Legal UpdatesDebt Restructuring Agreements through PKPU (2)

From January to June 2020, reportedly, petitions for Suspension of Debt Payment Obligation (“PKPU”) have rapidly increased. By the end of July 2020, OJK had announced that Micro Small Medium Enterprises (“UMKM”) and corporate sectors had received debt restructuring with a total amount of IDR 776 trillion. In such cases, a debtor as a businessman has the freedom to decide whether to settle the dispute through the PKPU or litigation mechanism.

The following conditions need to be fulfilled in a PKPU petition:

  1. The debtor is proven to have 2 (two) or more creditors;
  2. The debtor has not yet paid off 1 (one) debt that has matured and can be collected.

Law No.37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations regulates that a petition for PKPU is granted based on those simple proofs. The court then determines a debtor with a Temporary PKPU status for a maximum of 45 (forty-five) days. Following the Temporary PKPU status, the court then decides a Permanent PKPU status for the debtor within 270 days, including the 45 days of Temporary PKPU duration, under certain conditions (for instance, creditors’ approval in the previous vote). The main purpose of a Permanent PKPU is to provide the debtor within a reasonable time to draft and propose a composition plan to the creditors.

In the debtor’s point of view, PKPU can be an option to overcome difficulties in terms of payment. If the debtor succeeds in making a composition plan, the plan will apply to all creditors. The debtor is by law allowed to suspend payments to all creditors. In other words, the PKPU mechanism providing debt restructuring brings up the debtor to pay his debts.

If a composition plan has been approved in a Permanent PKPU (within 270 days), it will become homologation (peace decision). At this stage, any of the 6 (six) elements in a debt restructuring described above can be applied. For example, in a Loan Restructuring Agreement (“LRA”) as a continuation of a Master Restructuring Agreement (“MRA”), parties agree on three repayment schemes, such as using cash flows (A), asset sales (B), and convertible bonds (C). The three schemes have different tenors. Scheme A is to extend the loan duration, for instance, a 3 (three)-year tenor. Meanwhile, scheme C will be rather long because there are elements of convertible bonds.

 

Key Features in PKPU Debt Restructuring

Apart from having to cooperate with the appointed administrator, the debtor is also obligated to effectively take serious actions by not wasting privileges granted. For example, within 3 (three) days after the PKPU petition, the debtor will definitely obtain Temporary PKPU status (45 days) on a court decision, which is then followed by Permanent PKPU (270 days) at the creditors’ approval. Once the debtor fails to carry out what has been promised in the homologation—moreover, some creditors request that the homologation be canceled—the debtor will still be given 30 (thirty) days to fulfill the obligations. If the debtor still fails to do so, it will be declared bankrupt.

A debtor must convince its creditors through effective communication that it has good business prospects and is capable of meeting its obligations after the credit is restructured. Why is effective communication needed? A debtor must keep in mind that creditors have the right to reject the Composition Plan, however visible it is. Nevertheless, when creditors reasonably feel served and appeased, their mindset ‘debt repayments have to be made as quickly as possible’ will mostly be corrected due to the debtor’s ability in the art of effective and convincing communication.

 


ADCO Law earns the trust to represent clients from multinational companies to emerging entities across a wide range of industries to achieve their business objectives in Indonesia.

By combining commercial sensibilities and legal expertise, ADCO as a Law Firm Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing and securing investments as well as establishing new foreign companies in Indonesia. Should you have more queries regarding this matter, please do not hesitate to contact us.

Dendi Adisuryo
dendi.adisuryo@adcolaw.com

Liza Mashita
liza@adcolaw.com

@2020 ADCO Law. All rights reserved.
This publication has been prepared by Pitman for general informational purposes only to provide clients with information on recent legal developments and is not intended as legal advice or opinion.

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