In bankruptcy, as soon as the debtor is declared bankrupt based on a commercial court decision, the debtor loses their right to control and manage the bankruptcy asset as operating by the law, so that the authority to manage and/or administer the bankruptcy asset rests with the receiver under the supervision of the supervisory judge. The authority of the receiver is regulated in Article 24 jo. Article 16 of Law Number 40 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations (“Law No. 40/2004”), which authorizes the receiver to manage and/or dispose of bankruptcy assets despite there is a filing of cassation or judicial review of bankruptcy decisions, considering that bankruptcy decisions are immediately executable judgment (uitvoorbaar bij voorraad), which means that decisions can be implemented in advance even though there is a legal action.
Forms of manage and/or administer that can be carried out by the receiver on the assets of bankrupt debtors, such as continuing the business of bankrupt debtors as known as the principle of business continuity or on-going concern in bankruptcy law, where on-going concern is the continuity of the bankrupt debtor’s business carried out by the receiver.
The on-going concern initiation can come from creditors or receiver, which in general, the on-going concern proposal arises from the view that a company that has been declared bankrupt still has prospects for continuing its business and can benefit the bankruptcy assets. It is expected that the receiver will be able to maximize the bankruptcy assets while saving the assets of the bankrupt debtor in order to remain functional and valuable, which in turn can pay off all debts of the bankrupt debtor to creditors. Hence, in order for on-going concern not to be in vain, it is necessary to measure the ability of the bankrupt company from various aspects, including profit ratios to potential failures.
Based on Law No. 40/2004, on going concern can be done before and after the verification meeting as stipulated in Article 104 paragraph (1) and Article 179 paragraph (1) Law No. 40/2004.
When the debtor has been declared bankrupt based on a commercial court decision, then with the approval of the creditors committee (if any), the receiver can carry out an on-going concern with the mechanism regulated in Article 104 paragraph (1) jo. Article 84 Law No. 40/2004 (Vide Explanation of Article 104 paragraph (1) Law No. 40/2004) prior to the verification meeting. The creditors committee can approve or disapprove the on going concern proposal, but due to the receiver are not bound by the opinion of the creditors committee, the receiver can reject it with notification (Vide Article 84 paragraph (1) and (2) Law No. 40/2004), then if the creditors committee objects to the receiver rejection of their opinion, the creditors committee can request a determination from the supervisory judge, consequently, the receiver are obliged to suspend the implementation of the on going concern for 3 (three) days (Vide Article 84 paragraph (3) and (4) Law No. 40/2004).
However, even if there is no creditors committee in the bankruptcy case, the receiver can still propose and implement an on-going concern with permission from the supervisory judge given in the form of a stipulation before the verification meeting is held as this is regulated on pages 55 to 56 of Buku II Pedoman Penyelesaian Perkara Kepailitan dan PKPU Mahkamah Agung RI jo. Keputusan Ketua Mahkamah Agung RI Nomor 109/KMA/SK/IV/2020 tentang Pemberlakuan Buku Pedoman Penyelesaian Perkara Kepailitan dan PKPU (“Buku II Pedoman Penyelesaian Perkara Kepailitan dan PKPU MA RI”).
It may be different for an on-going concern proposal submitted after the verification meeting, in which the proposal for on-going concern can be submitted by creditors or receiver after the bankruptcy assets are legally in a state of insolvency, in which event the meeting does not offer a peace plan or the peace plan offered is not accepted (Vide Article 179 paragraph (1) jo. Article 178 paragraph (1) Law No. 40/2004). Based on the proposal, the supervisory judge must hold the meeting of creditors no later than 14 (fourteen) days after the proposal is submitted. Thus, in order for the on-going concern proposal to be accepted by the supervisory judge, the proposal must be approved by creditors that representing more than ½ (one-half) of all receivables temporarily recognized and accepted, which are not secured by liens, fiduciary guarantees, mortgages, or other property collateral rights in advance (Vide Article 180 paragraph (1) Law No. 40/2004). Note: the provisions regarding on-going concern conducted after the verification meeting can be further seen in Articles 179 to 184 Law No. 40/2004 and point 17.1 page 67 Buku II Pedoman Penyelesaian Perkara Kepailitan dan PKPU MA RI.
However, apart from the implementation mechanism of on-going concern described above, the implementation of on-going concern both before and after the verification meeting can be stopped at any time by the supervisory judge through the request of the receiver or creditors (Vide Article 183 paragraph (1) Law No. 40/2004), which may be due to the on-going concern is considered no longer provide benefits to creditors, then the on-going concern can be dismiss.
The juridical consequence of the dismissal of an on-going concern is that the receiver must immediately carry out the administration (pemberesan) without the need for approval or assistance from the debtor (Vide Article 184 paragraph (1) letter b Law No. 40/2004). It is due to the fact that the bankrupt debtor by operating by the law is already in a state of insolvency as in line with the concept of bankruptcy implementation explained by Munir Fuady in his book entitled “Hukum Pailit dalam Teori dan Praktek” (Citra Aditya Bakti, Bandung, 2000, page 65). Furthermore, the receiver may request a written statement of insolvency to the registrar which is provided in the form of minutes if necessary to support the process of administering (pemberesan) the bankruptcy assets (Vide point 16.3 page 67 Buku II Pedoman Penyelesaian Perkara Kepailitan dan PKPU MA RI).
The legal impact of dismissing on-going concern is the liquidation of bankruptcy assets as stipulated in Article 185 Law No. 40/2004 and other regulations regarding the sale of bankruptcy assets, and if necessary, the supervisory judge can convene a meeting of creditors to coordinate how to dispose of the bankruptcy assets (Vide Article 187 Law No. 40/2004). Afterwards, the receiver make a list of the distribution of the bankruptcy assets and seek approval from the supervisory judge (Vide Article 189 Law No. 40/2004). This can still be done even though the proceeds from the sale of the bankruptcy assets are not enough to pay off all the debts of the bankrupt debtor to the creditors, since the principle of pari passu pro rata parte applies, whereby the proceeds will still be distributed proportionally (Vide Article 176 Law No. 40/2004), which if the list of distribution of bankruptcy assets has been matched or the closing distribution has been bound, then the bankruptcy will end (Vide Article 202 paragraph (1) Law No. 40/2004). However, if there were previously allotted distributions that were not sufficient for payment during the administration and there are bankruptcy assets that were not known at the time of administration, then the receiver by court order may reopen the bankruptcy based on the previous list of distribution of bankruptcy assets (Vide Article 203 jo. Article 198 paragraph (3) Law No. 40/2004).
The end of bankruptcy does not necessarily make the Company of the bankrupt debtor dissolve, thus the legal entity still has an existence. Therefore, the Company of a bankrupt debtor that has been declared to be in a state of insolvency and has completed its administration must be liquidated as stipulated in Article 142 paragraph (1) letter e of Law Number 40 of 2007 concerning Limited Liability Companies (“Law No. 40/2007”). Liquidation is a series in the dissolution of the Company of a bankrupt debtor, the mechanism of which is regulated in Articles 142 to 152 of Law No. 40/2007 jo. number 19 page 72 of Buku II Pedoman Penyelesaian Perkara Kepailitan dan PKPU MA RI. Furthermore, after the liquidation process ends, the Minister of Law and Human Rights will record the end of the Company’s legal entity status of the bankrupt debtor and remove the Company’s name from the register Company register list.
According to the description above, it can be concluded that the principle of business continuity or on-going concern in bankruptcy has an important role for all parties in bankruptcy. Since on going concern is intended to increase the bankruptcy assets and it is expected that after the administration, it can provide added value during the process of distributing bankruptcy assets to creditors. However, the thing that still needs to be considered before proposing to do on going concern is the possibility of failure of on going concern, which is not unlikely that on going concern will become a nightmare for all parties in bankruptcy if not running according to plan, either due to not increasing the bankruptcy assets or even decreasing the value of the bankruptcy assets, resulting in losses to the bankruptcy assets.
This is all the discussion of the article this time, if there is anything you want to discuss about on going concern in bankruptcy that you may be facing, please contact us at TRNP Law Firm to get more information.
