Recent Indonesia Supreme Court Circular Letter No. 3 of 2023 Covering Notable Supreme Court’s Interpretation of Certain Key Areas of the Laws

Supreme Court of Indonesia as the highest judicial system in Indonesia commonly issue a circular letter to all head of court of first and second level as guideline for the judges across Indonesia to achieve uniformity in the application of the law and consistency in every court decision. Recently, Supreme Court issued Circular Letter No. 3 of 2023 regarding The Implementation of the 2023 Supreme Court Plenary Meeting Results as Guidelines for the Implementation of Duties for Courts (“CL 3/2023“).

Key Highlights

1. Search in Building or Premises

Supreme Court provides guideline for the Head of District Court in granting permission for search in building, office, agency or institution at the request of an investigator. Nowadays, the searches permit must specify the place and room in detail where the search is intended to be carried out.

Our view: It is now clear that detail of place and room in search or dawn raid is important in the search permit for companies in allowing investigator to conduct search during investigation process.

2. Agreement made without Indonesia Language

The guideline prescribes that judges cannot use reason/basis of annulment for agreements that do not have Indonesian language in such agreements involving foreign parties and Indonesian parties, among others Indonesian companies and/or individual, unless it can be proven that the absence of an Indonesian language version in the agreements are due to bad faith by one of the parties.

Our view: Notwithstanding this guideline, we are of the view that proving “bad faith” by a party will be a difficult task as there is no clear definition of bad faith. Our view remains the same which is to advise parties to prepare bilingual language agreement (one of which is Indonesian language) if the contracting parties are foreign and Indonesian. This is also in line with Law No. 24 of 2009 on National Flag, Emblem and Anthem.

3. Termination on Specific Time Work Agreement Employee

Supreme Court states that workers/laborers pursuant to Specific Time Work Agreement/Perjanjian Kerja Waktu Tertentu (“PKWT”) who are being terminated before the expiry of their employment period, will be entitled to receive both (i) compensation, and (ii) severance pay of which the severance pay shall take into consideration the tenure that has been completed.

Our view: It provide clear guideline upon the issuance of Omnibus Law particularly related to the employment law matters.

4. Bankruptcy and Suspension of Debt Payment Matters (PKPU)

CL 3/2023 provides guidance related to insolvency and suspension of debt payment (PKPU) cases particularly on Foreclosed Collateral/Agunan Yang Diambil Alih (“AYDA”). Under the CL 3/2023, AYDA shall not be constructed as a sale and purchase transaction of collateral objects; instead, it shall be constructed only as an act of voluntarily submission or hand over collateral objects to the bank for the purpose of selling the objects as debt repayment. Unsold Foreclosed Collateral or AYDA shall not change the creditor’s status and therefore, it remains as a secured creditor, and AYDA object shall remain registered in the list of bankruptcy assets (Boedel Pailit). If the AYDA object has been successfully sold, and there are still outstanding receivables, the creditor still has right to request payment to the debtor in which the remaining outstanding receivables shall be considered as unsecured debt and the creditor will be considered as an unsecured creditor.

CL 3/2023 also provides guideline for supervisory judge who carry out his/her duties in bankruptcy or PKPU cases, to always refer to the information available in Financial Information Services System or Sistem Layanan Informasi Keuangan (SLIK) at the Financial Service Authority or Otoritas Jasa Keuangan/OJK. Bank is obliged to update their data to determine the debtor’s status.

The Supreme Court is also of the view that a case/dispute related to a bankruptcy or PKPU petition against an apartment and/or flat developer shall not be considered as a case that fulfilled requirements for simple evidentiary regulated under Article 8 of Law No. 37 of 2004 regarding Bankruptcy and Suspension of Debt Payment Obligations (“Bankruptcy Law“). Consequently, it will be more difficult to file a bankruptcy or PKPU petition against an apartment and/or flat developer.

Our view: These 3 updates in bankruptcy and suspension of debt payment (PKPU) matters are important for clients in the field of banking sectors or clients who is in the restructuring stage. There may be issue related to this matter since there is an inconsistency with the existing laws and regulations. CL 3/2023 is not in line with Article 8 paragraph (4) of Bankruptcy Law, which requires that the request for bankruptcy must be granted if there are facts or circumstances as per prerequisite under Article 2 paragraph (1) of the Bankruptcy Law have been fulfilled. These requirements include the existence of two or more creditors and debts that have matured and outstanding upon submission of bankruptcy or PKPU request. We are of the view that Insolvency and PKPU petition against apartment and flat developers shall not be deemed as simply proven, it will not only affect the creditors; hence it also affect the developers themselves as they will no longer be able to voluntarily file bankruptcy and PKPU petitions.

The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.