Personal guarantee or in Dutch terminology called “borgtocht”, is a form of individual guarantee in which a third party undertakes to fulfill the obligations of the debtor in the event of the debtor’s default. The purpose of such a personal guarantee is to provide certainty regarding the repayment of the debtor’s debt by the Personal Guarantor, ensuring that the debtor’s obligations will be fullfiled.
In the Indonesian legal system, personal guarantee is regulated under the Indonesian Civil Code (hereinafter referred to as the “Civil Code“). The provisions concerning personal guarantee is found in Chapter XVII Article 1820 of the Civil Code specifies that:
“The provision of a guarantee is an agreement in which a third party agrees, for the benefit of the creditor, to fulfill the obligations of the debtor, if he himself fails to fulfill these.”
Thus, from the article 1820 of the Civil Code above, the author interprets guarantee as an agreement in which a third party agrees to pay the debt or fulfill the debtor’s obligations to the creditor if the debtor is unable or negligent in fulfilling his obligations to the creditor. The third party or Guarantor undertakes the agreement above to protect the interests of creditors. In other words, the Guarantor guarantees the creditor that the debtor’s debt or obligation will be fulfilled if the debtor fails to carry it out.
Apart from that, it is also explained in the 1821 Civil Code that:
“There can be no guarantee without a lawfully valid Main Agreement.“
The provision of article 1821 of the Civil Code explains the nature of the Guarantee Agreement which is an additional agreement (Accesoir) to the Main Agreement. This means that the Guarantor is a third party, who provides a Personal Guarantee as an additional agreement, for the existence and validity of the Guarantee Agreement depends on the main agreement.
Referring to Article 1831 of the Civil Code, it states that:
“The guarantor is not obliged to pay the creditor unless the debtor fails to pay the debt, in which case the debtor’s goods must be confiscated and sold first to pay off the debt.”
The provisions of this article illustrate that the obligation of the Personal Guarantor to fulfill the Debtor’s performance to the Creditor arises conditionally. Such an obligation begins when the Debtor defaults on the debt, then the Debtor’s assets must first be confiscated and sold to satisfy the debt before the Personal Guarantor becomes responsible for paying the debt to the Creditor. The condition above where, only upon the Debtor’s failure to pay the debt, then the Personal Guarantor becomes responsible, effectively places the Personal Guarantor in the position of the Debtor obligations under the Main Agreement.
However, there are exceptions to the requirements contained in Article 1831 of the Civil Code. With reference to the Article 1832 of the Civil Code, it states that:
“The guarantor cannot demand that the debtor’s assets to be confiscated and sold to pay off the debt if:
- the guarantor has waived the right to demand that the debtor’s assets be confiscated and sold first;
- the guarantor has bound themselves together with the debtor, especially jointly and severally, in which case the consequences of their obligation are governed by the principles established for jointly and severally liable debts;
- the debtor has a defense that applies solely to themselves;
- the debtor is in bankruptcy; or
- in the event of bail ordered by the court.”
The provisions in this article provide conditions where the Personal Guarantor cannot demand that the Debtor’s goods be confiscated and sold first. This means that the Guarantor, if these conditions are met, is directly and personally responsible for fulfilling the repayment of the Debtor’s debt. Additionally, the conditions stated in Article 1832 Civil Code are not cumulative, meaning that if one condition has been fulfilled, the Personal Guarantor cannot demand that the Debtor’s goods be confiscated and sold to pay off the debt.
In this regard, there are two views on the obligations of a Personal Guarantor. On one hand, there is the view that the Personal Guarantor has the same obligations as the Debtor. This is in line with the opinion of Sutan Remy Sjahdeini in his book Sejarah, Asas, dan Teori Hukum Kepailitan Memahami Undang-Undang No. 37 Tahun 2004 on page 208, which states, “Articles 1831-1850 of the Civil Code implicitly open the possibility of a change in the legal position of a Personal Guarantor to that of a debtor.” On the other hand, there is also the view that the position and responsibility of a Personal Guarantor cannot be equated with that of the Debtor, as the status of a guarantor remains that of a guarantor whose obligations cannot be equated with those of the Debtor. This is reflected in the Supreme Court’s jurisprudence in Decision No. 922 K/Pdt/1995, dated October 31, 1997, which affirms that “A Guarantor is always a Guarantor.”
Bankruptcy and Suspension of Debt Payment Obligations are specifically regulated under Law No. 37 of 2004 (hereinafter referred to as the “Bankruptcy Law”). In this article, the author will provide a further explanation regarding the bankruptcy process involving Personal Guarantors.
According to Article 1 paragraph (1) of the Bankruptcy Law, bankruptcy is a general seizure of all assets of the bankrupt debtor, whose management and settlement are carried out by a Receiver under the supervision of a Supervisory Judge. The requirements for bankruptcy are outlined in Article 2 paragraph (1) of the Bankruptcy Law, which states that a debtor who has two or more creditors and fails to fully pay at least one debt that has become due and is collectible, may be declared bankrupt by a court decision, either upon the debtor’s own petition or the petition of one or more of its creditors. Additionally, Article 8 paragraph (4) of the Bankruptcy Law provides that bankruptcy may be declared if there is a clear factual basis that the requirements for bankruptcy, as stated in Article 2 paragraph (1) Bakruptcy Law, have been met.
The obligation of a Personal Guarantor as a guarantor can transform into the obligation of the Debtor. This may occur if the Personal Guarantor, in the guarantee agreement, has waived their preferential rights or has fulfilled one of the conditions set forth in Article 1832 of the Civil Code. As a result, the position of the Personal Guarantor can be subject to liability, which may lead to the Guarantor also being petitioned for bankruptcy if the bankruptcy conditions as stipulated in Article 2 paragraph (1) in conjunction with Article 8 paragraph (4) of bankruptcy Law are met.
The Bankruptcy Law does not contain specific regulations regarding the technical procedures for filing bankruptcy against Personal Guarantor. However, a Personal Guarantor can still be subjected to bankruptcy as long as they meet the general requirements set forth in Article 2, paragraph (1) in conjunction with Article 8, paragraph (4) and the Explanation of Article 8, paragraph (4) of Bankruptcy Law. These provisions mandate the existence of at least two Creditors and the presence of debts that have matured and are collectible, which can be proven simply. This requirement applies generally to both the Main Debtor and the Personal Guarantor, allowing Creditors to file for bankruptcy against a Personal Guarantor if these conditions are met.
In practice, there are differing opinions regarding the position and liability of a Personal Guarantor. On one hand, some argue that a Personal Guarantor holds the same position and liability as the Debtor. On the other hand, there is also the view that the position and liability of a Personal Guarantor cannot be equated with those of the Debtor, as the Personal Guarantor merely serves as a guarantor for the Debtor’s obligations.
Furthermore, in practice, there are several approaches to filing a bankruptcy petition against a Personal Guarantor. Some petitions are filed jointly against the Personal Guarantor and the Principal Debtor, while others are filed separately against the Personal Guarantor without involving the Principal Debtor. Below are several bankruptcy decisions concerning Personal Guarantors:
I. Bankruptcy Petition Granted Against Personal Guarantor Filed Jointly with Principal Debtor
Supreme Court Decision No. 748K/Pdt.Sus-Pailit/2016
This case involves PT Pelayaran Nasional Sarana Bahari Prima (hereinafter referred to as “Cassation Petitioner I”) and Hoddy Wifanie (hereinafter referred to as “Cassation Petitioner II”), collectively referred to as “the Cassation Petitioners,” against PT Tifa Finance Tbk. as the Cassation Respondent (hereinafter referred to as “Cassation Respondent”). Previously, the Cassation Petitioners were the Bankruptcy Respondents, and the Cassation Respondent was the Bankruptcy Petitioner.
In this case, Cassation Petitioner I entered into a finance lease agreement with the Cassation Respondent for the financing of capital equipment involving the purchase of a motor ship, cargo ship, and its machinery. This financing was documented in fifteen separate finance lease agreements. To secure payment, fourteen Personal Guarantee agreements were created, binding Cassation Petitioner II as the guarantor who waived all special rights. However, Cassation Petitioner I failed to fulfill its obligations, and under Article 20 of the agreement, Cassation Petitioners I and II were jointly liable to pay the full debt to the Cassation Respondent immediately. Due to the cross-collateral and cross-default clauses, default on one agreement constituted default on all other agreements. According to the records of the Bankruptcy Petitioner, the total outstanding installments, including penalties, interest, administrative fees, and repo costs as of August 2014, amounted to IDR 51,423,728,475. Following the sale of the financed assets by the Cassation Respondent to reduce the liability, the remaining total obligation of Cassation Petitioner I was calculated to be IDR 35,466,139,413.
The Cassation Petitioners argued in their appeal that the Commercial Court at the Central Jakarta District Court lacked jurisdiction to examine and adjudicate the matter, asserting that jurisdiction belonged to the South Jakarta District Court. The Cassation Petitioners further contended that they were unable to operate their business after the issuance of the Regulation of the Director General of Sea Transportation No. HK.103/2/20/Dtpl-14 on the Procedures for Imposing Sanctions of Non-Operational Services for Vessels, dated December 3, 2014, which resulted in all leased vessels being unable to operate, thus preventing Cassation Petitioner I, as the primary debtor, from conducting its main business of maritime operations and subsequently generating income. This, according to the Cassation Petitioners, should be classified as force majeure.
However, the Supreme Court rejected the Cassation Petitioners plea, finding no manifest error in Judex Facti or Judex Juris. The Court determined that the debt owed by the Cassation Petitioners to the Cassation Respondent could be easily substantiated. It also affirmed that Cassation Petitioner II, as the guarantor, had waived all special rights, and the cross-collateral clause applied across multiple finance lease agreements. Furthermore, it was proven that the Petitioners had defaulted on the scheduled installments and that there were multiple creditors involved. Based on these considerations, the Supreme Court dismissed the Cassation appeal filed by the Cassation Petitioners.
II. The bankruptcy ruling filed against a Personal Guarantor individually
Supreme Court Decision No. 141 PK/Pdt.Sus/Pailit/2016
The case between Arifin as the Petitioner for Judicial Review, previously the Petitioner for Cassation/Respondent in Bankruptcy (hereinafter referred to as “Judicial Review Petitioner”), against PT Bank Mayapada Internasional, Tbk. as the Judicial Review Respondent, previously the Respondent for Cassation/Petitioner in Bankruptcy (hereinafter referred to as “Judicial Review Respondent”), involves a Personal Guarantor who has been subjected to bankruptcy, namely the Petitioner PK (Arifin), as filed by PT Bank Mayapada Internasional.
In this case, the Judicial Review Petitioner has outstanding debts to the Judicial Review Respondent based on Debt Letter Number 20 dated November 13, 2013, amounting to IDR 10,500,000,000.00 for additional working capital. In addition to this personal loan, the Judicial Review Petitioner also acted as a guarantor who has waived his preferential rights for PT Mitra Usaha Cemerlang through Personal Guarantee Deed (borgtocht) Number 107 dated September 28, 2012, with a loan amount of up to IDR 200,000,000,000.00. The loan for PT Mitra Usaha Cemerlang has been adjusted several times, namely through Adjustment Deeds dated October 29, 2013, and October 30, 2014. Currently, the Judicial Review Petitioner and/or PT Mitra Usaha Cemerlang have not settled the provision fees and interest on credit that are due amounting to IDR 12,128,769,799.
In the grounds for the judicial review, the Judicial Review Petitioner expressed objections stating that both Judex Facti and Judex Juris incorrectly applied the law. The Judicial Review Petitioner contested his position as a guarantor (“borgtocht”) who was directly declared bankrupt. The Judicial Review Petitioner compared this with the jurisprudence of the Supreme Court of Indonesia Decision No. 922 K/Pdt/1995 dated October 31, 1997, which rejected the bankruptcy petition against a guarantor on the grounds that a guarantor’s status is not equivalent to that of the main debtor. This reinforces the principle that “a Guarantor is always a Guarantor,” indicating that a legal status as a Guarantor (“borgtocht”) cannot be transferred or equated with that of a Debtor outside of debt payment demands; therefore, the Judicial ReviewPetitioner cannot be directly petitioned for bankruptcy. Consequently, the Judicial Review Petitioner argued that the consequence of this principle is that a guarantor cannot be directly declared bankrupt due to the default of the Principal debtor. The guarantor can only be pursued for debt repayment either jointly or separately apart of the Principal Debtor.
However, the Supreme Court rejected these grounds for judicial review because it found no evident error or mistake in the decisions of Judex Juris or Judex Facti. In its ruling, it essentially explained that the Judicial Review Petitioner as both Debtor and Guarantor based on Personal Guarantee (borgtocht) Number 107 dated September 28, 2012 had waived his preferential rights; thus, as a Guarantor, he is responsible with all his assets for settling all obligations owed by PT Mitra Usaha Cemerlang to the Respondent for Judicial Review. Therefore, failure to repay this debt may result in a declaration of bankruptcy. As a result of this rejection of the judicial review petition by the Supreme Court Judge, the Judicial
Review Petitioner was declared bankrupt.
From the two examples of rulings above, it appears that there are several approaches to filing for bankruptcy against a Personal Guarantor, either jointly with the Principal Debtor or separately against the Personal Guarantor without involving the Principal Debtor. However, in the author’s view, the final determination ultimately depends on the judge’s discretion to assess whether the formal requirements submitted by the creditor have been fulfilled and whether the evidence presented aligns with the facts of the case.
According to the author, judicial independence in deciding cases is a fundamental principle in Indonesia’s legal system. This principle ensures that judicial proceedings are conducted fairly, independently, and objectively. Article 24 paragraph (1) of the 1945 Constitution states that judicial power is independent, providing judges with the freedom to perform their duties without interference from any party. Furthermore, Article 5 paragraph (1) of Law No. 48 of 2009 affirms that judges are obligated to explore and comprehend the legal values and sense of justice prevailing in society. This aligns with Supreme Court Circular Letter (SEMA) No. 10 of 2005, Section One, which emphasizes that judges or panels of judges assigned to adjudicate a case must remain independent and responsible in performing their duties, whether in the administration of justice, the assessment of evidence, the application of law, or the evaluation of fairness. Judges must not be directed or pressured in any manner by any party. Therefore, this independence enables judges to decide cases based on their conscience and their responsibility to uphold justice. Consequently, the approval of a bankruptcy petition against a Personal Guarantor ultimately depends on the evidence presented in court and the independent legal judgment of the judge.
Thus concludes this article. If you have further questions or wish to engage in an in-depth discussion regarding the Legal Standing of Personal Guarantors in Bankruptcy, our team at TRNP Law Firm is ready to assist. Please feel free to contact us for up-to-date information, consultations, or guidance to your specific needs.
