Credit is the provision of money or bills that can be equated with it based on an agreement or loan agreement between a bank and another party that requires the borrower to pay off his debt with interest after a certain period of time. In lending, banks as creditors always intersect with credit risk for the distribution of these funds, due to the possibility that the customer fails to carry out his obligations in accordance with the agreement agreed with the bank, or in other words the bank cannot obtain principal installment from the credit that has been given to the customer. Too easy for banks to provide credit to customers is the cause of credit risk, so that in practice lending from banks to customers often does not get the feedback desired by banks, this is called Non-Performing Loan (NPL).

The failure of a customer to fulfill obligations as agreed upon in a credit agreement with a bank, with or without clear legal grounds, is termed as default. Subsequently, the creditor, in this case the bank, may demand compensation or cancellation of the credit agreement, as stipulated in Article 1236 of the Civil Code, which states:

“The debtor is obliged to provide compensation, damages, and interest to the creditor, if the debtor has placed themselves in a situation where they are unable to deliver their property, or have neglected to properly maintain it to preserve its value.”

Furthermore, Article 1239 of the Civil Code also regulates obligations to do something or refrain from doing something, which states:

“Every obligation to act or refrain from acting, if the debtor fails to fulfill their obligations, is resolved by the obligation to provide compensation, damages, and interest.”

In practice, in a credit agreement, banks typically require collateral or guarantees from borrowers to ensure repayment of the loan in case the borrower fails to pay or settle their credit. This allows the bank to directly execute against the borrower’s assets through a mechanism known as parate executie or asset execution process (usually through auction), without a court order. One form of resolving non-performing loans by banks is through the takeover of assets/collateral owned by the debtor, commonly known as Taken Over Collateral (AYDA), as defined in Article 1 number 15 of the Financial Services Authority Regulation of the Republic of Indonesia No. 40/POJK.03/2019 regarding the Assessment of Bank General Asset Quality (referred to as “PBI 40/2019”), which states:

“Taken Over Collateral, hereinafter referred to as AYDA, is an asset acquired by the Bank, either through auction or outside auction based on voluntary surrender by the collateral owner or based on power of sale outside auction from the collateral owner in case the debtor fails to fulfill their obligations to the Bank.”

The issue in this writing is how to resolve troubled credit through the AYDA mechanism? The implementation of AYDA is carried out in two stages. These include the acquisition stage of AYDA and the settlement stage of AYDA. The Acquisition Stage is where the bank, as the creditor, along with the debtor, enters into a credit agreement that includes collateral, and subsequently agrees on legal actions regarding the collateral if the debtor fails to fulfill their obligations as agreed in the credit agreement. This may lead to the practice of AYDA and is marked by offsetting credit if the bank successfully liquidates the AYDA object. Meanwhile, the settlement stage focuses on how the bank sells the AYDA object to recover funds. The AYDA process for collateral goods generally can be done through three methods: 1. Through auction mechanisms; 2. Through voluntary surrender by the debtor or collateral owner; and 3. Through the sale mechanism by making ownership statements and power of sale, explained as follows:

I. AYDA Conducted Through Auction

In accordance with the Regulation of the Minister of Finance of the Republic of Indonesia Number 122 of 2023 concerning the Implementation Guidelines for Auctions, specifically in Article 87, it is stated that banks, as creditors, can purchase collateral as stated in the Credit Agreement during the auction process. The bank is obliged to submit a notarized declaration to the auction officer stating that the purchase is intended for another party to be appointed within 1 (one) year from the auction date. If this period elapses without a new buyer being appointed, the bank is designated as the buyer. Once the bank is confirmed as the auction winner, this is recorded in the auction minutes.

Furthermore, as additional information, based on Constitutional Court Decision Number 102/PUU-XVIII/2020, it is known that there has been a review of Article 12A of Law Number 10 of 1998 concerning Banking, which previously stipulated that only Commercial Banks could conduct AYDA. The decision extended this provision to include both Commercial Bank and Rural Bank (BPR), allowing them to participate in AYDA. which then the provisions regarding BPR’s right to carry out AYDA are stipulated in Article 15 of Law Number 4 of 2023 concerning Development and Strengthening of the Financial Sector. Therefore, the presence of both Commercial Bank and Rural Bank as auction participants should be accepted by the Head of the KPKNL (Office of the State Treasury Auctioneer).

Then, if the status of an AYDA object is ownership by an individual, there is a need to downgrade the ownership from Freehold (Hak Milik) to Right to Build (Hak Guna Bangunan, HGB). This is necessary if the bank conducting the AYDA mechanism is a Private Bank, as state-owned banks have the right to own land as stipulated in Article 2 and Article 1 letter a of Government Regulation Number 38 of 1963 concerning the Designation of Legal Entities Eligible to Own Land.

To convert Freehold ownership into Right to Build (HGB) through public auction, an application for registration of this change must be submitted to the local Land Office.Regarding AYDA objects, the bank is obliged to resolve them by selling or liquidating the AYDA object to a new buyer without a specified timeframe. Article 37 of Regulation No. 40/2019 only addresses the determination of AYDA object quality. Once the bank sells the AYDA object to a new buyer, the buyer then rightfully owns and controls the object.

II. AYDA Through Voluntary Surrender by the Debtor or Collateral Owner

The execution of mortgage rights can be carried out through the implementation of Taken Over Collateral (AYDA), which is made based on agreement or mutual consent between the creditor, in this case the bank, and the debtor, based on voluntary surrender by the debtor or collateral owner in case the debtor fails to fulfill their obligations to the bank.

Article 64 paragraph (1) of the Financial Services Authority Regulation of the Republic of Indonesia No. 22 of 2023 concerning Consumer Protection in the Financial Services Sector stipulates the conditions for banks to take over or withdraw collateral based on voluntary surrender by the debtor or collateral owner. These conditions include:

1. The consumer is proven to be in default;
2. The consumer has been issued a warning letter; and
3. PUJK (The Financial Services Providers) holds certificates of fiduciary guarantee, mortgage rights, and/or mortgage certificates.

III. AYDA Conducted by Making Ownership Statements and Power of Sale

The power of sale is a power intended to transfer ownership of an item that can typically only be done by its owner. Therefore, concerning this power of sale, it is necessary to have a delegation of authority from the collateral owner to the bank, explicitly stated in the Credit Agreement between the Bank and the Debtor or collateral owner as regulated in Article 1796 of the Civil Code.

AYDA which is carried out by making a notarial Statement of Ownership and Power of Sale between the prospective buyer designated by the bank (often an employee of the bank itself) and the debtor or collateral owner, includes statements that the collateral, whether land or buildings owned by the debtor or another party agreed to be mortgaged, is not owned by the buyer but belongs to the bank.

In the implementation of AYDA, the Bank as the creditor is also obliged to consider the purchase price of the collateral with the obligations of the customer or debtor in debt, because the Bank must return to the Debtor if the value of the collateral exceeds the Debtor’s obligations as regulated in Article 12A paragraphs 3 and 4 of Law No. 4 of 2023 concerning the Development and Strengthening of the Financial Sector, where the amount to be returned is the amount deducted by auction costs and directly related costs of the collateral.

That concludes the discussion in this article. If there is any information that needs to be discussed regarding the resolution of non-performing loan through the Taken Over Collateral (AYDA) mechanism, you can contact us at TRNP Law Firm to get more up-to-date information on this matter.