Debt Collection in Indonesia

Indonesian Laws do not stipulate a minimum amount or value that must be owed by a debtor. However, for certain cases, gugatan sederhana (simple lawsuit) mechanism may apply, which is specifically designed for civil claims with a value of up to IDR 500 million or USD 30,000, excluding land and environmental disputes (Article 1 point 1 and Article 3 of Supreme Court Regulation No. 2 of 2015 as amended by Supreme Court Regulation No. 4 of 2019).

In terms of bankruptcy claim, there is a minimum requirement before the creditor file a bankruptcy against the debtor. A bankruptcy claim must be filed by a minimum of 2 (two) creditors, where at least one of the debts is due and payable (Article 2 paragraph 1 of Law No. 37 of 2004 on Bankruptcy).

The difference between an ordinary civil law suit and a simple lawsuit with a maximum of IDR 500 million or USD 30,000 is that a simple lawsuit must be resolved within a maximum of 25 business days, and cannot be appealed. Meanwhile, an ordinary civil lawsuit has no value limitation and follows the full court process, including appeal and cassation.

Procedurally, it is mandatory to send at least 1 (one) warning letter or up to 2 (two) warning letter before deciding to take further legal action. This is to demonstrate that the debtor was informed regarding their obligations and has failed to respond to the demands of the creditor, therefore demonstrating the debtor’s bad faith. The condition for a warning letter is applicable mainly for Civil and Bankruptcy lawsuits.

While the requirement for sending warning letters is not codified in Indonesia’s Civil Code and/or Civil Procedural Code, in practice, there have been cases where the Indonesian Supreme Court has stipulated that a warning letter is mandatory. For instance, in Supreme Court Decision No. 17 K/Sip/1956, which determined that the lawsuit is inadmissible as the defendant was not warned in advance by the plaintiff.

Before taking legal action, it is important for a creditor to first identify where the debtor’s assets are located. Please be informed that the debtor may list the current creditor’s assets in the lawsuit. Without this knowledge, even if a lawsuit is successful, the execution of the judgment will be difficult, as the court’s decision must be enforced against the debtor’s actual assets.

A creditor should conduct a due diligence towards the debtor before entering into an agreement. In particular, name and address are information that are particularly important in identifying the procedural steps (when the dispute arises) of sending warning letters and where to file the lawsuit. In general, any lawsuit must contain the correct name of the targeted individual/entity and should be filed in the courts located in the domicile of the debtor. For instance, if the debtor lives in Jakarta, the lawsuit must be filed in Jakarta and cannot be filed in other cities. An exception to this rule is if the debt pertains to a fixed object, where the lawsuit should be filed at a court located where the fixed object is.

Indonesian Law does not discriminate nor bias the rights of a foreign creditor in Indonesia, and they will be required to follow the same steps as an Indonesian creditor. A foreign creditor may file a lawsuit against the debtor in the court where the debtor is domiciled. For example, if the debtor is domiciled in Central Jakarta, the foreign creditor must file the lawsuit in a Central Jakarta court.

When sending warning letters to a debtor, it would be in good faith to provide the underlying agreement that stipulates the terms of the debt is the first document that must be identified. The evidences stipulating the nature of the debt is also necessary, such as proof of transfers/deliveries and transactional documents.

These documents would also later be used as persuasive evidence before the courts if the creditor decides to take further legal action. Creditors must also provide copies of their warning letters to the courts to show that they have fulfilled the procedural requirements before filing their lawsuit.

If the first demand is not responded to, it is best practice to proceed with a second demand. This is in practice conducted through warning letters as mentioned above. In practice, a debtor may attempt to negotiate the payment terms, such as through instalments or by requesting an extension period; this is more subject to the considerations of the creditor, whether to accept them or decline them.

In practice, Indonesian Laws do not recognise interim measures until legal action proceedings have begun in their respective courts. This means interim measures such as asset seizure/confiscation cannot take place until an individual initiates a lawsuit before a court.

In the case of Civil Lawsuit proceedings, a creditor may demand collateral seizure of the debtor’s property before a court verdict is reached, either as a plaintiff against the defendant (conservatoir beslag) or as a defendant against a plaintiff (revindicatoir beslag) (Article 226 and 227 of Civil Procedural Code (HIR)). This request for collateral seizure is requested before or during the lawsuit examination process, and can be filed as part of the initial lawsuit request by a plaintiff while a defendant is permitted to make their request in their response (replik) or counterclaim.