The Indonesian parliament has approved a new Act on Bankruptcy and Debt Moratorium. Among the various provisions stipulated in the Act, new provisions on the requirements to approve a composition plan in debt moratorium stand out.
In the old bankruptcy regulation, the provisions both for bankruptcy and for debt moratorium situations determined that a composition plan submitted by a debtor would be accepted if the plan was approved by more than half of the unsecured creditors attending the vote-casting meeting who held at least two-thirds of the debts of the attending unsecured creditors. Secured creditors were affected neither by bankruptcy nor debt moratorium. Subject to the statutory stay period of no more than 90 days (in bankruptcy) or 270 days (in debt moratorium), they could enforce their collaterals as if there were no bankruptcy or debt moratorium. Naturally, they were not allowed to cast any vote on the composition plan unless they were willing to forgo their collateral or unless they had a portion of the claims that would not be sufficiently covered by the collaterals.
This all has changed now for a composition plan submitted in debt moratorium. It is, however, unclear why the comparable provisions in bankruptcy situation remain the same in the above respects. Article 281 of the new Act determines that a composition plan submitted by a debtor will be accepted if the plan is approved by: (i) more than half of the unsecured creditors attending the vote-casting meeting who hold at least two-thirds of the debts of the attending unsecured creditors; and (ii) more than half of the secured creditors attending the vote-casting meeting who hold at least two-thirds of the debts of the attending secured creditors. The new Act goes on to say that the approved composition plan will bind all creditors (secured and unsecured) except those who explicitly disapprove the plan. This means that, unless secured creditors attend the vote-casting meeting on the composition plan and vote against it, such secured creditors will be subject to the plan if it manages to obtain the required votes.
Article 281, paragraph (2) of the new Act further stipulates that secured creditors who vote against the composition plan will be provided with compensation in the lesser of the value of the collaterals or the actual value of the outstanding claims directly secured by the collaterals. The collaterals' value may be the value stipulated in the collateral documents or may be determined by an appraiser appointed by the supervisory judge. The article is silent on whether the compensation constitutes a full and final settlement of the claims of the secured creditors concerned. If the outstanding claim is less than the value of the corresponding collateral, the compensation translates as full payment of the debt by the debtor. If, however, the value of the collateral is less than the outstanding claim, the secured creditor should still be able to claim the debtor for the remaining unpaid portion of its claim, unless this potentially creates an inequality on the part of the unsecured creditors who disapprove the composition plan. In this regard, it is logical to say that the unpaid portion should be treated as unsecured. The new Act is also silent on when the payment of the compensation must be made and whether instalments are possible. This will need to be established in practice. In the absence of a mutual agreement between the secured creditor concerned and the debtor on the timing, a possibility would be that the compensation must be paid in full before the composition plan is made effective, that is, before the commercial court validates the composition plan. If, however, both parties reach an agreement, it is possible to agree on the timing as well as the method of payment.
Other potential problems would be the method in which the collateral should be valued, that is: (i) in what circumstances a pre-determined value of the collateral in the underlying documentation will be used; (ii) in what circumstances an appraiser will be appointed by the supervisory judge; (iii) whether the lesser value of the collateral derived from the two methods will be used to determine the amount of compensation; (iv) who will determine which collateral value to use; and (v) who may nominate the name of the appraiser to undertake the job. The problem in the last point should be avoidable if the lawmaker determined that each of the secured creditor and the debtor has the right to appoint one appraiser and the value used to determine the compensation is the weighted average of the values established by the two appraisers. Moral hazard of the single appraiser is also a potential problem.
In the new Act, the norm that secured creditors are not affected by bankruptcy or debt moratorium is maintained. This is supposed to mean that, subject to the statutory stay period of 90 days (in bankruptcy) or 270 days (in debt moratorium), the secured creditors may enforce their collaterals as if there were no bankruptcy or debt moratorium. However, given the existence of the new provisions, which require the secured creditors to cast their votes on the composition plan and that secured creditors who disapprove the plan be compensated, the rights of the secured creditors to enforce or foreclose on their collaterals in debt moratorium effectively cease to exist. Even so, this should not undermine the preferential rights of the secured creditors to receive the proceeds of their collaterals in advance of the unsecured creditors - the design to provide the compensation is intended to maintain this preferred position.
Satrya Wijaya Teja