Navigating Indonesia's evolving debt landscape

Debt collection: Bridging legal protections and practical realities

Debt collection in Indonesia is governed by the Civil Code, the Bankruptcy Law (Law No. 37/2004), and Financial Services Authority (OJK) guidelines for financial institutions. Despite these legal safeguards, creditors frequently encounter obstacles such as protracted enforcement, inconsistent judicial decisions, and debtor tactics designed to delay payments. The growing presence of debt collection agencies, while offering some relief, necessitates stronger regulatory oversight. The emergence of digital platforms and fintech solutions offers potential, but their efficacy depends on consistent and effective enforcement.

Restructuring: Charting a course for sustainable recovery

Corporate debt restructuring is increasingly favoured over insolvency proceedings. The Suspension of Debt Payment Obligation (PKPU) process, as outlined in the Bankruptcy Law, provides a structured framework for restructuring. However, success hinges on collaboration between creditors and debtors, favourable market conditions, and clear regulatory guidelines. 

Foreign investors often face difficulties navigating Indonesia's restructuring environment due to procedural inefficiencies and a local business culture that prioritises relationships over strict contractual adherence. A positive trend is the increased willingness of banks and financial institutions to support debt restructuring, particularly in sectors impacted by economic downturns.

Insolvency: Addressing legal complexities and inefficiencies

Indonesia's bankruptcy system, while based on international standards, has been criticised for inefficiencies and rulings that often favour debtors. The PKPU process, intended to facilitate negotiated repayment plans, is sometimes misused for strategic delays. Court-led insolvency proceedings are frequently hampered by lengthy litigation and inconsistent interpretations of creditor rights. While recent government initiatives aim to streamline insolvency laws, effective implementation remains a challenge.

The path forward: Towards a more predictable financial environment

Despite these challenges, Indonesia presents opportunities for both creditors and distressed businesses. Ongoing regulatory developments, the rise of digital lending platforms, and greater awareness among stakeholders all contribute to a more structured approach to debt resolution. 

For businesses, proactive financial management and engagement with experienced legal and financial advisors are crucial for successfully navigating Indonesia’s complex debt collection, restructuring, and insolvency landscape. As reforms progress, continued vigilance and strategic adaptation will be essential for effective risk management. The future of debt resolution in Indonesia depends on the collective ability of regulators, the judiciary, and businesses to foster a more predictable and transparent financial environment.

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Yandhi Surya is a Partner at Protemus Capital.