Indonesia - New World Guidelines For Enforcing Insolvency-Related Judgments.
Legal News & Analysis - Asia Pacific - Indonesia - Insolvency & Restructuring
21 March, 2019
UNCITRAL recently published its Model Law on Recognition and Enforcement of Insolvency Related Judgments ("MLREIJ"), with a recommendation that nations adopt it into their legislation. MLREIJ is the first model law that specifically provides a framework for recognition and enforcement of insolvency related judgments for nations that adopt it. The adoption of this model law might make cross-border insolvencies more predictable, complete and efficient.
A complete copy of the test of MLREIJ can be found here (on the UNCITRAL website).
MLREIJ was drafted as a follow-up to the 1997 UNCITRAL Model Law on CrossBorder Insolvency ("MLCBI"). It plays a gap-filling and complementing role to the MLCBI, which was considered to have failed to have achieved a unification of substantive insolvency rules. Only 44 states adopted MLCBI, in some form, into their legislation, and only two of them are South East Asian countries, i.e., Singapore and the Philippines
Currently, no nation has adopted MLREIJ into its legislation, but we expect at least jurisdictions that adopted MLCBI may also adopt MLREIJ, in some form, and perhaps with some additional provisions to protect the states' interests, in the coming years.
Besides supplementing MLCBI, MLREIJ is able to operate independently, allowing countries that are not parties to MLCBI to implement MLREIJ (and vice versa)
If Indonesia adopts MLREIJ in its legislation, any insolvency-related judgment that is issued by the courts of states other than Indonesia will be enforceable in Indonesia, unless the judgment falls under an exception or one of the grounds of refusal.
The key provisions of MLREIJ are stated below.
- Scope of Application. MLREIJ applies to the recognition and enforcement of any insolvency-related judgment issued in a state (originating state) other than the enacting state where recognition and enforcement is sought.
- Insolvency-Related Judgment is defined as any judgment that arises as aconsequence of, or that is materially associated with, any insolvency proceeding, that is issued during or after the commencement of that insolvency proceeding. This applies to judgments against individuals andcompanies, as well as to judgments approving creditors' schemes of
Examples of insolvency-related judgments are as follows (non-exhaustive):
- a judgment determining that a director of the debtor is liable for action taken when the debtor was insolvent or in the period approaching insolvency
- a judgment confirming or varying a plan of reorganization or liquidation or approving a voluntary or out-of-court restructuring agreement
- a judgment determining that sums are owed to or by the debtor or the insolvency estate
- Exceptions and Grounds of Refusal. MLREIJ provides local courts with wide discretion to reject the enforcement or recognition of insolvency-related judgments. The model law allows a local court to refuse to enforce/recognize an insolvency-related judgment if the enforcement would be contrary to the local public policy. Apart from public policy exceptions, MLREIJ provides an extensive list of grounds for non-recognition, which are as follows:
- If a judgment does not meet procedural requirements (i.e., if the defendant in the proceeding was not properly notified of the proceeding)
- If the judgment was obtained by fraud
- if the judgment is inconsistent with an earlier decision of another court on the same matter and with the same parties
- if the judgment would interfere with insolvency proceedings in the enacting state
- if the judgment materially affects the rights of creditors generally
- if the interests of creditors and other people were not adequately protected in the proceeding in which the judgment was issued
- if the judgment suffers from any jurisdictional issues
- The Outcome of an Insolvency-Related Judgment. After all requirements for recognition/enforcement have been met, the enacting state may choose to give the judgment the same effect as in the originating state or give the same effect as it would have had if it had been issued in the enacting state.
How does MLREIJ impact corporations inside or outside Indonesia?
Since MLREIJ is a non-binding international instrument, the success of MLREIJ is dependent on if and how states enact the instrument. Although the adoption of MLREIJ might contribute to achieving a universal and uniform approach to crossborder insolvency proceedings, its adoption might pose profound policy issues for Indonesia. falls under an exception or one of the grounds of refusal). Indonesia's conduct to enforce the judgment has no reciprocal effect on other states that are not adopting MLREIJ. This will ultimately impact the debtors that have assets in Indonesia and foreign creditors that are trying to enforce their insolvency-related judgments in Indonesia. The assets of debtors that have been declared insolvent by a foreign court will be exposed to a greater risk of enforcement in Indonesia. Meanwhile, foreign creditors have greater opportunities to enforce their foreign insolvency-related judgments in Indonesia and seize the assets of the debtor in Indonesia
We will continue to follow progress on this closely, including the possibility of Indonesia adopting MLCBI or MLREIJ
Timur Sukirno, Partner, Baker & McKenzie