Introduction
The law on bankruptcy and postponement of debt payment obligation of 2004 (Bankruptcy Law) is based on non-insolvency test, meaning the test is not to check whether the debtor is solvent or not solvent, but whether the debt is already due and payable, and not settled by the debtor. The required evidentiary process for bankruptcy or restructuring application is to simply prove the fact that the debtor has two or more creditors, and the debtor has not settled at least one of its debts that is already due and payable. The elucidation of Bankruptcy Law confirms that the difference of amount of debt is not important, and it will not hinder the judgment for bankruptcy status.
This evidentiary process consists of different elements. These are:
- creditor;
- debtor;
- debt;
- due and payable debt; and
- simple.
Evidentiary process elements
A creditor is a party that has a receivable, under an agreement or law, that can be claimed before the court.
A debtor is its opposite of a creditor, being a party that has debt under an agreement or law that its settlement can be claimed before the court.
A debt is an obligation stated or can be stated in monetary amount, under Indonesian or foreign currency, arising from an agreement or law. A debt must be paid by the debtor and, if not paid, gives the creditor the right to obtain the debt from the debtor’s assets. From the perspective of contractual obligation, this defined term is broad and can cover all types of contractual obligation under an agreement.
A due and payable debt means an obligation that is already due and payable whether it has been agreed, acceleration as agreed, penalty or fine by the authorised instance, court’s decision, arbitrator’s decision or panel of arbitrator’s decision.
Subsequently, the meaning of “simple” is not explained. According to Blacks’ Law Dictionary, the Latin word simpliciter means “simple or summary manner; absolutely; unconditionally; per se (by itself, without reference to additional facts; as a matter of law)”.1 Various jurisprudence show that a disputed debt (whether officially lodged or not), an unfulfilled condition and non adimpleti contractus, are normally assessed as not simple.
In summary, the creditor applying for bankruptcy or restructuring application against the debtor must prove, in a simple manner, without reference to additional facts and without dispute or unfulfilled condition, that there are two parties or more that have a receivable against the debtor. Additionally, the debtor must concurrently have an obligation against these two creditors under an agreement or law whether direct, future or contingent, with one obligation already due and payable as a result of:
- agreed date;
- agreed acceleration time;
- penalty;
- fine;
- decision by court or arbitration tribunal,
That creditor must also prove that the obligation can be claimed before the court.
Debt
Debt is broadly defined. A creditor may claim that it has receivable against the debtor that agreed to do a defined contractual obligation in a future time, even though that contractual obligation is subject to conditions. Accordingly, it will not be hard to prove the existence of debt under an agreement. All that needs to be proven is that:
- there is a promise to do something;
- the promise can be valued in a monetary amount; and
- the promise is a contractual obligation under a contract.
Article 1253 of the Indonesia Civil Code (ICC) stipulates that an obligation is conditional when it is subject to a future event that may not occur, whether it will postpone that obligation until the event has occurred or cancel that obligation because of occurrence or nonoccurrence of that event. Article 1263 of ICC further stipulates that an obligation with a postponement condition is an obligation that is subject to a future event that may not occur.
If the future event has not occurred, that obligation cannot be enforced. From the meaning of “debt” under Bankruptcy Law, a conditional obligation may be regarded as an obligation even though it can only be enforced after an agreed condition (ie, future event) has occurred. This will immediately begin the relationship between a conditional obligation with a due and payable circumstance.
Condition of obligation
When a condition of an obligation has occurred, it can simply mean that the conditional obligation is no longer conditional but is immediately due and payable. Nevertheless, in addition to a conditional obligation, a contract can also stipulate an agreed time frame. For example, the obligation to pay is conditional to a fulfillment of a certain condition. When this condition has been fulfilled, the obligation will not become immediately due, but will only become due 14 days after the fulfillment of a condition. This type of provision is normal in a contract.
That agreed time frame refers to another provisions of ICC. Article 1268 of the ICC stipulates that an agreed time frame does not postpone an obligation but only its performance. Further, article 1269 of ICC regulates that what must be paid on an agreed time frame cannot be claimed before that time frame expires. Hence, there are two types of obligation in an application, namely, a conditional obligation and an obligation with an agreed time frame.
A “condition” in a conditional obligation can be disputed between the creditor applying the bankruptcy application and the debtor. For example, in a construction service agreement, there might be a dispute between a contractor claiming that it has performed its work under a contract where a project owner claimed that the contractor has not performed well according to the terms and conditions. The contractor is obligated to do its work.
In contrast, the project owner is obligated to pay to the contractor. Under the agreement, the project owner’s obligation to pay is conditional upon the issuance of certificate of payment (COP) which means that the amount of actual work performed by the contractor must be prior approved in writing by the project owner. In addition, there are additional conditions, namely, invoice, tax invoice and 28 days of payment limit as an agreed time frame. Without any approval of COP, and without any issuance of further additional document, will the creditor be able to apply for bankruptcy?
Counter argument
The existence of debt may be already proven even though it is conditional in nature. Due and payable debt will not have occurred (ie, there has been no issuance of COP and additional documents). It is important to pay attention to the agreed time frame, namely 28 days. Another element is to simply (ie, simpliciter) prove the due and payable debt. This element requires evidence regarded as unconditional and without question that the debt is already due and payable. The fact of the case shows that the project owner disputes the work performance (a reason of non-issuance of COP).
This counter argument may compel the contractor to put forth many different documents (other than proving the fulfillment of condition under the agreement) to the court to convince the court that its work has been performed well despite disputed. This action is detrimental to the contractor as it shows the court that the claimed due and payable debt is not simply proven. Instead, it proves to the court that the claimed due and payable debt is unclear.
For further information on this topic please contact Eddy Leks at Leks&Co by email (eddy.leks@lekslawyer.com). The Leks & Co website can be accessed at www.lekslawyer.com.
