Indonesia’s insolvency landscape is mainly governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations and supplemented by Supreme Court procedural guidelines that provide a structured framework for courts and practitioners.
Despite being relatively young compared to regimes in mature jurisdictions, Indonesia’s restructuring system has evolved rapidly. Successive court practice, judicial guidance, and selective reforms have fostered a more predictable and standardized regime for managing financial distress.
For foreign lenders and debtors, Indonesia’s system can initially appear complex, particularly given that the country does not recognise foreign insolvency judgments. Yet, the experience of recent cross-border restructurings demonstrates that Indonesian courts are increasingly cooperative and open to international engagement. Foreign creditors hold equal legal standing with domestic creditors, and with the proper counsel, can effectively leverage Suspension of Debt Payment Obligations (Penundaan Kewajiban Pembayaran Utang or “PKPU”) to restructure distressed exposures or preserve value.
As practitioners deeply involved in landmark restructurings such as Garuda Indonesia, Pan Brothers, and other multi-jurisdictional cases, we have witnessed firsthand how Indonesia’s regime can serve as a credible and sophisticated platform for both domestic and foreign stakeholders.
This article highlights the key legal architecture, procedural features, and strategic insights that enable creditors and debtors to navigate Indonesian restructuring proceedings:
1. Legal Framework and Creditor-Oriented Design
Under Indonesian law, creditors are categorised as preferred, secured, or unsecured, under the overarching principle of par condicio creditorum (equal treatment). Foreign creditors stand on an equal footing with domestic creditors, a reflection of Indonesia’s non-discriminatory insolvency framework provided in Law No. 37/2004.
Both bankruptcy and PKPU can be initiated by either the debtor or a creditor. To file a petition, the applicant must show the existence of at least two creditors with one due and unpaid debt, regardless of the debtor’s overall solvency. There is no statutory minimum debt threshold and no formal insolvency test. Consequently, even small or disputed debts may expose a debtor to proceedings, a feature that underscores the regime’s creditor-protective orientation.
2. PKPU: Indonesia’s Debtor-in-Possession Restructuring Tool
The PKPU mechanism has become the preferred route for resolving corporate distress. It allows a debtor to propose a court-supervised composition plan (comparable to a U.S. Chapter 11 reorganisation) while remaining in control of its business operations (a debtor-in-possession model aimed at preserving company value).
Procedurally, the court must render a decision on a PKPU petition within 20 days (for a creditor-initiated petition), or 3 days (for a debtor-initiated petition). If granted, the court imposes an initial temporary PKPU period of 45 days. Where additional time is required, the temporary PKPU can be extended, up to a statutory maximum of 270 days, subject to creditor consent.
To be approved, the composition plan must secure a dual-majority vote of the creditors present before the court, as follows:
- A simple majority in number and at least two-thirds in value of the unsecured creditors; and
- A simple majority in number and at least two-thirds in value of the secured creditors.
Once these thresholds are met and the court grants homologation (ratification), the plan becomes final and binding on all creditors. In 2024, there were 538 PKPU filings compared with 92 bankruptcy petitions, a pattern reflecting creditors’ growing preference for restructuring over winding up.
3. Cross-Border Considerations and Judicial Developments
Indonesia adheres to the territoriality principle, meaning that foreign insolvency judgments are not recognised or enforceable in Indonesia. Hence, creditors who obtain judgments abroad must re-litigate their claims in Indonesia.
One notable example is the Singapore International Commercial Court (SICC) recognition of Garuda Indonesia’s PKPU composition plan. In doing so, the SICC confirmed that foreign insolvency orders could be recognised under Singapore’s adoption of the UNCITRAL Model Law on Cross-Border Insolvency. The Garuda case signifies a growing alignment between Indonesian and Singaporean courts, enhancing predictability and investor confidence.
4. Practical Guidance for Creditors and Debtors
When Filing in Indonesia:
Establish jurisdiction and substantiate the debt:
A creditor must ensure that the debtor maintains a permanent establishment and domicile within Indonesian territory. Creditors must present clear, verifiable evidence of at least one due and unpaid obligation, supported by authentic documentation.
Engage qualified local counsel:
Representation by an Indonesian-licensed advocate is mandatory. Engaging experienced local counsel is essential to effectively navigate legal grounds, claim verification, and court proceeding interactions.
Develop a cross-border strategy:
Where the debtor’s assets span multiple jurisdictions, creditors should adopt a comprehensive cross-border enforcement strategy. This may include filing parallel or coordinated proceedings in other jurisdictions to maximise asset recovery.
When Evaluating a Composition Plan:
Assess the commercial and financial terms:
Conduct a comprehensive analysis of the proposed restructuring plan, focusing on the economic viability and long-term sustainability of the debtor’s repayment structure.
Develop a coordinated voting and negotiation strategy:
To optimise the outcomes, creditors should strategically coordinate their voting positions, form committees if necessary, and engage in collective negotiations to secure improved recovery terms or stronger covenants.
Ensure post-homologation monitoring and compliance:
Once homologated, creditors should maintain continuous monitoring of the debtor’s compliance through mechanisms such as periodic financial reporting or independent audits to allow early detection of default risks.
5. Assessing the Regime’s Effectiveness
Despite criticism over inconsistent jurisprudence, Indonesia’s PKPU system has proven commercially effective. The process’s predictable timetable, creditor-protective orientation, debtor-in-possession structure, and judicial supervision have made it the instrument of choice for preserving value and facilitating consensual restructuring outcomes.
Indonesia’s restructuring and insolvency framework has matured into a viable, credible, and internationally relevant mechanism for managing financial distress. For debtors and creditors alike, Indonesia now presents not an opaque risk, but an emerging opportunity. It serves as a strategic platform where effective advocacy and coordinated strategy enable stakeholders to achieve fair and sustainable restructuring outcomes.
For further information, please contact the author:
Martin Patrick Nagel
Partner of FKNK Law Firm
