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INVESTMENT PROTECTION UNDER THE COMPREHENSIVE INVESTMENT

PROTECTION OF ASEAN INCLUDING CROSS BORDER INSOLVENCY TO BE

COMPLIANCE WITH ACIA1

Dr. Ricardo Simanjuntak2

INTRODUCTION

The establishment of the ASEAN Economic Community (“AEC”) at the end of this year

(2015)3 is the realization of the ASEAN leaders‟ strong commitment in transforming

the ASEAN region into a powerful, highly competitive and economically integrated

region as envisioned in the ASEAN vision 2020 and affirmed in the Declaration on the

ASEAN Economic Community Blueprint (“AEC Blueprint”) on 20 November 2007. The

ASEAN vision to integrate all of the ten ASEAN member states‟ markets and

production capacities to a single market and production base will progressively

transform the ASEAN region into a more dynamic, competitive and powerful market

and production base, with an equitable economic development, and fully integrated

with the world global economy. The ASEAN liberalized market and production base

will consequently encourage free movement of goods, free movement of services,

free movement of skilled labour and freer movement of investment and capital

within the ASEAN region that grows opportunities for every ASEAN member states and

citizens to get and enjoy every benefit of it.

1 . This paper is presented in the ALA Workshop on Business Law, held during the ALA general Assembly on 25-28

February 2015 at Makati Sangri- law Hotel, Manila, Philippines. 2 . The paper writer is a senior advocate, a founding partner of the Law Firm, Ricardo Simanjuntak&Partners,

addressed at Wirausaha Building 2nd

floor, Jl. Rasuna Said Kav. C5, Kuningan, Jakarta Selatan, Indonesia. 3 . Three pillars of the ASEAN Community, namely; the ASEAN Economic community (AEC), The ASEAN Security

Community (ASC), and the ASEAN Socio-Cultural Community (ASCC). According to the ASEAN blue print, These three pillars are seen as the integral organs having to work in tandem in establishing the ASEAN Community.

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Even though the target realization of the AEC - to be implemented at the end of 2015

- is not free from critics and controversies4, multinational business players and

investors have in fact shown their big interest over the coming integrated market and

set up their business strategies facing the AEC. For example, the ASEAN Business

Outlook Survey 20155, released by the US Chamber of Commerce finds that majority

of surveyed business executives confirm their belief that ASEAN markets will still be

more important for their companies‟ worldwide operations and revenues over the

next two years. According to the survey, there are at least three reasons that support

the business executive‟s confidence to the AEC, namely; economic recovery in the

ASEAN region, limited growth opportunities in other regions and the improvement in

infrastructure. The similar fact has also been expressed by the ACIA guidebook for

business and investors published by the ASEAN secretariat in 2013 stating the fact that

over the past two decades, the ASEAN region has seen a burgeoning of home grown

transnational enterprises with significantly scaled up cross-border merger and

acquisition activities in all key sectors of the world economy.

As has been mentioned in the survey, the improvement in the ASEAN infrastructure

will be one of fundamental keys in ensuring stronger and sustainable inflow of

investments into the ASEAN region. The strategy for attracting foreign direct

investments (FDI) both from intra-ASEAN investors and non ASEAN investors, cannot

be made anymore only through the promotion of a free and open investment regime,

but must also be by guaranteeing a higher overall level of protection to the ASEAN

member states‟ investors (ASEAN investors) and their investments. It is among others,

the rationale behind the revision of the ASEAN Investment Guarantee Agreement

(AIGA) and the ASEAN Investment Area (AIA)6 to be the ASEAN Comprehensive

Investment Agreement (ACIA) that has been effective since 29 March 2012.

4 . Ji Xianbai, Why the ASEAN Economic Community will struggle, The diplomat.com/2014/09/why-the-asean-

economic-community-will-struggle/ 5 . ASEAN Business Outlook Survey 2015, conducted by Amcham, Singapore and the US Chamber of Commerce of

international affair, https://www.USchamber.com/sites/default/files/asean_business_outlook_survey_2015.pdf. 6 . The promotion and protection of the investment in ASEAN had previously been agreed among the ASEAN

member under the ASEAN Investment Guarantee Agreement (AIGA) in 1987, while the cooperation of the ASEAN

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According to the Article 1 of the ACIA, the objective of ACIA is not only to develop

comprehensive rules and policies in liberalizing, jointly promoting the ASEAN

integrated market and production base, but also to enhance a protection to the

investors of the ASEAN member states and their investments with the improvement

of transparency and predictability of the investment rules, regulations and

procedures. By adopting international best practices and following the latest trends

in international investment rule making, ACIA is believed to offer many potential

benefits to ASEAN investors when choosing the ASEAN region as their focused

destination for investments.

As the topic given above, this paper will begin its analysis to see what is ACIA and how

it becomes a beneficial protection to the ASEAN investors and their investments,

specifically when the investors face legal problems or investment disputes with a

member state where their investment or business activities are destined. This relates

to the ASEAN member states‟ commitment for an equal treatment and protection to

every ASEAN investor and their investments in their own country territory. Further,

realizing that the ASEAN market liberalization will not only result a success story of

profit gains, but, unfortunately can also lead to a higher risk of regional scaled

competition that may even cause an unresolved business failure, the protection of the

investors and their investments in the case of bankruptcy becomes important analysis

of this paper.

This paper will also share Indonesia‟s commitment to the protection of foreign

investors in Indonesia as well as the acknowledgement of the foreign investor in

accordance with the current Indonesia bankruptcy law.

ACIA Framework and its protections to the investors in the ASEAN region.

As has been introduced above, ACIA is a comprehensive investment framework,

collectively developed and agreed by all of the ASEAN member states in order to

create a liberal, facilitative, transparent and competitive investment environment in

member states for establishing more liberal and transparent investment climate in order to increase the FDI inflow into ASEAN region, was agreed under the ASEAN Investment Area (AIA) in 1998.

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the territory of any ASEAN member state (ASEAN region). The ACIA‟s fundamental

principles and action plans in enhancing the realization of a free flow of investment

within the ASEAN region have basically been agreed in the AEC blueprint7. Being the

review to the AIA and AIGA, with no back tracking commitments, the ACIA is agreed

not only to strengthen the commitment for a progressive liberalization, promotion,

and transparency for a free flow of investment in the integrated investment area, but

also to strengthen a commitment for enhancing protection of all of the ASEAN

investors and their investments in the ASEAN region.

The meaning of „investors‟ and „investment‟ is defined in ACIA in order to have a

clear direction how they will be protected. In the Article 4 (d) of ACIA, an „investor‟ is

defined as a natural person or a juridical person of a member state that is making, or

has made an investment in the territory of any ASEAN member state. The meaning of

a juridical person is further defined in Article 4 (e) as a legal entity duly constituted

or otherwise organized under the applicable law of a member state, whether for

profit or otherwise, and whether privately-owned or governmentally-owned, including

any enterprise, corporation, trust, partnership, joint venture, sole proprietorship,

association or organization.

Whereas the meaning of „investment‟ is defined in Article 4 (c) of ACIA, namely every

kind of asset, owned or controlled, by an investor, including but not limited to;

i. Movable and immovable property and other property rights such as mortgages,

liens or pledges;

ii. Shares, stock, bonds and debentures and any other forms of participation in a

juridical person and rights or interest derived there from;

7 . According to the AEC blueprint, there are four fundamental pillars for ACIA to achieve its objectives, namely;

1. To provide enhanced protection to all investors and their investments to be covered under the comprehensive agreement;

2. To provide a more transparent, consistent and predictable investment rules, regulations, policies and procedures;

3. To promote ASEAN as an integrated investment area and production network; 4. To provide a progressive liberalization of ASEAN member states’ investment regime to achieve free and open

investment by 2015.

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iii. Intellectual property rights which are conferred pursuant to the laws and

regulations of each member state;

iv. Claims to money or to any contractual performance related to a business and

having financial value, but not from the claim to money that arise from

commercial contracts for sale of goods or service, or from the extension of

credit in connection with such commercial contracts.

v. Rights under contracts, including turnkey, construction, management,

production or revenue sharing contracts; and

vi. Business concessions required to conduct economic activities and having

financial value conferred by law or under a contract, including any

concessions to search, cultivate, extract or exploit natural resources.

The investment also includes amounts yielded by investments, in particular, profit

interest, capital gain, dividend, royalties and fees. Any alteration of the form in

which assets are invested or reinvested shall not affect their classification as

investment.

For the protection to the above investors and investments, ACIA obliges every ASEAN

member state to apply a fair and equal treatment to all of the ASEAN investors and

their investments in their each territory. The governments of the ASEAN member

states must assure that every policy or power exercised by them relating to the

investment policy be based on their applicable law and regulations and must not be in

discriminatory with the treatment to their local investors and investments. The host

member states must not deny justice in any legal and administrative proceedings in

accordance with the principles of due process, and must not make any arbitrary

decisions jeopardizing the investors‟ legal rights.

The ACIA also obliges a member state to provide a full protection and security to all

of the ASEAN investors and their investments in its territory from any physical danger

or loss at all times, and provide compensation for any loss suffered, for example,

because of armed conflicts, riots, or civil strife. The protection of the investors is also

ascertained by prohibiting a host member state to expropriate or nationalize any

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covered investment in its territory, either directly or through measures equivalent to

expropriation or nationalization. The expropriation of the investment can only be

allowed for a public purpose, conducted in a non-discriminatory manner and in

accordance with due process of law with an a fair, just and prompt-payment

compensation to the investors.

Further, ACIA also protects the right of the investors to make any transfer, freely and

without delay, into and out of the host member state‟s territory, in relation to the

covered investment, such as, a transfer for the payment of their capital contributions

to their investments, the transfer of profits, capital gains, dividends, royalties,

license fees, technical assistance, payment made under the contract, including a loan

agreement, and others as agreed in the article 13 of ACIA.

For the effective implementation of the above commitments, the real support and

cooperation among the member states in assuring a clear and reciprocal protection

of the ASEAN investors and their investments in their each territory is a key of

fundamental success. The frameworks of cooperation among the ASEAN member

states in providing the facilitation of the investments into and within the ASEAN

region is agreed in the Article 25 of ACIA, among others by ;

a. Creating the necessary environment for all forms of investments;

b. Streamlining and simplifying procedures for investment applications and

approvals;

c. Promoting dissemination of investment information, including investment rules,

regulations, policies and procedures;

d. Establishing one-stop investment centers;

e. Strengthening databases on all forms of investments for policy formulation to

improve ASEAN‟s investment environment;

f. Undertaking consultation with the business community on investment matters,

and

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g. Providing advisory services to the business community of the other member

states.

The commitment of the investors protection collectively agreed by the ASEAN

member states in the ACIA becomes a contractually binding obligation between the

ASEAN member state and the investors of another member country. It means that

breaching the implementation of ACIA will potentially cause a legal dispute between

the investor and the host ASEAN member country. ACIA does not introduce a concept

of the ASEAN integrated court in handling any dispute born from the ACIA

implementation between the investors and the host member country8, but addresses

the dispute settlement mechanism either through a local court or administrative

tribunal of the host member state having a jurisdiction over the disputes, or addresses

the dispute to the International Centre for Settlement of Investment Dispute (ICSID),

or the UNCITRAL Arbitration Rules, or to other international arbitration institution

agreed by the parties, should the first alternative for settling the dispute through a

Mediation, Conciliation, or Consultation or negotiation proves fail to achieve.

The decision of a panel of Arbitrators is taken by a majority of votes and will be a

final and binding decision to disputing parties9. This is basically in line with the

implementation of the United Nations Convention of the Recognition and Enforcement

of the Foreign Arbitral Award on 10 June 1958 (more known as the New York

Convention 1958) that has been acknowledged or ratified by all of the ASEAN member

states10, and also the implementation of the Convention on the Settlement of

Investment Disputes between States and national of other States, agreed in

8 . However, according to the Article 27 of ACIA, ACIA maintains the application of the ASEAN Protocol on

Enhanced Dispute Settlement Mechanism, in Lao PDR on 29 November 2004, as a settlement mechanism in the event that there is a disagreement or dispute between the members of the AEC concerning the interpretation or application of the ACIA. 9 . Article 35 (4) of ACIA; “ The tribunal shall reach its decisions by a majority of votes and its decision shall be

binding.” 10

. All of the ASEAN member states has ratified of accessed the New York Convention 1958, namely; Indonesia on 7 October 1981, Malaysia on 5 November 1985, Thailand on 21 December 1959, Philippines on 6 July 1967, Brunei Darussalam on 25 July 1996, Vietnam on 12 September 1995, Singapore on 21 August 1986, Lao PDR on 17 June 1998, Cambodia on 5 January 1960, and Myanmar on 16 April 2013, further see; The New York Arbitration Convention, www.Newyork convention. Org/Contracting-states/List-of-contracting-states.

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Washington DC, USA on 24 October 1945 (more known as ICSID) that has also been

ratified by all of the ASEAN member countries.11 In other words, the commitment of

the ASEAN member countries to reciprocally recognize and enforce the decision of an

international arbitration decision in their each territory that has basically been

enforceable as the member to the New York Convention 1958 and The Washington

Convention – in term of dispute between an ASEAN member state and the investor of

another member state – has been enhanced by ACIA among the ASEAN member states.

As Indonesia is also the signatory to the New York Convention 1958, the provision of

binding and enforceable decision of the International Arbitration agreed in the ACIA

is not a new one. According to the article 66 (a) of the Law no. 30 of 1999 on

Arbitration and Alternative Dispute Settlement, the decision of the International

Arbitration made in territory of the states member to the New York Convention 1958

is recognized and enforceable in Indonesia12. The same is also applicable to the

dispute between states and the member of another state as regulated in the

Washington Convention, where all of the ASEAN member states have also been the

signatories to it.

As the collective agreement of the ASEAN member states in ACIA is to enhance the

reciprocal recognition and enforcement of the international arbitration awards within

the ASEAN region, it is very important for the ASEAN member states to sit together

and evaluate the seriousness of the ASEAN member countries in respecting and

enforcing the decisions of the international arbitration decided in the states being

members to the New York Convention 1958 so far. This will be very important to build

a better and more serious commitment in reciprocally recognizing and enforcing

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. All of the ASEAN member states has ratified the Washington Convention 1965, namely : Indonesia on 28 September 1950, Malaysia on 17 September 1957, Brunei Darussalam 21 September 1984, Singapore on 21 September 1965, Philippines on 24 October 1945, Thailand on 16 December 1946, Vietnam 20 September 1977, Lao PDR on 14 December 1955, Cambodia 14 December 1955, Myanmar on 19 April 1948. Further see en.wikipedia.org/wiki/member_states_of_the_united_nation#cite_note-19. 12

. Indonesia has some international Arbitration institutions, such as; the Indonesia National Arbitration Body (locally abbreviated as “BANI”), the Indonesia Capital Market Arbitration (locally abbreviated as ‘BAPMI”) and the Indonesia Insurance Mediation and Arbitration Centre (locally abbreviated as “BAPMI”).

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international arbitration awards, especially decided within the ASEAN member states,

in the ASEAN region.

The encouragement of the ASEAN commitment and seriousness in reciprocally

recognizing and implementing an international arbitration award must also be paired

with the serious commitment of the local court of each of the ASEAN member states

as the main partner in the execution of an international arbitration awards. It means

that the cooperation among the ASEAN member states‟ court in establishing further

collective law of procedures in the recognition and enforcement of an international

arbitration award in the ASEAN region will also be a fundamental key in the

implementation of ACIA13.

The Indonesia’s Foreign Investment Policy and the commitment to be a safe and

chosen investment destination in AEC

As one of the core members of ASEAN, Indonesia is not only agreeable to the ASEAN

vision 2020, but also strongly supports fastening the establishment of AEC as the

implementation of the ASEAN Single market and production base, from the year 2020,

to be the year 2015. Even though there have been some pessimistic look, especially

from the local business community, to the Indonesia‟s readiness in facing the AEC in

the year 2015 but Indonesia is still in its commitment and has even shown its strong

efforts to improve its national economic and legal infrastructures for being ready to

compete with other ASEAN member countries within the AEC.

With regards to a foreign investment, Indonesia has enacted the Law no. 25 of the

year 2007 on Investment (The investment Law no.25/2007) as the reformation of the

Indonesian investment laws no. 1 of the year 1967 on Foreign Capital investment and

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. Besides binding by ACIA, the recognition and enforcement of the ASEAN member countries to an international arbitration award will not be separated from the building trust of the ASEAN member states to the quality and transparently of the International Arbitration (institutionally or ad hoc) domiciled or done in each of the ASEAN member state. Therefore, further cooperation in building high standard capacity of the Arbitration and their arbiters becomes increasingly important to collectively realize.

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the Law no.8 of 1968 on Domestic Capital Investment. The Investment law no.25/2007

was basically prepared with the vision to welcome the globalization of economic

movement, especially the ASEAN economic integration. This is expressly stated in the

consideration of the Law, quoted as below:

“That, in confronting global economic changes and Indonesia’s participation in a

variety of international cooperation, it is necessary to create investment climate

whose nature is conducive promote legally certain, impartial, and efficient, by

continuously considering the interest of national economy.”

The progressive liberalization of the investment regime in the ASEAN member

countries as agreed in the ASEAN investment framework of ACIA has basically been

covered in the Indonesia Investment Law no.25/2007 and its implementing regulation

of the Presidential regulation Number 36 of the year 2010. According to Article 12 of

the Investment Law no.25/2007, It is stated that all of business sectors are opened for

investments in Indonesia, except the business sectors that are stated by the

investment law and its implementing regulations as closed or open with conditions to

foreign investments.

Further, with the consideration of providing faster development to the liberalization

of the Indonesian investment regime to be strongly competitive and more comfortable

to the ASEAN investors facing the implementation of AEC, the Presidential regulation

Number 36 of the year 2010 was reviewed to be the Presidential Regulations of the

Republic of Indonesia number 39 of 2014 that gives more and clearer rooms for

foreign investments In Indonesia. This has also been followed by the reformation in

the body of the Indonesia Investment Coordinating Board (more known by its

abbreviation “BKPM”)14, in providing better services and certainty in all stepping

process of investments in Indonesia.

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. The address of BKPM, Jl. Gatot Subroto no. 44, Jakarta 12190, Indonesia, Website: http://www.bkpm.go.id, email: info@bkpm.go.id.

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The investment Law no.25/2007 provides the same treatment to any investors from

other countries making investment in Indonesia in accordance with the applicable

Indonesia law and regulations. The law has also confirmed that the Indonesia

government will not nationalize nor take over the ownership right of the investors,

except through the law, where if the government has to nationalize or take over the

ownership right of the investors, the government must compensate the investor with

the amount is stipulated based on the market price. The Investment law no. 27/2007

does not clearly explain what is the meaning of “except through the law” as the

reason to allow the Indonesia government to nationalize or take over the ownership

right of the foreign investors. But, considering that Indonesia is the parties to ACIA, it

has to be interpreted based on Article 14 of the ACIA exceptions, namely ;

a. For a public purpose

b. In a non discriminatory manner

c. On payment of prompt, adequate and effective compensation, and

d. In accordance with due process of law.

The dispute settlement mechanism between the government of Indonesia and its

foreign investor is regulated in the Article of 32 (4) of the Investment Law no.

25/2007. The investment dispute can be settled through an international arbitration

institution based on the agreement between the disputing parties. The amicable

settlement process in settling the disputes is also recognized in the Indonesia

Investment Law no. 25/2007, as well as in the ACIA.

AEC and the Cross Border Insolvency Regulation

The ASEAN integrated market and production base, in one side can give a great

success to ASEAN business players (investors) in transnationally growing bigger and

bigger in the territories of the ASEAN member states that has been integrated in to a

single market and production base. However, on the other side, the liberalized ASEAN

market also increases more risks, with very high level of competitions, more volatile

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market that can cause a business failure or even a financial collapse to a loser. When

an ASEAN business player or company fails in running its business causing severe

distress to its financial condition making the company unable to settle its due date

and payable debt to its creditor, a bankruptcy law will be the law to decide whether

the company will still be subject to rescue (restructuring)15 or has to be liquidated16.

Michael J. White basically explains that the settlement of the insolvent debtor outside

of the bankruptcy law mechanism will create uncertainty and unfair treatment to the

creditors‟ rights, since the creditor will race to get payments first, either directly or

through legal action and will leave the creditors get unpaid or paid less, even though

as unsecured creditors they have a right to be paid on pro rata basis. The creditors‟

effort to get payment through legal action will make a longer process and costly,

because the debtor will be busy in defending itself against creditor‟s lawsuits, and at

the end, even though the creditor (s) can win the case, it will not change the

situation, since the main reason why the debtor does not pay is because the debtor

has been insolvent17.

The rescue option will strongly depend on many factors, including the total value of

the assets owned by “the need to be restructured” company and more importantly,

where the assets are domiciled. When the assets of the company are domiciled

abroad or in some ASEAN member states‟ territories, it will be very difficult, if not

almost impossible, for an administrator to do their job facing the fact that a rescue

15. According to the Indonesian Bankruptcy Law No.37 of the year 2004, the rescue option can be pursued through a Suspension of Payment of a Debt (locally known by its abbreviation, PKPU) filed to the Indonesian Commercial Court. The administrator (Indonesian called “Pengurus”) will be appointed by the Indonesian Commercial Court to administrate and manage all of the assets of the debtor in PKPU in relation to the restructuring plan that will be proposed by the debtor to all of its creditors. 16

. Frederick Tung states; “when a firm fails, bankruptcy law attempt to maximize the value of the firm’s assets for the benefit of the firm’s creditors. Bankruptcy law also determines how that value should be distributed among the creditors. The failure of multinational firms typically leaves assets and unpaid creditors in several jurisdictions. However no overarching international bankruptcy system exists. Instead the national bankruptcy laws of several states might plausibly to apply to govern the firm’s bankruptcy or particular aspect of the case. Conflicting claim of jurisdiction often arise.” Frederick Tung, “Fear of Commitment in International Bankruptcy” Geo.Wash. Int’l L Review, Vol.33, June 2001,p.3. 17

. Michael J.White, “The Corporate Bankruptcy Decision”, article in Jagdeep S. Dhandari and Lawrence A. Weiss (ed); “Corporate Bankruptcy, Economic and Legal Perspectives”, Cambridge University Press, 1996, p. 207-231

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process (suspension of payment) granted by a court in one state will not automatically

be recognized by or enforceable in a foreign country where the debtor‟s assets are

located, nor the recognition of an administrator appointed by the court in order to

manage the rescue proceedings. The same problem will be also faced by a receiver

appointed by the court for a liquidation process when the company is declared

bankrupt.

This makes almost impossible for the administrator or receiver to access the debtor‟s

assets domiciled abroad except through a re-litigation strategy that will create longer

time, extra costs and uncertainty. This is I believe why Michael Sloan states that Asian

region does not have adequate laws to deal with the insolvency of multinational-

corporate collapse.18 The need of a cross border insolvency regulation seems to be

inevitable facing the consequence of the implementation of AEC. It will inevitably

lead to the increasing need of a clear and applicable answer of how to cope with a

cross border assets of ASEAN insolvent debtors, since the absence of that will leave a

legal uncertainty for transnational business players and investors in settling debt

disputes with their debtors in the ASEAN integrated region19.

The implementation of the Indonesia bankruptcy law no. 37 of 2004 (the Indonesia

Bankruptcy law)20 for example, cannot be put to a maximum implementation21, when

18

. Michael Sloan, “The lack of adequate insolvency frameworks for major corporate collapse in Asia”, an Asian Development Bank Presentation for the Forum on Asian Insolvency Reform, Session III-New Delhi, India on 3-5 November 2004. 19

. Andrew T Guzman has correctly stated that the growth of international business, has consequently brought with it a growth in the number of international business failure. According to him, the increased number of international insolvencies has brought intention to the question of how to deal with international bankruptcy, Further, please read, Andrew T. Guzman, International bankruptcy, in defense of universalism”, Michigan Law Review, The University of California, Berkeley vol.98:2178, p.2177 (2000) 20 . Indonesia has reformed its bankruptcy law in 1998 as part of the comprehensive package in curing the

Indonesia from the very bad and deep monetary crisis in 1998. The old Indonesian bankruptcy law inherited from the Netherlands law, had been improved in making clear a legal basis for a debtor to be declared bankrupt. The Indonesian bankruptcy law no.37/2004 (The Indonesia bankruptcy law) theoretically regulates a clear and strict time frame, transparency and also introduces a special bankruptcy judges in the Commercial Court (even though it is still part of the general court) that was introduced specially for handling the bankruptcy case or suspension of payment of the debt (PKPU) cases, as well as introduces a private receiver and administrator, since before the reformation, it was only handled by the receiver from the Indonesian Orphanage chamber (BHP).

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the assets of a bankrupt debtors are located abroad. Even though the international

bankruptcy as regulated in the Article 212 – 214 confirmed that all of the bankrupt

assets located everywhere, including abroad, are subject to a public attachment as

regulated in the Article 21, but it is realized that the said universal application will

not bind a foreign states based on the principle of territorial sovereignty of the states

(the principle of territoriality). The decision of bankruptcy that has been granted by

the Indonesia Commercial court, will not automatically be acknowledged in a foreign

state, as well as the receiver appointed for managing and liquidating the bankruptcy

estates.

The article 212 – 214 of the Indonesia bankruptcy Law22 will only bind the local

unsecured creditors or the unsecured creditors domiciled in Indonesia to basically not

be allowed to get a separate payment from any of a bankrupt debtor‟s assets

domiciled abroad, for example; by taking a separate legal action in the country where

the bankrupt estates are domiciled. This basically shows the eagerness of Indonesia

for the decision of its court to be recognized and be enforceable universally. On the

other hand, Indonesia also apply the principle of territoriality in its region, not

recognize a foreign bankruptcy decision as well as a foreign receiver being appointed

in managing and liquidating the foreign bankrupt debtor‟s assets domiciled in

Indonesia.

As the ASEAN integrated market and production is the end goal of AEC, the collective

measures in establishing a just, transparent and high quality and certain solution of

an insolvency case in ASEAN region also becomes inevitable. This is basically stated

by Jay Wrestbrook in his article concluding that the global market requires global

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. ‘maximum implementation’ means an opportunity for the appointed receiver to decide the best steps in maximizing the value of the bankruptcy estates, for example; by using the assets abroad to pay the obligations of the debtor to its creditors maximally, or using the assets in restructuring or maintaining the going concern of bankrupt company for a better value, rather than having to liquidate them in a piece meal sale. 22 . The reformation of the Indonesian bankruptcy law in 1998 was conducted in very urgent basis that made the enactment of the reformed bankruptcy law was based on the Government Regulation No.1 1998 in lieu of the Bankruptcy regulations 1905, that was then replaced by the Law no.4 of the year 1998, and again replaced by the Law no.37 of the year 2004.

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bankruptcy law.23 The importance and inseparable existence of a cross border

insolvency law in the globalised market has also been emphasized by Bob Wessel

stating that the insolvency law is a by-product of globalization.24 This supports the

arguments that the ASEAN integrated market and production base will need cross

border insolvency regulations facing the fact that more and more, the international

movements or the international scaled business activities of the ASEAN business

players and investors will be followed by the existence of their assets and obligations

at least in many, if not in all territories of the ASEAN member states.

The changing of the member states‟ response to the effect of the economic

globalization has rightly explained by Andrew T Guzman in its article, among others

quoted as below:

“Traditionally, national governments could focus on their domestic economies

without undue attention to international issues. Today, however, a country’s

policymakers must respond to the growth in international business activities

with appropriate legal changes. Failure to do so will cause their legal regime

to fall further and further out of step with the needs of the global market

place.”25

This has also been emphasized by Prof. C.F.G Sunaryati Hartono26 in her book stating

that the globalization of economy is not anymore a choice, but has already become a

reality that cannot be avoided for its existence. Therefore, the action that must be

taken by the member states is to prepare and built their global capabilities and

competencies to invite as maximum investments and capitals to their each territory

as they can.

23 . Jay Wrestbrook Lawrence,J.L, “A global Solution to Multinational Default”, 98 Michigan Review 2276 (1999-2000) 24 . Bob Wessel, “Cross border Insolvency Law”, Kluwer Law International 2007, article preview. 25 . Andrew. T. Guzman, Loc Cit.2177. 26

. Prof. C.F.G Sunaryati Hartono, Politik Hukum Menuju Satu Sistem Hukum Nasional.Bandung, Alumni 1991, p.71

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Further, learning from the experience of the European Union, the existence of AEC

cannot theoretically be separated from the need of the existence of the ASEAN cross

border bankruptcy regulations. The similar essence had been clearly voiced by Jona

Israel27 in the process of the establishment of the European Economic Community, as

below;

“The internal market demands the effective regulation of insolvency also and

particularly when a debtor’s assets and liabilities are spread over more than

one member state. After all, such a “multi-jurisdictional” debtor is exactly

what the community is aiming for with its freedoms and goal of optimal

allocation of resources on a European scale. The Commitas Europea dictates a

reformulation of cross-border insolvency law according to these demands.

The theory is strongly supported by Bob Wessels stating the absence of the cross

border insolvency regulation in EC market is viewed as a lack of protection of persons

and business in the integrated economic region, among others quoted as below:

”In order to complete the internal EC Market, the absence of a treaty on

Insolvency Proceedings was viewed as a lack in the legal protection of persons

and business. Only national law (including its private international law) is

applicable in the event of a (legal) person going bankrupt. At the same time a

whole range of cross border activities is increasingly taken by persons-notably

legal persons, companies – trading only within the borders of one member

state.”

The debate about which of the principle of universality28 and the principle of

territoriality29 is better for resolving the problem of a transnational bankruptcy has

27

. Israel Jona, European Cross-Border Insolvency Regulation, Intersentia Antwerpen-Oxford 2005, hlm.155 28 . The principle of Universality describes that the bankruptcy estates collectivity is to be achieved through

concentration of proceedings in a single forum and through the application of a single law, the lex fori concursus. The supporter of the principle of universality finds some weaknesses in the implementation of the principle of territoriality, such as; 1). There will be a potential unfair treatment between the local creditors and for the foreign

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long existed and come to no clear result up to now. Hannah L. Buxbaum30 basically

explains that the globalization of economic markets and attendant changes in cross-

border regulatory strategies has challenged the fundamental principle of private

international law, from a traditional model of conflict analysis that is based on

territorial sovereignty in order to effectuate its domestic regulatory interests by

applying its own law to the dispute, to substantive model of conflict resolutions that

can see the protection its economic policy interest to the substance of applicable law.

As the main intention of the 10 member countries of AEC is an economic consolidation

to create single market that, is strongly believed, will create prosperity within the

AEC region, all of the business relationship in the context of creating free trade area

will be step by step built by mutual commitments that directly or indirectly will

become the rules of play for the 10 ASEAN member states. Mutual consents or

cooperation of the ASEAN member states to provide common management and

operational systems of AEC will be step by step formalized as the regulations binding

the 10 member states, including the cooperation to establish the regulations in

settling business dispute born from insolvency problems.

creditors, since the foreign creditors can potentially receive the information late, 2). The difference of a legal system can give different understanding regarding the class of the creditor, 3). Unpredictable time frame and high cost, 4). Multiple proceedings can lead to conflicting and incompatible results and could severely impair the proper restructuring or liquidation of the insolvent company, and 5). A debtor can place its assets abroad in order to avoid being touched by the receiver in the bankruptcy status. 29 . On the other side, the supporter of the principle of territoriality also find some weakness in the

implementation of the principle of universality, such as; 1). The acknowledgment of the foreign country will principally be based on reciprocal basis, 2). The reciprocal basis will almost be impossible to achieve if based on the political consideration, since the acknowledgment to the principle of universality can be seen as the reducing of the sovereignty power of a state 3). There must be a strong economic interdependence (specifically economic interdependence) between the countries in order to give a chance to mutually negotiate and commit for the implementation of the principle of universality

29, 4). There must be a clear legal consequence to the country that

breaches the mutual commitment. Therefore, in the absence of any reciprocal commitment between the countries, the administration and liquidation process of the bankruptcy estate should be based on the law where the bankruptcy estates are domiciled. 30

. Conflict of Economic Laws, from Sovereignty to substance, Virginia Journal of International Law, Vol.42:931.

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The integration of the economy increases not only he wealth of

business players in ASEAN region but also the obligations/debts

ASEAN and 10 member states with the total of

people almost 630 millions with PDB of USD 2,1 trillion

in 2013

Global Competition

Economic cooperation encourages cooperation in

building legal infrastructures in creating

legal certainty in AEC region

introduction and study the law of member countries to

increase mutual understanding and trust among AEC

members.

Building a transnational

capacity of the receiver in AEC

StrengthningASEAN Global Market

Economic inter dependent

Liberalization: flows of capital,

investment, production,

services, and human

resources

Cooperation of Law Based on International Comity

Using UNCITRAL model law Cross Border Insolvency as a model law/general reference

Establishing cooperation between the courts of the

Member States and also with the receiver in realizing the

transnational capacity

Establishing commitment for mutual application of Cross

Border Insolvency Regulations in AEC through Convention or

Treaty

Enacting the Cross Border Insolvency become the law of

the AEC.

1

2

3

4

5

6

Comparing to EU, ASEAN has many specific challenges that the EU did not have when it

started the economic cooperation around 55 years ago. Different with EU, the 10 member of

ASEAN comes from a very heterogeneous economic status, such as; from the best economic

performance, like Singapore, to “the need to support” economic situation, like; Cambodia,

Myanmar, Laos and Vietnam (more known with “CMLV”)31, different history of the motive of

countries integration32, heterogeneous legal systems33, heterogeneous cultures, human

31 . Lee Leviter gives an example between Singapore and Myanmar as both members of ASEAN, where Singapore‟s GDP has achieved USD.52,200,- while Myanmar‟s GDP is very far below, namely only USD 1,100,-, Lee Leviter, The ASEAN Charter; ASEAN failure or member failure? J.D. Candidate,2011, New York University School of Law,p.162. 32. The members of European Economic Community basically comes from the same sentiments, the countries that had been successful in going out from the very heavy financial crisis in Europe benefited from the help of Marshall Plan in 1947, different with ASEAN where the initiative was more reasoned by the intention to create a safe area in ASEAN region.

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resources, languages, concentration of religions, government policies and market

concentrations. Therefore the ASEAN economic integration must be started with the

cooperation among the member countries to focus on building the economic capacity of the

member states, for example supporting the CMLV countries economic through the Vientiene

Action Plan 2004-2010. Therefore, the optimism of the 10 member countries to realize the

ASEAN single market, Bob Wessels says, will be completed with the commitment to prepare

the AEC cross border insolvency regulations as to create a certain, fast, efficient, just, and

transparent way in settling the insolvent company‟s problems either by restructuring or

liquidating them.

Understanding that it is not an immediate result, the existence of the forum ASEAN Law

Ministers Meeting (ALAWMM) will become important in arranging serious action plans to

prepare the regulations for the cross border bankruptcy matter within the ASEAN/AEC region,

as follows:

1. Conduct a serious, deep and continuous study to know more regarding the national

bankruptcy law of every ASEAN member state in order to build a better understanding

and mutual appreciation among the ASEAN member countries.

2. To build mutual trust between or among the member countries, by starting to see the

closest possible countries to start a cooperation between/among the courts or other

justice institutions to see what and how to measure the acceptable reason for each of

the country to come to a reciprocal goals of commitments between/among them

based on the international comity, including to work together to provide a standard

conduct of judicial system in each of the member countries.

3. To introduce the UNCITRAL Model Law on Cross border Insolvency as the model law for

the reference of the ASEAN member states to support the building of same

understanding and perception among the ASEAN member states, that will be a good

input for the member states in reforming their national bankruptcy laws.

4. To open a possibility for a legal cooperation between a court of the member states

with the appointed administrator or receiver appointed by the local court of one of

33 . Singapore and Myanmar use a common law system, Malaysia and Brunei Darusalam use a common law system that has been mixed with Islamic Law, and Indonesia, Laos, Thailand, Philipine and Vietnam use Civil law system.

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the ASEAN member state in relation to the management of the assets located within

its territory as an alternative, even though the AEC cross border insolvency regulations

has not yet existed.

5. When the ASEAN member states are successful in doing the above points, with the

facts that the economic integration has provenly benefited the ASEAN member states,

it will be more prospective for the ALAWMM to promote the AEC cross border

insolvency commitment through a convention or multilateral convention, as was done

by EEC in 1995.

6. The achievement of a strong single market in ASEAN will make the AEC cross border

insolvency law as a harmonized law be more prospective to achieve.

The above action plans, will be part of the effort for preparing the progressive solutions

based on the increasing mutual trust and cooperation among the AEC member countries, in

order to give mutual solution for them to cope with the problems of multinational insolvency

problems that are believed will grow in ASEAN region as the consequence of the AEC.

-THANK YOU-

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