Indonesian bankruptcy law is essentially designed not only to protect the interests of creditors, but also to provide a measure of protection for debtors so that debt settlement is carried out fairly, proportionally, and based on legal certainty.

1. Law Number 37 of 2004

Law Number 37 of 2004 concerning Bankruptcy and Suspension of Payment of Debt Obligations (the Bankruptcy and PKPU Law) essentially governs matters ranging from the requirements for filing a bankruptcy petition and the examination procedure, through to the legal consequences arising once a debtor is declared bankrupt. Accordingly, in addition to serving as a guideline for creditors in filing a bankruptcy petition, the Bankruptcy and PKPU Law may also serve as a basis for protecting the debtor's rights.

Understanding the Bankruptcy and PKPU Law is particularly important for debtors, so that the legal steps taken can be appropriate and consistent with the facts at hand. Article 2 paragraph (1) of the Bankruptcy and PKPU Law expressly provides that:

“A Debtor who has two or more Creditors and does not pay in full at least one debt that has fallen due and is payable, shall be declared bankrupt by a decision of the Court, either on the Debtor's own petition or on the petition of one or more of its creditors.”

Therefore, a debtor who is declared bankrupt must have at least two creditors, and the debt owed to at least one of those creditors must be due and payable. This formulation shows that bankruptcy does not require proof of a state of complete inability to pay (insolvency), but rather that the existence of a single debt that is due and payable is sufficient. This condition places the debtor in a position that is relatively vulnerable to a bankruptcy petition.

In addition to the requirements under Article 2 paragraph (1), the Bankruptcy and PKPU Law also affirms the standard of examination for a bankruptcy petition through the principle of simple proof. Article 8 paragraph (4) essentially provides that a petition for a declaration of bankruptcy must be granted if there are facts or circumstances that are simply proven to show that the requirements of Article 2 paragraph (1) have been satisfied. In practice, this places the focus of proof on the existence of two or more Creditors and the existence of at least one debt that is due and payable, so that the examination does not shift into the proof of a complex civil dispute.

Nevertheless, the debtor is not left without legal protection. In the process of examining a bankruptcy petition, the debtor has the right to file an objection and present a defense. If the debt used as the basis for the petition is still in dispute, has not yet fallen due, or its existence is unclear, then the bankruptcy petition should be rejected by the court. The principle of simple proof must still be interpreted carefully so as not to prejudice the debtor. Moreover, if it is in fact not proven that the debtor has other creditors, or there is only a single creditor, then the Bankruptcy and PKPU Law must be interpreted as providing genuine legal protection for the debtor.

2. Legal Strategy for Debtors in Facing the Bankruptcy Process

In facing the threat of bankruptcy, a debtor needs to formulate a measured legal strategy. An important first step is to conduct a thorough analysis of all obligations and legal relationships with creditors. This analysis covers the validity of agreements, the due-date status of debts, and the existence of clauses that are potentially subject to dispute. In practice, a considerable number of bankruptcy petitions have not been granted by the panel of judges because of civil disputes that have not yet attained final and binding legal force.

Once the court has handed down a bankruptcy decision, the administration and liquidation of the debtor's assets are carried out by the curator under the supervision of the supervisory judge. Although the curator's authority is fairly extensive, the debtor still retains the right to oversee the conduct of the liquidation of the bankruptcy estate. The debtor may file an objection against any action of the curator that is considered to exceed its authority or to be inconsistent with statutory provisions.

For a debtor in the form of a legal entity, bankruptcy does not automatically give rise to personal liability on the part of its directors or shareholders. The principle of separation between the company's assets and personal assets continues to apply, unless it can be proven that there was fault, negligence, or an unlawful act committed in a personal capacity. It is therefore important to carefully assess the boundary between corporate liability and individual liability.

3. Preventive Measures to Minimize the Risk of Bankruptcy

In addition to the steps described above, a preventive approach also plays an important role in minimizing the risk of bankruptcy. Clear and transparent debt management in relationships with creditors, together with the drafting of balanced business agreements, can help prevent the emergence of conflicts in the future.

By understanding the debtor's rights and the legal strategies available, bankruptcy should be viewed as a legal mechanism for debt settlement, not merely as a tool of pressure. The right legal approach enables the debtor to continue protecting its interests and to ensure that the bankruptcy process proceeds in accordance with the principles of fairness and legal certainty.

For this reason, it is important to understand the Bankruptcy and PKPU Law as an instrument for protecting the debtor's rights in a bankruptcy petition, so as to minimize the business risks that may arise.

4. Suspension of Payment of Debt Obligations as an Instrument for Debtor Protection

Suspension of Payment of Debt Obligations (PKPU) is a legal instrument within the bankruptcy regime that provides room for the Debtor to negotiate the settlement of debts with its Creditors through a composition plan. This instrument may be used when the Debtor is unable, or anticipates that it will be unable, to continue paying its debts that are due and payable, as provided under Article 222 of the Law concerning Bankruptcy and Suspension of Payment of Debt Obligations. In that composition plan, the Debtor may offer a restructuring scheme, including the rescheduling of payments, changes to payment terms, and/or a reduction of obligations (haircut), insofar as agreed in accordance with the prevailing laws and regulations.

During the course of the PKPU process, the Debtor is in principle protected from individual collection and execution actions by Creditors. Attempts at seizure or the separate execution of the Debtor's assets may not be carried out on an individual basis, so that debt settlement is placed within a single, collective process under the supervision of the court. Through this mechanism, PKPU functions to preserve the value of the Debtor's assets, provide certainty in the negotiation process, and support the continuity of the Debtor's business, in order to achieve a debt settlement that is more measured and equitable.

Accordingly, PKPU should not be understood merely as a suspension of payment, but rather as a business rescue instrument that provides the Debtor with time and a legal framework to carry out a measured debt restructuring while maintaining the continuity of its business activities (going concern). Through the negotiation of a composition plan supervised by the court, PKPU also directs settlement toward a collective process, thereby preventing individual execution actions, maximizing the value of assets, and ultimately increasing the prospects of satisfying Creditors' claims compared to if the Debtor were directly declared bankrupt.

Contributor: Dominicus Mahardian Yudhit Satya | Legal Associate