Bankruptcy: Definition, Requirements, Factors, and How to File

According to the Financial Services Authority (OJK), bankruptcy refers to a debtor who has two or more creditors and fails to pay at least one due and collectible debt, and is declared bankrupt by a competent court, either at the debtor’s request or at the request of one or more of their creditors.

If the debtor is a bank, the bankruptcy filing can only be submitted by Bank Indonesia. Meanwhile, according to the Indonesian Dictionary (KBBI), bankruptcy is defined as being financially ruined, falling into poverty, and the like.

What is Bankruptcy?

Bankruptcy is a legal process in which a debtor who is unable to repay their debts is declared bankrupt by a commercial court. This court has the authority to process the lawsuit, as the debtor is considered incapable of meeting their financial obligations.

According to Indonesian law, the debtor’s assets will be distributed to creditors due to their failure to repay debts.

Requirements for Filing for Bankruptcy

To file for bankruptcy, a company must meet several legal requirements, such as:

• The company must have debts
• The debts must be due and collectible
• There must be a debtor
• There must be more than one creditor
• There is a petition for bankruptcy
• The Commercial Court declares the bankruptcy

Without these requirements, the petition cannot proceed to court.

Who Can File for Bankruptcy?

Bankruptcy can be filed by the following parties:

• The debtor voluntarily submits the bankruptcy petition
• One or more creditors submit a bankruptcy request
• Collaborative efforts in the interest of the public
• If the debtor is a bank, only Bank Indonesia can file
• If the debtor is a securities company, the Financial Services Authority (OJK) is authorized to file

Steps to File for Bankruptcy

1. Bankruptcy Petition

This must meet the legal requirements outlined in Law No. 4 of 1998.

2. Bankruptcy Decision

The decision has permanent legal force and cannot be appealed. The process from petition to ruling may take up to 90 days.

3. Verification Meeting

This meeting registers all debts and receivables and determines the ranking of creditors.

4. Settlement Attempt (Peace Agreement)

An attempt at settlement is always scheduled. If successful, the bankruptcy process ends here. If it fails, the process continues.

5. Homologation

If the settlement is accepted, it is legally ratified by the Commercial Court.

6. Insolvency

This is a condition where the debtor’s assets are insufficient to pay off their debts.

7. Liquidation

Also called asset settlement, where the debtor’s assets are sold and distributed to creditors, minus administrative fees.

8. Rehabilitation

If the peace agreement is accepted, rehabilitation restores the debtor’s reputation. If not, this step is skipped.

9. Bankruptcy Concluded

The process ends when the required legal and administrative steps are complete.

Legal Requirements for Filing for Bankruptcy

• The company has debts, with at least one overdue and collectible
• There is a debtor
• There are two or more creditors
• There is a petition for bankruptcy
• The Commercial Court grants the petition

Factors Causing Bankruptcy

Several factors can lead a company into bankruptcy:

• Inability to repay debts
• Lack of innovation or slow business development
• Products/services fail to meet market needs
• Inability to compete with evolving competitors
• Uncompetitive pricing, too expensive compared to similar products
• Fraud, overexpansion, and uncontrolled spending

How to Prevent Bankruptcy

Bankruptcy is preventable if companies take these steps:

• Manage company finances effectively
• Develop and implement efficient business strategies
• Regularly evaluate business performance
• Improve customer service
• Encourage internal innovation
• Seek guidance from professionals and business training programs

Examples of Bankruptcy Cases

Some companies in Indonesia have declared bankruptcy, such as:

• Nyonya Meneer
• TPI
• PT. Asuransi Jiwa Nusantara
• Peti Kemas Multicon
• Bali Kuta Residence
• Akira
• PT Sariwangi Dinas Pertanian Lahan (PSAB)
• PT Maskapai Perkebunan Indorub Sumber Wadung (MNISW), declared bankrupt with over IDR 1.5 trillion in debt, as ruled by the commercial court.

Bankruptcy vs. Financial Collapse

Bankruptcy and financial collapse are often confused, but fundamentally different:

• Financial collapse happens when a company suffers huge losses and goes out of business due to unsustainable finances.
• Bankruptcy may occur even when a company is financially healthy, but is overwhelmed by debts it cannot repay.

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