Good faith is the most essential part of a contract among parties to an agreement. During the financial crisis in Indonesia, creditors have been facing difficulties when trying to recoup their investment, especially from debtors who lack good faith. The standard operating procedure of those debtors involves hiding their assets beyond the creditors' reach by transferring them out to obscure related parties. This is particularly relevant for unsecured creditors that do not have specific assets encumbered as collateral for the underlying loans. Unsecured creditors need to find the debtors' assets before they are able to attach such assets to satisfy their claims. It then comes naturally for bad faith debtors to try to transfer their assets out and leave the companies empty should the creditors obtain a judgment to have their monies back.
Indonesian laws have anticipated this possibility by providing the creditors with statutory rights to seek annulment of such unlawful transfer through Indonesian courts (this is called actio pauliana).
Actio pauliana in general
The general provision regarding annulment action is stipulated in Article 1341 of the Indonesian Civil Code. This article says that any creditor may call for cancellation of all unrequired actions by the debtor, under any name, that are detrimental to creditors, provided that it can be proven that in thus acting, both the debtor and the person with or for whom he acted knew that harm to the creditors would be the result. Any rights obtained in good faith by the third parties as to goods that were subject to a cancelled act will be honoured. To cancel an action taken by the debtor, it is enough for the creditor to prove that the debtor at the moment of action knew of its detriment its creditors, regardless of whether or not the favoured party was aware of it.
Actio pauliana in bankruptcy
For the benefit of the bankruptcy estate, the receiver can request annulment of any non-obligatory legal act (by either law or contract) performed before the declaration of bankruptcy by a bankrupt debtor that prejudices the interests of the creditors, if the debtor and the counterparty with whom the debtor performed the legal acts knew or should have known that the legal act would cause damage to the creditors.
actio pauliana is an obligation of the receiver considering its duty to maximize the bankruptcy estate. However, because actio pauliana in bankruptcy may only be instituted by the receiver, for other parties (the creditors) who want to file claims on this basis, the general provision in the Civil Code above applies.
Unless it can be proven otherwise, a non-obligatory act carried out within one year before the bankruptcy declaration will be considered action by the debtor and the counterparty, that knew or should have known that it would result in damage to the creditors, if the said act:
- constitutes a contract in which the obligations of the debtor considerably exceed the obligations of the party with whom the contract was made;
- constitutes a payment or provision of collateral for a debt that is not yet due and not yet payable;
- is performed by an individual debtor with or towards:
- his or her spouse, foster child or relative up to the third degree;
- a legal entity in which the debtor or the parties referred to in point 1) are members of the board of directors or managers or in which said parties, severally or jointly, participate directly or indirectly in the ownership of said legal entity for at least 50% of the paid-up capital;
- is performed by a debtor being a legal entity with or towards:
- any member of the board of directors or managers of the debtor, or spouse, or foster child, or relative up to the third degree, of a member of said board of directors or managers;
- any individual, severally or jointly with the spouse, foster child, or relative up to the third degree of said individual, who participates directly or indirectly in the ownership of the debtor for at least 50% of the paid-up capital;
- any individual, whose spouse, or foster child, or relative up to the third degree, participates directly or indirectly in the ownership of the debtor for at least 50% of the paid-up capital;
- is performed by a debtor being a legal entity with or with respect to another legal entity, if:
- an individual member of the board of directors or manager of both legal entities is the same person;
- the spouse, or foster child, or relative up to the third degree, of an individual member of the board of directors or manager of the debtor is a member of board of directors or manager in the other legal entity, or vice versa;
- an individual member of the board of directors or manager or member of the board of commissioners of the debtor, or a spouse, or foster child, or relative up to the third degree, participates, severally or jointly, directly or indirectly in the ownership of the other legal entity for at least 50% of the paid-up capital, or vice versa;
- the debtor is a member of the board of directors or a manager in the other legal entity, or vice versa;
- the same legal entity, or the same individual, either together with or separately from his/her spouse, and or his or her foster children and his or her relatives up to the third degree, participates, directly or indirectly in both entities for at least 50% of the paid up capital;
- is performed by a debtor being a legal entity with or with respect to a legal entity in a group of legal entities of which the debtor is a member.
In addition to this, in case of a grant or a gift (hibah) made by the debtor, the counterparty's knowledge of the prejudicing element does not need to be proven. If it is done within one year before the bankruptcy declaration, the debtor will be presumed to have the knowledge (unless proven otherwise) and therefore the act can be annulled.
Performance by the debtor of an obligation which is due may only be annulled if it is proven either that the person receiving the payment knew that the bankruptcy of the debtor had been petitioned for or that the petition for bankruptcy had been filed by the debtor itself or that the payment was the result of consultation between the debtor and the creditor with the intention of preferring that creditor over the other creditors. Reclamation cannot be requested from a person who, as holder of a negotiable instrument made out to order or bearer, was obliged to accept the payment in view of his legal relationship with former holders. In this event, the party in whose favour the negotiable instrument was issued is obliged to reimburse the amount paid by the debtor to the bankruptcy estate if it is proven either at the time the negotiable instrument was issued he had the above-mentioned knowledge or that the negotiable instrument was issued as a result of the above-mentioned consultation.
Satrya Wijaya Teja