Debt Settlement for Unsecured Creditors in Indonesia

by: Ajeng Yesie Triewanty and Dandi Andila Hamid
Indonesia, with the combination of flexible investment policies and supported by key fundamental economic developments including competitive work force, offers many business and investment opportunities for foreign companies.Nevertheless, these positive attributes are not balanced with fast, efficient and cost effective debt settlement mechanisms. Where the secured creditors are generally vested with the right to directly execute upon the debtors’ assets, the unsecured creditors are subjected to complex layered of mechanisms to pursue its debtor.For instance, in pursuing a debt before a court, the District Court could take between 5-12 months before delivering its decision. Therefore, it is crucial for investors or businesses to be informed of the debt recovery options available in Indonesia. The information would help them in choosing the most suitable mechanism to recover debt.

This article will briefly outline the available mechanisms under the Indonesian laws for unsecured creditors to pursue a debt.


The common recommended route taken by creditors to recover debt in Indonesia is through out-of-court settlement.

Besides the inherent Indonesian culture and ideology where amicable settlement is encouraged, the method is based on Article 1238 Indonesian Civil Code:

“[t]he debtor shall be declared to have defaulted, either by an order or other such similar deed, or pursuant to the contract itself, which stipulates that the debtor shall be in default, upon failure to deliver within the stipulated time period.”

Based on the said article, creditors usually issue a summon/warning letter to the debtor, which outlines a statement concerning the debtor’s breach of commitment.
The letter also calls for a discussion to determine whether the dispute should be settled through the court system or dispute settlement forum. Stronger legal measures will only pursue if the debtor fails to responds accordingly for out of court settlement process.

Failure of an out-of-court settlement would enables creditor to pursue the following legal options:
i) Court settlement;
ii) Bankruptcy;
iii) Suspension of payment; and
iv) Arbitration.


The court settlement mechanism starts when a creditor lodges lawsuit against a debtor before the relevant District Court. For a defendant (debtor) domiciled in Indonesia, the lawsuit shall be addressed to the District Court where the debtor is domiciled. If the defendant resides outside Indonesia, the lawsuit shall be addressed to the District Court of Central Jakarta or District Court where the plaintiff (creditor) is domiciled.

Time frame and procedure

The District Court takes approximately 6 (six) months to pronounce a decision. An unsatisfied party may appeal against the decision to the High Court. The High Court may take approximately 9 (nine) months to pronounce its decision. The decision may still be challenged at the Supreme Court (cassation). In practice, the whole process usually takes longer than the stipulated time. In addition, the Supreme Court decision may not necessarily be final. A party, subject to meeting relevant criteria, may file for a review of the Supreme Court decision.

Within 14 (fourteen) days after the decision is read or is informed to the party (in the event that the decision is read without the appearance of a party), the decision is final and binding, and thus executable.

The court settlement process is cost intensive and time-consuming as relevant parties may appeal against the court decisions as allowed under the laws.


Action to initiative a bankruptcy petition is provided by Law No. 37 of 2004 (“Bankruptcy Law”).
The Bankruptcy Law is aimed to provide protection and legal certainties to creditors.
Who may submit the petition?

Article 2 of Bankruptcy Law entitles the public prosecutor (for public interest), debtor (voluntarily) and creditor(s) to file a bankruptcy petition to the Commercial Court. The Bankruptcy law, nonetheless, provides safeguarding rules for banks, corporations that operates in the area of capital market and insurance, and state owned company that operates in the field of public interest. The parties authorized to submit the bankruptcy petition are:

• Bank of Indonesia, if the debtor is a bank;
• Capital Market Supervisory Board (Badan Pengawas Pasar Modal), in the event that the debtor is a security company, stock exchange, Clearing Guarantee Institution, or Central Security Depository;
• Minister of Finance for the debtor having its business activities in insurance, reinsurance, pension fund, State-Owned Company having its business in the field of public interest.

Requirement, time frame and procedure

Under the Bankruptcy Law, the general requirements to file a bankruptcy petition are
(i) the debtor shall have two or more creditors; and
(ii) the debtor has not made payment in full for at least one due and payable debt.

Similar to the court settlement procedure, the bankruptcy petition shall be submitted to the Commercial Court where the debtor is domiciled (Art. 3 Bankruptcy Law). Currently, there are 5 (five) Commercial Courts in Indonesia, i.e. Medan, Central Jakarta, Semarang, Surabaya, and Makassar. The petition should be filed according to the territorial jurisdiction of each Commercial Court.

In expediting the bankruptcy process, the proceeding at the Commercial Court does not have appeal stage, unlike settlement through District Court. Upon issuance of decision by the Commercial Court, a dissatisfied party may directly file a cassation to the Supreme Court within 8 (eight) days after the decision is read.

The Bankruptcy Law requires for the decision to be issued within 60 (sixty) days from the date of the bankruptcy petition is registered. Whilst the Supreme Court is required to issue its decision within than 60 (sixty) days from the date when the petition for cassation is registered.

The decision of the Supreme Court may be challenged by filling a review to the Supreme Court. If the decision at the first instance is not challenged; the process of administration and/or liquidation of the debtor’s asset will begin. In practice, it is a lengthy process which could take years.


Chapter II of Bankruptcy law provides an option for debtors to restructure their debt through the court process. This form of debt restructuring is known as suspension of payment. The advantage of this approach is it allows debtors to propose a debt restructuring plan and to continue its business. Parties may initiate the suspension of payment option by submitting an application to the court.


In principle, the requirements for submitting suspension of payment are similar submission of bankruptcy petition. Bankruptcy law stipulates that the material requirement to submit a suspension of payment is that the debtor shall have one or more creditor(s). Authorized parties to submit suspension of payment are similar to those who are authorized to submit the bankruptcy petition, except public prosecutor. The public prosecutor is not entitled to submit suspension of payment for public interest under the law.

Time Frame & Procedure

The submission must be made to the Commercial court where the debtor is domiciled. If the petition is filed by the debtor, the Court shall within 3 (three) days as of the date of registration, grant temporary suspension of payment. If the petition is filed by the Creditor, the Court shall within 20 (twenty) days as of the date of registration, grant suspension of payment. Upon the decision of suspension of payment, there is no legal measures can be taken.

The period of suspension of payment can be extended for a maximum of 270 (two hundred and seventy) days from the court decision, subject to mutual agreement by the debtor and creditor.
Suspension of payment may lead to bankruptcy and subsequently commencement of debtor’s assets liquidation process. This ‘automatic’ bankruptcy may occur if, among others:

a. at day 45 (forty five) from the court’s decision:
– the debtor does not submit a settlement proposal and an application to extend the suspension of payment; or
– the creditor does not agree to the settlement proposal proposed by the debtor and to the application for extending the suspension of payment; or

b. the settlement proposal by the debtor has not been agreed at the conclusion of agreed duration of extension of suspension of payment


Arbitration is an alternative debt settlement mechanism outside the court system. This procedure is based on principle of freedom of contract as governed under Article 1338 Indonesian Civil Code, which specifically regulated by Law number 30 of 1999 on Arbitration and Alternative Dispute Resolution (“Arbitration Law”).

Settlement through arbitration can only be conducted only if the parties have agreed to arbitrate. The agreement to arbitrate can be made before or after the occurrence of dispute. It is recommended to include the agreement to arbitrate as a clause in the main agreement rather than after the dispute has occurred. In inserting the relevant clause in the agreement for arbitration procedure, it is important to include the rules governing the arbitration, the seat and place of arbitration, the number of arbitrator, and the language to be used in the proceeding.

Arbitration Law stipulates that in the event that parties to the contract have chosen arbitration as their dispute settlement, arbitration shall have absolute competency to decide upon the case. This consequently obliges the court to reject to examine and judge any disputes, including debt problems arising out of contract inserted with arbitration clause.

Time frame & Procedure

Ad-hoc or institutional arbitration set of rules will set their own deadline to examine and decide upon a claim. For instances, the Indonesian National Board of Arbitration (BANI) sets the time frame for the examination and issuance of award of 180 (one hundred and eighty) days.

Once the award is rendered, it becomes final and binding, making it more time-effective than court settlement, bankruptcy petition or suspension of payment obligation. Meanwhile the arbitral award is final and binding upon parties, the validity of arbitral award may be challenged to the court located in the place where the award is rendered. To date, many arbitration awards were cancelled by the District Court. However, recent decisions of Supreme Court have supported the arbitral award thus make it executable.

Other main features of arbitration

• Examination by experts
In settling a case before an arbitral tribunal, parties of the dispute are given the opportunity to appoint qualified persons as arbitrators who have specific expertise on the dispute. This, consequently, affects the quality of the award and the consideration underpinning it.

• Confidentiality
Arbitration Law regulates that all arbitration hearing shall be closed to public. This will allow parties involving in dispute to be protected from public exposure that could jeopardize their reputation or credibility.

• Internationally recognized award
By the ratification of Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958 (“The Convention”) by government of Indonesia, subject to relevant procedures, the arbitral award that are rendered in Indonesia can be enforced in other countries that are parties to the convention and vice versa. This will simplify the situation when the assets affected by the award are located in another country.


There are several available legal mechanisms to settle debt for unsecured creditors. Whilst, the cost effective and efficient mechanism is by way of out-of-court settlement, nonetheless, in certain circumstances stronger legal measure may be necessary. Each legal measure shall be assessed on each particular case according the respective business capacity and resources, in determining the most effective measure and a professional advice shall also be sought.