In bankruptcy law, there is a problem that often arises, namely a situation where the debtor (the person who has debts) suddenly sells or transfers their property to someone else, even though they are having difficulty paying their debts. For example, when their financial condition is dire, they sell their house or business to relatives, friends, or close associates so that the assets are not seized by creditors (the people who provided the loans) to pay off the debts. Logically, this is detrimental to the creditors who should be entitled to these assets.
So, is the debtor allowed to do this?
Yes, they are, but it can be legally revoked. In bankruptcy law, there is a legal remedy known as Actio Pauliana, which is essentially a legal effort to invalidate the debtor’s legal actions that were carried out in bad faith and caused losses to the creditor. The legal basis for Actio Pauliana is regulated in Article 1341 of the Civil Code (“KUHPerdata”), which reads as follows:
“Nevertheless, creditors may file for the invalidity of any non-mandatory actions taken by the debtor, under any name whatsoever, that cause losses to the creditors; provided that it is proven that when the action was taken, the debtor and the person with whom or for whom the debtor acted knew that the action would cause losses to the creditors.”
Further provisions regarding Actio Pauliana are regulated in Law Number 37 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations (“UUK-PKPU”) in Article 41, which states that: “For the benefit of the bankruptcy estate, the court may be requested to annul any legal acts of the Debtor who has been declared bankrupt that are detrimental to the interests of the Creditors, which were carried out before the bankruptcy ruling was pronounced.” Thus, even if the transfer of assets was carried out before the Debtor was officially declared bankrupt, the act can still be annulled if it is proven to have been carried out to avoid the legal consequences of bankruptcy and is detrimental to the Creditors.
Requirements for Actio Pauliana
- The Debtor’s act was carried out within 1 year prior to the Bankruptcy Decision;
- The act is non-mandatory (gift, sale at a low price, reward);
- The debtor and the recipient are aware that the act may harm creditors;
- There are interests of creditors that are harmed (debts that have not been paid in full and are past due); and
- The act is carried out with a close person or affiliated party (family, friends, own company).
With regard to the above request and fulfillment of requirements, based on Article 47 letter (a) of the UUK-PKPU, the Curator may submit a request to the Commercial Court with the approval of the Supervisory Judge.
The legal consequences of granting an Actio Pauliana lawsuit include:
- The Debtor’s actions regarding his/her assets are declared null and void;
- The return of the subject matter of the case obtained from the Debtor to be returned to the bankruptcy estate; and/or
- If the value of the subject matter of the case has decreased, the Debtor is obliged to return the subject matter of the case plus compensation for losses; or
- If the subject matter of the case no longer exists, the Debtor is obliged to compensate for the value of the subject matter.
Conclusion
The Debtor’s act of transferring assets prior to bankruptcy is potentially unlawful, especially when there are elements of bad faith on the part of the Debtor to secure assets from the risk of general seizure in bankruptcy. The debtor’s actions regarding assets prior to the bankruptcy ruling that resulted in losses for creditors may be subject to legal action (actio pauliana) through the curator with the approval of the supervisory judge at the Commercial Court.
References
Indonesian Civil Code
Law Number 37 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations
Sutan Remy Sjahdeini. “History, Principles, and Theory of Bankruptcy Law”, Publisher: Kencana, 2018.
Hadi Subhan. “Bankruptcy Law: Principles, Norms, and Practices in the Courts,” Publisher: Kencana, 2019
Author: Muhamat Yanuar Abidin, S.H.