APEC Economies - Critical Analysis On The Harmonisation of Malaysia and Indonesias Corporate Insolvency Regimes

APEC Economies: Critical Analysis on the Harmonisation
of Malaysia and Indonesia’s Corporate Insolvency Regimes

by
Zawin Najah Binti Badrul Hisham
Supervisor – Dr Joy Malala
Dissertation submitted in partial fulfilment of the requirements for the Master of Laws
degree in International Commercial Law at the University of Warwick
September 2022
Word count – 9952 words

TABLE OF CONTENTS
Acknowledgements I
Declaration II
Abstract III
List of Abbreviations IV
CHAPTER ONE 1
1.0 INTRODUCTION 1
1.1 Background of the Study 2
1.2 Outline of Chapters 2
1.3 Harmonisation 4
1.3.1 Harmonisation of Commercial Laws 4
1.3.2 The Positive Impacts of Harmonisation 5
1.3.3 Harmonisation of Corporate Insolvency Laws 6
CHAPTER TWO 9
2.0 COMPARATIVE ANALYSIS OF THE INSOLVENCY LAWS OF 9
MALAYSIA AND INDONESIA
2.1 Resolving Insolvency as Indicator for Ease of Doing Business Index- 9
Malaysia vs Indonesia
2.2 Overview of Malaysian Insolvency Law 10
2.3 Overview of Indonesian Insolvency Law 12
2.4 Comparative Analysis of Malaysian and Indonesian Insolvency Laws 13
2.4.1 Winding Up and Bankruptcy 13
2.4.2 Ranking of Creditors 15
2.4.3 Liability of corporate officers and directors 16
2.4.4 Corporate Rescue Mechanisms 17
2.4.5 The function of the court in insolvency matters 18
2.4.6 Cross-border insolvency and foreign insolvency proceedings 19
2.5 Key Findings 19
CHAPTER THREE 21
3.0 THE REASONS OF DIVERGENCE OF INSOLVENCY LAWS OF 21
MALAYSIA AND INDONESIA
3.1 Legal Systems in Malaysia and Indonesia 21
3.2 Economic Policy in Malaysia and Indonesia 22
3.2.1 The Developmental State in Malaysia 23
3.2.2 The Implications of the Developmental State Economy to Malaysian 24
Insolvency Law
3.2.3 The Economic Policy in Indonesia 25
3.2.4 The Effects Towards the Indonesian Insolvency Law 25
3.3 The Philosophies of Insolvency Law in Malaysia and Indonesia 26
CHAPTER FOUR 29
4.0 THE EFFORTS TO HARMONISE INSOLVENCY LAWS AT REGIONAL 29
AND NATIONAL LEVELS
4.1 The Insufficiency of International Standard Principles 29
4.2 Harmonisation Experience in the EU – A Lesson Learnt 32
4.3 What Can Malaysia and Indonesia Do to Harmonise Their Insolvency 33
Laws?
CHAPTER FIVE 36
5.0 CONCLUSION 36
Legislations 38
Case Law 38
Bibliography 38
ACKNOWLEDGEMENTS
I would like to express my gratitude to my dissertation supervisor, Dr Joy Malala. This
dissertation could not be completed without your dedicated guidance and ongoing
support. To Professor Dalvinder Singh, thank you for reaffirming my interest in
Corporate Insolvency Law through the discussions held in the seminars. To my
personal tutor, Dr Ming-Sung Kuo, thank you for your words of encouragement and
meaningful advices.
I
DECLARATION
I, Zawin Najah Binti Badrul Hisham, declare that I am the sole author of this work in
this dissertation. To the best of my knowledge, this dissertation contains no material
previously published by any other person except where due acknowledgement has
been made. This dissertation contains no material which has been accepted as part
of the requirements of any other academic degree or non-degree program.
This is a true copy of the dissertation, including final revisions.
II
ABSTRACT
Coupled with the unprecedented challenges imposed by the Covid-19 pandemic which
includes the inevitable insolvency wave, legislators are called upon to take immediate
action for necessary reforms on their corporate insolvency regimes. Apart from that,
the growing costs of negotiation and information between businesses and consumers
may form trade barriers in international trade arena. Harmonisation of national
commercial laws particularly corporate insolvency law is essential in reducing such
trade barriers. Therefore, the main aim of this study is to identify whether there is a
harmonisation of corporate insolvency laws of two APEC member economies namely
Malaysia and Indonesia.
By way of comparative analysis, this study observes that there is no harmonisation of

insolvency laws of Malaysia and Indonesia. This study indicates that the three areas
differentiate Malaysian and Indonesian corporate insolvency law are; (i) Indonesian
bankruptcy system does not distinguish personal and corporate insolvency; (ii) there
is no legal provision in Malaysia that allows the conversion of restructuring to
liquidation; and (iii) there is possibility of recognition of foreign liquidator in Malaysia
but not in Indonesia due to their territorial principle. The reasons for such divergences
can be explained by the differences in legal backgrounds, economic policy and
insolvency law theories in both jurisdictions. This study also suggests that the
international principles developed by the various multilateral bodies are not sufficient
to cultivate harmonisation of corporate insolvency laws amongst APEC member
economies. Learning from the EU's experience, this paper then recommends that
Malaysia and Indonesia are truly the co-drivers of harmonisation, especially to realise
APEC’s open-regionalism vision.
III
LIST OF ABBREVIATIONS
ADB Asian Development Bank

APEC Asia Pacific Economic Cooperation
CLRC Corporate Law Reform Committee
Commission European Union Commission
CPTPP Comprehensive and the Progressive Agreement for
Trans-Pacific Partnership
CVA Corporate Voluntary Arrangements
EU European Union
FAIR Forum on Asian Insolvency Reform
IMF International Monetary Fund
JM Judicial Management
MSMEs Micro, Small and Medium Enterprises
NEP New Economic Policy
OECD Organisation for Economic Co-operation and
Development
PKPU Penundaan Kewajiban Pembayaran Utang or suspension
of debt payment obligations
RPEC Regional Comprehensive Economic Partnership
UNCITRAL United Nations Commission on International Trade Law
IV
CHAPTER ONE
1.0 INTRODUCTION
“States can be expected to bind themselves to the same rules only in an area of
shared interest - their international trade transactions”1.
Harmonisation of national laws is generally acknowledged as fundamental for
facilitating international trade and commercial transactions2. In 2020, it was reported
that the Asia-Pacific Economic Cooperation (APEC) region contributed about 62% of
the world nominal gross domestic product3. Against the backdrop of strengthening
trade relations among Asia Pacific countries, one of the main visions of APEC is to
achieve open-regionalism amongst its member economies4. In accordance with this
vision, APEC leaders’ meeting convened in 2011 had led to the member economies’
mutual agreement on ensuring stronger cooperation in policy-making approaches to
minimise trade barriers5. The regional economic integration between the Asian Pacific
countries is further concretized by the free-trade agreements introduced to the bloc
which are the Regional Comprehensive Economic Partnership (RPEC) and the
Comprehensive and the Progressive Agreement for Trans-Pacific Partnership
1 John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (3rd ed,
1999)
2 Michael Joachim Bonell, ‘Do We Need a Global Commercial Code?’ (2000) 5 Uniform Law Review 3, 469-481
3 APEC Policy Support Unit, ‘APEC in Charts 2021’ (2021) <https://www.apec.org/docs/default-
source/publications/2021/11/apec-in-charts-2021/221_psu_apec-in-charts-
2021.pdf?sfvrsn=50537c36_2#:~:text=The%20APEC%20region%20generated%20a,of%20the%20global%20no
minal%20GDP> accessed 22 February 2022
4 APEC, ‘APEC Putrajaya Vision 2040 <https://www.apec.org/Meeting-Papers/Leaders-
Declarations/2020/2020_aelm/Annex-A> accessed 22 February 2022

5 APEC, ‘APEC 2011 Leaders' Declaration’ (11-12 November 2011) <https://www.apec.org/meeting-
papers/leaders-declarations/2011/2011_aelm> accessed 22 February 2022
1
(CPTPP)6. Nevertheless, this paper’s sole focus will be on APEC's vision to encourage
cooperation among its member countries, particularly in the area of corporate
insolvency law. For the purpose of this paper, the terms corporate insolvency and
insolvency will be used interchangeably.
1.1 Background of the Study
The contextual background of this study would be based upon the notion of
harmonisation of insolvency laws and its implications towards APEC member
economies. As such, this paper seeks to identify whether there is a harmonisation of
insolvency laws in two APEC member economies namely Malaysia and Indonesia.
1.2 Outline of Chapters
To achieve the objective of the study, the chapters in this paper will be structured in
the following outline:
Chapter One: Introduction
This chapter provides an introduction and a general discussion on the background of
the study. Following the outline of the chapters of this paper, this chapter will provide
general discussion on the theory of harmonisation and the positive impacts of
harmonisation.
6Countries who have ratified RPEC are Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea,
Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Thailand and Vietnam meanwhile countries
who have ratified CPTPP are Mexico, Japan, Singapore, New Zealand, Canada, Australia, Vietnam and Peru.
2
Chapter Two: Comparative Analysis of the Insolvency Laws of Malaysia and
Indonesia
Chapter Two provides a comparative analysis of the insolvency legal frameworks in
Malaysia and Indonesia, drawing from key similarities and differences that can be
found within their insolvency regimes.
Chapter Three: The Reasons of Divergence of Insolvency Laws of Malaysia and
Indonesia
This chapter will examine the plausible factors which cause the diversion between the
Malaysian and Indonesian insolvency laws.
Chapter Four: The Efforts to Harmonise Insolvency Laws at Regional and
National Levels
This chapter will critically analyse the efforts that had been implemented by the various
multilateral bodies as well as the initiatives adopted by the EU in harmonising
insolvency laws. The possible ways that Malaysia and Indonesia can carry out in
harmonising their insolvency laws will also be explored.
Chapter Five: Conclusion
Chapter Five will provide the summary of the key points of each and every chapter.
3
1.3 Harmonisation
1.3.1 Harmonisation of Commercial Laws
Harmonisation can be described as a process which entails conformity of different
bodies of rules and principles7 and replacement of existing national laws with common
rules to certain degrees8. Harmonisation can also be understood as a process of
deriving a comparative analysis of laws to identify common features which can provide
the foundation of a set of rules acceptable to a number of states 9. Roy Goode (1990)
wrote that the functions of harmonisation can be classified into two; the first is to
formulate a particular regime for international trades whilst maintaining the identity of
domestic laws for local transactions. The second is to encourage a singular market or
a political or economic grouping by harmonising domestic laws governing domestic
trades to minimise state boundaries within the geographical area10. The latter is
undoubtedly in alignment with the aspirations of APEC which are to minimise trade
barriers and also to foster the growth of economic relation between states11.
7 Eliezer Sanchez Lasaballet, ‘Conceptualizing harmonization: the case for contract law’ (2019) 24 Unif. L. Rev. 1
73
8 Marcel Fontaine, ‘Law harmonization and local specificities – a case study: OHADA and the law of contracts’
(2013) 18 Unif. L. Rev. , 50 - 64

9 John Goldring, '"Unification and Harmonisation" of the Rules of Law' (1978) 9 Fed L Rev 284
10 Roy Goode, ‘Reflections on the Harmonisation of Commercial Law’, (1991) 19 Uniform Law Review 1, 54–74
11 APEC (n 5)
4
1.3.2 The Positive Impacts of Harmonisation
It was hypothesised that unharmonised legal frameworks might lead to growing costs
of negotiation and information between businesses and consumers, rendering cross-
border transactions difficult12. Hence, harmonisation is necessary to remove the legal
barriers for businesses and consumers to benefit from a single market13. In the
international trade arena, harmonisation of commercial laws has been identified to
reduce transaction costs as it would allow foreign practitioners to have easier access
to foreign legal systems14. This is essentially true for APEC economies where it was
found in a study that a joint initiative on full implementation of the Principles for
Domestic Regulation of the Services across the APEC region would potentially lower
trade costs amongst APEC economies, particularly in sectors which are highly
regulated where registration, recognition and qualification requirements are
significant15. Furthermore, harmonisation is believed to enhance a country’s
attractiveness as a trading partner16 aside from attracting foreign investors and
international financiers17.
12 Jan Smits, ‘Diversity of contract law and the European internal market’ in Jan Smits (ed), The Need for a
European Contract Law: Empirical and Legal Perspectives (Europa Law Publishing, 2005)
13 ibid 36
14 Jan Smits, ‘Economic Arguments in the Harmonization Debate: The Practical Importance of Harmonization of
Commercial Contract Law’ in UNCITRAL (ed), Modern Law for Global Commerce: Proceedings of the Congress
of the United Nations Commission on International Trade Law Held on the Occasion of the Fortieth Session of
the Commission (United Nations 2007) 46
15 Felipe Sandova, ‘Study on APEC’s Non-Binding Principles For Domestic Regulation Of The Services Sector - A
Focus On Domestic Regulations In Trade Agreements’ (January 2020) <

https://www.apec.org/Publications/2020/01/Study-on-APECs-Non-binding-Principles-for-DomesticRegulation-
of-the-Services-Sector > accessed 22 April 2022
16 Gerhard Wagner, ‘Transaction Costs, Choice of Law and Uniform Contract Law’ in UNCITRAL (ed), Modern
Law for Global Commerce: Proceedings of the Congress of the United Nations Commission on International
Trade Law Held on the Occasion of the Fortieth Session of the Commission (United Nations 2007) 39
17 Georges Affaki, ‘Legal mechanisms to empower informal businesses: banking-related aspects of the
UNCITRAL Legislative Guide on Secured Transactions’ in UNCITRAL (ed), Modern Law for Global Commerce:
Proceedings of the Congress of the United Nations Commission on International Trade Law Held on the
Occasion of the Fortieth Session of the Commission (United Nations 2007) 124
5
Also, it was found that legal uncertainties deriving from the diversity of legal systems
can be considered as a form of trade barrier18. Legal uncertainties occur when parties
are unsure of the implications of the provisions of the applicable legal system on their
decisions. It was reported that the relative attractiveness of the United States and
China in the cross-border activities had declined in 2019 due to the uncertainties within
their trade regulations19. Therefore, this paper concurs with the notion that gradual
harmonisation process could resolve the issues stemming from legal uncertainties20
especially for parties who engage in international commercial transactions. In addition,
Dahan and Simpson found that most countries that have carried out major reform of
their national laws to harmonise their laws of secured transactions indeed have
efficient enforcement regimes in place which ultimately led to a considerable level of
confidence among secured creditors21.
1.3.3 Harmonisation of Corporate Insolvency Laws
It is commonly understood that the key components of insolvency law are the principle
of collectivity, the notion of fair treatment towards the creditors 22, the principle of
common pool, the protection of pre-insolvency rights as well as the theory of flexibility
18 Helmut Wagner, “Economic analysis of cross-border legal uncertainty: the example of the European Union”
in Jan Smits (ed), The Need for a European Contract Law: Empirical and Legal Perspectives (Europa Law
Publishing 2005)
19 PwC, ‘Despite rising trade barriers business leaders plan to increase investment in Asia Pacific’ (pwc.com, 21
November 2019) < https://www.pwc.com/gx/en/news-room/press-releases/2019/apec-survey-2019.html >

accessed 25 April 2022
20 Wagner (n 18) 3
21 Frederique Dahan and John Simpson, ‘Secured Transactions in Central and Eastern Europe: European
Bank for Reconstruction and Development (EBRD) Assessment’ (2004) 36 Uniform Commercial Code Law
Journal 3, 77-102, 100
22 Paul J. Omar, ‘The Landscape of International Insolvency Law’ (2002) 11 Int. Insolv. Rev, 173-200, 181
6
of insolvency legislation23. Nevertheless, it is entirely up to every and each jurisdiction
to formulate the particular rules, theories, procedural regimes, and visions of
insolvency law governing their own domestic insolvency system. Although it has been
recognised that complete harmonisation of national insolvency laws may not be
realistic, INSOL Europe has argued that partial harmonisation is justifiable24. Based
on the report issued by INSOL Europe, it was highlighted that harmonisation of
insolvency laws is necessary to curb the problem of ‘insolvency tourism’ where a
particular jurisdiction is chosen over another jurisdiction because it might be likely
beneficial for one stakeholder as opposed to another stakeholder which in turn could
be detrimental to the creditors or other stakeholders25.
In contrast, Horst Eidenmüller argued that harmonising national insolvency laws will
always be an exceedingly difficult enterprise, given the diverseness of bankruptcy
philosophies of the states and the benefit of diversity of insolvency systems worldwide
is it provides as an “international laboratory” for better solutions, advocating regulatory
competition between countries for the most efficient insolvency regime26. However, it
is worth to point out that this hypothesis was drawn up based on the insolvency laws
of the United States, England, France, and Germany but not Asian countries
specifically. Then again, unharmonised insolvency laws might encourage creditors to
practice forum shopping by urging their debtors, who may be newly incorporated
companies, to incorporate in states that give unfettered priority rights to their claims,
23 Bob Wessels, ‘Harmonization of Insolvency Law in Europe’ (2011) 8 (1) European Company Law , 27-31, 28
24 ibid 29
25 ibid 30
26 Horst Eidenmüller, ‘Comparative Corporate Insolvency Law’ in Jeffrey N. Gordon and Wolf-Georg Ringe
(eds), The Oxford Handbook of Corporate Law and Governance (Oxford University Press 2018), 29
7
which risks negative externalities and unjust distribution27. In light of the arguments, it
is the contention of this paper that harmonisation of corporate insolvency laws is
essential to minimise trade barriers within the APEC region by lowering transactions
costs amongst businesses and consumers as well as to provide legal certainty.
Moreover, the recent economic trends in Asia make the need for harmonisation
increasingly pressing28.
27 Federico M. Mucciarelli, Not Just Efficiency: Insolvency Law in the EU and Its Political Dimension (2013) 14
European Business Organization Law Review, 175-200
28 Adeline Chong, ‘Moving towards harmonisation in the recognition and enforcement of foreign judgment
rules in Asia’ (2020) 16 Journal of Private International Law 1, 31-68
8
CHAPTER TWO
2.0 COMPARATIVE ANALYSIS OF THE INSOLVENCY LAWS OF MALAYSIA AND
INDONESIA
2.1 Resolving Insolvency as Indicator for Ease of Doing Business Index-
Malaysia vs Indonesia
The World Bank’s Resolving Insolvency Analysis
Malaysia vs Indonesia - 2019
Country Time to resolve Strength of Recovery rate
(years) insolvency (cents on the
framework (DTF) dollar)
Malaysia 1.0 46.88 87.20
Indonesia 1.1 65.63 70.10
Figure 1: The World Bank’s Resolving Insolvency Analysis - Malaysia vs Indonesia
(2019)29
The above figure shows the World’s Bank data based on the Resolving Insolvency
Indicator of the Doing Business Report. The analysis was prepared based on the time,
cost and outcome of insolvency proceedings involving domestic corporations as well
29The World Bank ‘Resolving Insolvency Indicators’ (data.worldbank.org, 2022) <

https://data.worldbank.org/indicator/IC.ISV.DURS?locations=MY-ID>,
<https://tcdata360.worldbank.org/indicators/h6a1f8648?country=MYS&indicator=40811&countries=IDN&viz=
bar_chart&years=2019> and
<https://tcdata360.worldbank.org/indicators/heffd2183?country=MYS&indicator=40810&countries=IDN&viz=l
ine_chart&years=2003,2019> accessed 4 June 2022
9
as the strength of the legal framework applicable to liquidation and restructuring
proceedings30 in these countries. In 2019, it was found that the time to resolve
insolvency proceedings in Malaysia is slightly shorter than Indonesia by 0.1 year. Also,
in the same year, Indonesia held a higher distance to frontier score which was 65.63
as compared to Malaysia who scored 46.88 for strength of insolvency framework.
However, the recovery rate which covered the lending rate and the function of the
time, cost and outcome of an insolvency proceeding31 in Malaysia was higher than
Indonesia by 17.10 cents on the dollar. Based on the data above, it is evident that the
natures of corporate insolvency systems in Malaysia and Indonesia are different from
one another. The following section will provide a further analysis on the insolvency
regulatory landscapes in both jurisdictions.
2.2 Overview of Malaysian Insolvency Law
Before the introduction of the Malaysian Companies Act 2016, Malaysian insolvency
law was deemed to be more creditor friendly as insolvency was often used by creditors
as a technique for debt recovery32. It was initially believed that the threat of insolvency
can be used as an effective method for creditors in the recovery of debts 33. As such,
the previous legislation governing insolvency law, the Companies Act 1965 was
formulated with paramount consideration given to debt collection and protection of the
30 World Bank Group ‘Resolving Insolvency Indicator - What it measures, Why it matters, What are the results,
and good practices?’ (olc.worldbank.org, 2019) < https://olc.worldbank.org/content/resolving-insolvency-
indicator-what-it-measures-why-it-matters-what-are-results-and-good-0 > accessed 4 June 2022
31 World Bank Group, ‘A World Bank Group Flagship Report Doing Business 2019 – Training for Reform
Resolving Insolvency’ (March 2019) <

https://olc.worldbank.org/system/files/DB19%20RI%20Presentation_Webinar.pdf > accessed 4 June 2022
32 Roman Tomasic and others ‘Insolvency Law Administration and Culture in Six Asian Legal Systems’ (1996) 6
Australian Journal of Corporate Law, 248-288

33 ibid 260
10
creditors34. It is worth to note that the Malaysian Companies Act 1965 was drafted
based on the Australian Uniform Companies Act 1961 and the British Companies Act
1948. Following the global economic crisis in the late 1990s, significant changes have
been entrenched in the Companies Act 2016 in the hope of minimising the harshness
of the insolvency law for debtor companies35.
Upon the recommendations for reform and restatement of the liquidation scheme by
the Corporate Law Reform Committee (the CLRC), few significant changes were
incorporated in the Companies Act 201636. The liquidation culture was strengthened
under the Companies Act 1965 when winding up was considered as the only viable
option for insolvent companies37. Hence, it was hopeful that there would be a
considerable transition of liquidation culture to corporate rescue culture with the
introduction of corporate rescue mechanisms in the Companies Act 2016. The CLRC
suggested that a corporate rescue framework is; (i) able to ensure the protection of
the economic value of the company; (ii) to minimise the losses for creditors including
the employees and; (iii) as such, in the event of insolvency, the creditors will be able
to receive increased returns38. In this regard, the focus of the Malaysian policymakers
34 Reuter ’Malaysia: Bankruptcy Laws May Be Toughened Up’ Business Times (Singapore, 4 April 1990) 10
35 Thim Wai Chen,Ruzita Azmi and Rohana Abdul Rahman, ‘Paradigm shift from a liquidation culture to a
corporate rescue culture in Malaysia: A legal review’ (2020) 29 International Insolvency Review, 181–203
36 Corporate Law Reform Committee, Companies Commission Malaysia ‘A Consultative Document on
Reviewing the Corporate Insolvency Regime on Company Liquidation - Reforms and Restatement of the Law
No. 4’ (2006) <https://www.ssm.com.my/Pages/Publication/CLRC/Consultation_Documents/cd4%20.pdf>
accessed 23 May 2022
37 Azrol Abdullah, Gan Chee Keong and Joshua Tee Yee Khuan, ‘Recent Developments of Corporate Insolvency
Law in Malaysia’ (2016) 5(12) International Journal of Humanities and Social Science Invention 33
38Corporate Law Reform Committee, Companies Commission Malaysia ‘A Consultative Document on Reviewing
the Corporate Insolvency Regime—(1) The Proposal For A Corporate Rehabilitation Framework; Proposal For A
Corporate Rehabilitation Framework; (2) Reviewing The Company Receivership Process; And (2) Reviewing The
Company Receivership Process; and (3) Company Charges And Registration Process- Improvements To The
Present Registration System No. 10’ (2007)
<https://www.ssm.com.my/Pages/Publication/CLRC/Consultation_Documents/Corporate-Insolvency,-
Rehabilitation-and-Charges.aspx> accessed 23 May 2022
11
had then shifted from the idea of disposing failing companies to the concept of
recoverability and rehabilitation of such companies.
2.3 Overview of Indonesian Insolvency Law
Indonesian insolvency law does not explicitly distinguish between personal and
corporate insolvency. The current legislation governing insolvency procedures in
Indonesia is the Law Number 37 of 2004 on Bankruptcy and Suspension of Payment
(“the Indonesian Bankruptcy Law”). The previous legislation governing insolvency
proceedings in Indonesia was Law No. 4/1998 (Perpu No. 1/1998 and affirmed by the
Indonesian parliament as Law No. 4/1998), which was enacted following the “push”
from the International Monetary Fund (IMF) during the global financial crisis in late
1990s39. The enactment of Law No. 4/1998 was one of the conditions imposed by the
IMF to bail out Indonesia from the financial crisis40. Following this, a judicial body
vested with exclusive jurisdiction on insolvency proceedings, Commercial Court or
known as Pengadilan Perniagaan was established41. Be that as it may, it is thought
that the role of the court in overseeing and managing insolvency proceedings was
minimised under the provisions of the Law No. 4/1998 as the Indonesian government
wanted to promote out-of-court negotiations for debt settlements between creditors
and debtors42.
39 Timothy Lindsey, ‘The IMF and Insolvency Law Reform in Indonesia’ (1998) 34 Bulletin of Indonesian
Economic Studies 3, 119-124
40 ibid 119
41 ibid
42 David K. Linnan, ‘Insolvency Law and Institutions in Indonesia’, in Roman Tomasic (ed), Insolvency Law in
East Asia (Taylor & Francis Group 2006), 355-373
12
The Indonesian Bankrutpcy Law 2004 had retained the Dutch insolvency law
principles: liquidation and suspension of payment procedures43. Nonetheless, the
following amendments were made; (i) clearer definitions of the legal terms and
principles such as the terms “creditor”, “debtor” and “debt” to avoid confusion due to
the different interpretations by the judges; (ii) clarifications on the threshold
requirement for initiating a bankruptcy petition; 44 and (iii) provisions on the rights and
voting requirements for the creditors under the suspension of payment of debt
procedures45. In Indonesia, the terms “bankruptcy” and “insolvency” entail completely
two different meanings in which the former means a declaration pursuant to Article 2
that a debtor with two or more creditors has not fully paid a debt which is due and
payable46 while the latter means the status of the debtor which has failed to pay and
has insufficient assets to pay all of his creditors47.
2.4 Comparative Analysis of Malaysian and Indonesian Insolvency Laws
2.4.1 Winding Up and Bankruptcy
The ground for corporate insolvency in Malaysia is satisfied if a company is unable to
pay its debts after the lapse of 21 days of the notice of statutory demand issued by the
creditor to the debtor48. Mirroring section 513A of the Australian Corporations Act 2001
and section 241 of the New Zealand Companies Act 1993, section 467 (2) of the
43 ibid 355
44 Ibid 359
45 Subianta Mandala, ‘Indonesian Bankruptcy Law: An Update’ (April 2006) <
https://www.oecd.org/indonesia/38184160.pdf> accessed 6 June 2022

46 Law Number 37 of 2004 on Bankruptcy and Suspension of Payment, Article 1
47 Law Number 37 of 2004 on Bankruptcy and Suspension of Payment, Article 178 (1)
48 Companies Act 1965, s 218 (1) (e) and Companies Act 2016, s 465
13
Malaysian Companies Act 2016 provides that the commencement of winding up in a
compulsory winding up is when the order is made. Meanwhile, for voluntary winding
up, it can either be a voluntary creditors’ or a members’ winding up. In the former, an
extraordinary general meeting must be first convened between the shareholders of the
company and a creditors’ meeting thereafter to formalize the liquidation process49 and
in the latter, the shareholders can voluntary wind up their company if their company is
solvent where the director of the company must make a declaration of solvency and
the date of the winding up commences on the date of the passing of the members’
resolution initiating the voluntary winding up of the company50.
In contrast, in Indonesia, bankruptcy revolves around the liquidation and
reorganisation processes. These two processes, which are both geared toward the
continuance of a company's business, are in reality interdependent, as reorganisation
might be recommended during bankruptcy proceedings and liquidation can be the
result of a reorganisation process. In regard to corporate bankruptcy, Article 1 (3) of
the Indonesian Bankruptcy Law 2004 defines debtor as an entity with due and payable
debts under an agreement or by law. The petition for declaration of bankruptcy after a
debtor company has failed to pay one of its debts in full can be filed by the debtor itself
in voluntary bankruptcy or any of its creditors51. If the debt involves a public interest,
such petition may be filed a public prosecutor52. Meanwhile, if the debtor is a bank or
an insurance company, a reinsurance company, a pension fund and a state-owned
company in the form of a persero, the petition may be filed by the Central Bank53 of
49 Companies Act 2016, s 449

14
Indonesia or the Ministry of Finance of Republic of Indonesia54 respectively. The
petition for bankruptcy may also be filed by the Financial Services Authority if the
debtor is a securities company, a stock exchange, a clearing and guarantee agency,
or a depositary and settlement agency55. For voluntary liquidation of a company, it is
compulsory for such company to undergo voluntary dissolution first 56. The liquidation
process of the company is governed by Law 40 of 2007 on Limited Liability Company.
2.4.2 Ranking of Creditors
Malaysian insolvency law upholds the principle of pari passu for post-insolvency
distribution where the unsecured creditors shall be paid pro-rata to the extent of their
pre-insolvency claims from those assets of the insolvent company that are available
for residual distribution57. The following claims are accorded statutory priority over
unsecured debts58; costs and expenses of winding up; employee wages and
commissions; employee compensation; employee remuneration for vacation leave;
amounts due in respect of contributions to the employees’ social security;
superannuation or provident fund during the 12 months before the commencement of
winding up; and federal taxes.
Indonesian insolvency law on the other hand classifies creditors into 3 types; preferred
creditors, secured creditors and concurrent creditors59. Ultimate priority is accorded to

56 Law Number 40 of 2007 on Limited Liability Company, Article 143
57 Vanessa Finch, Corporate Insolvency Law Perspectives and Principles (Cambridge University Press 2009)
59 Erni Herawati, ‘Kreditur Preferen Dalam Kepailitan Usaha Perasuransian’ (https://business-law.binus.ac.id/,
December 2018) < https://business-law.binus.ac.id/2018/12/19/kreditur-preferen-dalam-kepailitan-usaha-

perasuransian/ > accessed 27 June 2022
15
employee wages over other creditors in the rankings of claim under a debtor’s
bankruptcy60. The ranking of claim of creditors is as follows: (i) employee wages; (ii)
tax payments; (iii) costs of the bankruptcy proceedings; (iv) secured creditors with
security interests on the assets of the debtor company; (v) other employees’ rights;
(vi) unsecured creditors; and (vii) shareholders61.
2.4.3 Liability of corporate officers and directors
Generally, there is no provision which confers any liability to corporate officers and
directors for their corporation’s obligations in Malaysia. Anyhow, section 539 (3) of the
Companies Act 2016 provides that directors may commit an offence of wrongful
trading, causing loss to the company without any reasonable or probable grounds of
expectation that the company is being able to pay the debts. Also, directors may also
be personally liable for fraudulent trading if it can be proved that they were knowingly
parties to the business that has been carried out with any intent to defraud the
creditors62.
In Indonesia, instead of a criminal sanction for wrongful trading, the receiver of a
bankrupt debtor may file an application at the Commercial Court under Article 26 (1)
of the Indonesian Bankruptcy Law 2004 for a declaration that the directors of the
company shall be held personally liable or jointly liable for the settlement of the
bankruptcy estate, for the losses of the company as the direct consequence of their
60 Decision No. 67/PUU-XI/2013 Constitutional Court of Indonesia

61 Prawidha Murti, Rizki Imral Rakhim, Reynard Esada Bestio and Andi Muhamad Adhyaksa Anzharputra,
‘Practice Note: Restructuring and insolvency- Indonesia’ (April 2022) <LexisNexis> accessed 27 June 2022
62 Companies Act 2016, s 540 (1)
16
fault or negligence. Also, under Article 1341 of the Indonesian Civil Code, the creditors
are permitted to apply for an annulment of any corporate action committed by the
directors that would result in detriment to the creditors.
2.4.4 Corporate Rescue Mechanisms
In Malaysia, two new corporate rescue processes namely Judicial Management (JM)
and Corporate Voluntary Arrangements (CVA) can be found under the Companies Act
2016. The key similarities of these two mechanisms can be summarised as follows; (i)
both procedures afford an automatic moratorium to the debtor company63; and (ii) both
procedures require a 75% creditor approval requirement to bind the restructuring
proposal on the creditors64. However, JM and CVA are not available to a public
company, any company which is a licensed institution or an operator of a designated
payment system regulated under the law enforced by the Bank Negara Malaysia and
a company which is subject to the Capital Markets and Services Act 2007. Aside from
these two corporate rescue processes, Malaysia also recognises scheme of
arrangement which is a court-approved restructuring scheme, approved by all classes
of creditors where the board of directors are still in control of the ongoing business of
the company65.
Meanwhile, in Indonesia, the debtor company or the creditors may make an application
for a voluntary or involuntary suspension of debt repayment or reorganisation
(“PKPU”) respectively at the Commercial Court. Article 222 of the Indonesian
63 Companies Act 2016, ss 398 and 411

17
Bankruptcy Law provides that PKPU application can be filed if the debtor company
has two or more creditors and the company is unable or foreseen to be unable to
continue servicing its due and payable debts. If the petition is allowed, a temporary
suspension of debt repayments for a period of 45 days will be granted to the debtor
company66. A permanent suspension of repayment of debts is subject to the creditors'
approval by vote of the granting of the permanent PKPU for another maximum period
of 225 days67. Throughout the reorganisation period; (i) the debtor company is no
longer be required to settle its debts and any execution process initiated by the
creditors must be suspended68; and (ii) any corporate action involving the company’s
assets must be approved by the PKPU administrator69.
2.4.5 The function of the court in insolvency matters
The jurisdiction to hear insolvency matters70 and applications in relation to corporate
rescue mechanisms71 is granted to the High Court of Malaya for matters filed in
peninsula Malaysia and the High Court of Sabah & Sarawak for those filed in East
Malaysia. Any dissatisfied party to a decision by the High Court may file an appeal to
the Court of Appeal within 30 days of the pronouncement of the judgment72.
71 The High Court is vested with the power to grant order on any appeal by a creditor under a corporate
voluntary arrangement under section 401(4), on the appointment of judicial manager in a judicial management
under section 404 and to convene a creditors’ meeting in a scheme of arrangement under section 366 of the
Companies Act 2016
72 Rules of the Court of Appeal 1994, Rule 12
18
Conversely, the Commercial Court in Indonesia is vested with the power to declare
the bankruptcy or the suspension of payment of a debtor in the event it has jurisdiction
over the legal domicile of the debtor73. If there is no legal domicile established over
the debtor, the domicile or a presence of any office of the debtor in Indonesia will also
suffice.
2.4.6 Cross-border insolvency and foreign insolvency proceedings
Both Malaysia and Indonesia currently do not have any legislation governing cross-
border insolvency. Anyhow, for foreign companies which are registered and have a
place of business in Malaysia, a foreign liquidator who have been appointed in the
foreign company’s place of incorporation is or origin may be recognised and such
foreign liquidator shall have the powers and functions to manage the assets of the
company until a liquidator for Malaysia is appointed by the High Court74. Meanwhile in
Indonesia, foreign proceedings and foreign court rulings are not binding and cannot
be directly enforced in Indonesia75 due to their territoriality principle76.
2.5 Key Findings
Given these points, it is clear that the insolvency systems in Malaysia and Indonesia
differ in a number of ways, being two different jurisdictions with different legal
heritages. There is no harmonisation between corporate insolvency regimes in

74 Companies Act 2016, s 578 (3) (b)
75 Reglement Op De Burgelijke Rechtsvordering (The Indonesian Civil Procedural Law), Article 436
76 Ilham Djaya, Venty Indah Utami, ‘Legal Issue in the Matter of Cross-Border Insolvency in Indonesia Based on
Law No. 37 Of 2004 on the Insolvency and Postponement of Debt Payment Obligation’ (International
Conference on Law, Social Science, Economics, and Education, Indonesia, 6 March 2021) <
https://eudl.eu/pdf/10.4108/eai.6-3-2021.2306397 > accessed 27 June 2022
19
Malaysia and Indonesia, especially in these areas; (i) Malaysia has an insolvency
system which distinguishes between personal bankruptcy and corporate insolvency
but this is not the position in Indonesia; (ii) it is possible to convert a restructuring
process to liquidation in Indonesia but Malaysia does not provide for such provision;
(iii) due to their territorial principle, Indonesia does not allow any insolvency
administration from a foreign jurisdiction to have effect in their jurisdiction. Meanwhile
in Malaysia, a foreign liquidator which has been appointed for the liquidation of a
foreign company registered in their jurisdiction may be recognised before the
appointment of a liquidator in Malaysia. However, it is important to note that both
Indonesian and Malaysian insolvency laws denote the principle of protection of
creditors. The Indonesian bankruptcy law recognises actio pauliana, which provides
that a creditor in a bankruptcy procedure may request the cancellation of the debtor's
legal actions regarding its assets before the bankruptcy decision is made77.
20
CHAPTER THREE
3.0 THE REASONS OF DIVERGENCE OF INSOLVENCY LAWS OF MALAYSIA
AND INDONESIA
3.1 Legal Systems in Malaysia and Indonesia
Both Malaysia and Indonesia relied heavily on the colonial influences brought upon by
the British and Dutch in their respective legal systems7879. Due to the significant legal
transplant effect, it was argued that the Malaysian company law possesses “common
law” characteristics80. Accordingly, it was believed that the development of Malaysian
insolvency law had gradually incorporated the same elements that were adopted in
the UK namely; (i) paramount consideration is given to maximisation of the creditors’
profit on debt recovery; (ii) the interest provided by debtors for their discharge; (iii) the
public interest in ensuring insolvency investigations and the punishment of fraudulent
and irresponsible debtors; and (iv) the creation of a corporate rescue culture81.
Similarly, Indonesia has a legal system which is still strongly impacted by the Dutch
civil law. It was propounded that the law in Indonesia is the law that binds the country,
think globally and functions locally82. However, it was argued that the historical
78 Sheila Ramalingam, Johan Shamsuddin bin Hj Sabaruddin and Saroja a/p Dhanapal, ‘The History Of The
Judicial And Legal System In Malaysia’ (2018) 1 LNS(A) xliii
79 Linnan (n 42) 355
80 Petra Mahy and Ian Ramsay, ‘Legal Transplants and Adaptation in a Colonial Setting: Company Law in British
Malaya’ (2014) Singapore Journal of Legal Studies, 123–150

81 Ruzita Azmi, ‘A Comparative Study of Corporate Rescue in the UK and Malaysia’ (Dphil thesis, University of
Aberdeen 2008)
82 Hartoko Evaristus W, ‘Good Corporate Governance in Indonesia’ (2002) 3 Griffin's View on International and
Comparative Law, 103
21
development of company law in Indonesia relates to trends of stagnation83. With the
widespread of informal modes of regulation, unlike commonwealth country like
Malaysia which followed the UK reforms, Indonesia did not follow the legislation
changes made in the Netherlands84. Further, it took a far longer time for Indonesia’s
company law to become more responsive to political and economic growth 85. Unlike
the common law concept of precedents, the Indonesian insolvency law does not confer
crucial importance to the judiciary in insolvency matters86.
Both Malaysia and Indonesia are situated in a strategic location, sitting in the triangle
between the Indian and Pacific Oceans as well as the Asian and Australian
continents8788. Despite the geographical similarity, the development of geopolitical and
legal regimes in Malaysia and Indonesia are arguably distinctive. One of the reasons
could be is because of the unequal tempo of democratisation trends in both
countries89. Anyhow, the following sections could perhaps offer some critical
discussions on the other reasons for such dissimilarity including the distinctive
insolvency regimes in both jurisdictions.
83 Perta Mahy ‘The Evolution of Company Law in Indonesia’ (2013) 61 The American Journal of Comparative
Law 2, 377-432
84 ibid
85 ibid
86 Linnan (n 42)
87 Syahira Hamidon and Louisa Huxtable-Thomas, ‘An Overview of Entrepreneurship in Malaysia’ in Paul Jones
and others (eds), Entrepreneurial Activity in Malaysia A Country Level Perspective (Palgrave Macmillan 2021)
88 Evan A. Laksmana, ‘The enduring strategic trinity: explaining Indonesia's geopolitical architecture’ (2011) 7
Journal of the Indian Ocean Region 1, 95-116

89 Khadijah Md. Khalid and Shakila Yacob ‘Managing Malaysia–Indonesia relations in the context of
democratization: the emergence of non-state actors’ (2012) 12 International Relations of the Asia-Pacific 3, 355-
387
22
3.2 Economic Policy in Malaysia and Indonesia
3.2.1 The Developmental State in Malaysia
In Malaysia, the state plays a significant role in the corporate insolvency process due
to their economic policy. In 1971, a new policy replacing the laissez-faire market-led
system was introduced to allow the state’s intervention to exercise its disciplinary
capacity in its economic affairs90. The Malaysian New Economic Policy (“NEP”) was
believed to improve national economic competitiveness by creating a ‘capitalist guided
market economy’91. At the outset, some of the roles of the state in a developmental
state economy can be understood as; (i) to work closely with the private sector; (ii) to
play direct active role in economic and business activities; and (iii) to encourage
private sector to correct economic imbalances92. It is believed that the goal to
implement a developmental state has led to personal capitalism in Malaysia93. Recent
research suggests that companies whose shareholding structure comprises of
government-related investors and shareholders with the objective to concretise the
government economic policy generate more shareholder wealth94.
90 Darryl S. L. Jarvis, ‘The State and Development in Malaysia- Race, Class and Markets’ in Toby Carroll and Darryl
S.L. Jarvis (eds), Asia After the Developmental State (Cambridge University Press 2017)
91 ibid
92 Kriengsak Chareonwongsak, “The Developmental State Experience in Malaysia: Lessons for Libya?” (2021)
Technical Report, RSC, Middle East Directions (MED) 2021/10 < https://cadmus.eui.eu/handle/1814/71861 >
accessed 14 December 2021
93 Michael Carney and Edo Andriesse, ‘Malaysia: Personal Capitalism’ in Michael A. Witt, Gordon Redding (eds),
The Oxford Handbook of Asian Business Systems (Oxford University Press 2018)
94 Philip Sinnadurai, Ravichandran Subramaniam, Susela Devi and Kyungyoung Ko, ‘Government Subsidisation
and Shareholder Wealth Impact: Evidence from Malaysia’ (2021) 14 J. Risk Financial Manag. 9, 396
23
3.2.2 The Implications of the Developmental State Economy to Malaysian
Insolvency Law
The government's central position in Malaysia's economy affects the policy-making
strategies, particularly the development of insolvency regime. As addressed in the
2011 Malaysian budget speech, insolvency law reform was necessary to help the
failing companies to be able to carry on their businesses and apply for loans 95.
Theoretically, with the existence of government-linked companies and government-
related investors in majority of economic sectors in Malaysia, it does make sense for
Malaysia to provide for an insolvency regime that offers creditor-wealth maximisation,
as demonstrated by the philosophical foundation of the corporate rescue mechanisms
under the Companies Act 201696. Moreover, it was argued that the government
intervention in the insolvency process is essential in Malaysia to maintain industrial
stability97. In this regard, it was suggested that the Malaysian government needs to
focus on applying different methods to the causes of corporate failures and that the
Director General of Insolvency shall make appropriate suggestions for corporate
restructuring and rescue mechanisms98.
95 YAB Dato Sri Mohd Najib Tun Abdul Razak, Prime Minister and Minister of Finance, ‘The 2011 Budget
Speech’ (Introducing the Supply Bill (2011) in the Dewan Rakyat 15 October 2010) <
https://www.mof.gov.my/portal/arkib/budget/2011/bs11.pdf > accessed 21 July 2022
96 Thim Wai Chen, Ruzita Azmi and Rohana Abdul Rahman, ‘Theories of Corporate Insolvency: A Philosophical
Analysis Of The Corporate Rescue Mechanisms Under The Companies Act 2016’ (2021) UUM Journal of Legal
Studies, 12(2), 167-202
97 Roman Tomasic and Kamarul Bahrin, ‘The Rule of Law and Insolvency’ (1998) 7 Canterbury Law Review 140
98 Gita Radhakrishnal, ‘Rethinking Insolvency Laws in the Malaysian Context’ (2012) Journal of Southeast Asian
Research, 1-15
24
3.2.3 The Economic Policy in Indonesia
Indonesia's economic policy on the other hand does not allow government interference
in insolvency process. However, it was opined that the government intervention in
Indonesian corporate insolvency regime is often effected by stakeholders who
possess political and governmental influence99. Before the financial crisis in the late
1990s, it was observed that company-debtors in Indonesia were leveraged because
of the weak creditor rights and the absence of rule of law which resulted in the
availability of cheap debts to the companies100. The reformed Indonesian economic
policy in the post-crisis era then had adopted the macro-management framework as
part of the IMF program101. Accompanying this framework is the less interventionist
state approach which can be reflected by the emergence of independent and
regulatory bodies for indirect market intervention such as the Central Bank and the
judiciary as well as the decrease of institutions for direct market intervention102.
3.2.4 The Effects Towards the Indonesian Insolvency Law
It was argued that the “acrimonious relationship” between the government and the IMF
has impacted the incentive for economic policies reforms in Indonesia103. The late
99 Tomasic and Bahrin (n 97) 154

100 David K. Linnan, ‘Insolvency Reform and the Indonesian Financial Crisis’ (1999) 35 Bulletin of Indonesian
Economic Studies 2, 107-137
101 M. Chatib Basri and Hal Hill , ‘Making Economic Policy in a Democratic Indonesia: The First Two Decades’
(2020) 15 Asian Economic Policy Review , 214-234

102 Kanishka Jayasuriya, ‘Political Economy of Democratization’ in Daniel A. Bell, David Brown, Kanishka
Jayasuriya, and David M. Jones (eds), Towards Illiberal Democracy in Pacific Asia (Palgrave Macmillan London,
1995)
103 Basri and Hill (n 101) 225
25
1990s financial crisis had further intensified the need for law reforms in Indonesia
resulting in the IMF requiring the bankruptcy law reforms as one of the conditions in
the loans and grants supplemented to the Indonesian government104. Accordingly, it
was observed that the Indonesian government had managed the corporate failures on
case by case basis by taking into account the varying circumstances in each corporate
debt case and the survivability of the business affected 105. The state’s goal was to deal
with bank debts and private non-bank debts separately but it was argued that this goal
was unrealistic because there were parent companies who often comprised of captive
banks which provided loans to their smaller group of companies106. This argument
seems probable since the major use of the bankruptcy law in Indonesia is rather
tactical than to manage fiscal and economic affairs of the country107.
3.3 The Philosophies of Insolvency Law in Malaysia and Indonesia
Authors have argued that the underlying philosophies of Malaysian corporate
insolvency comprise of the elements of distributive, rehabilitative and penal aspects in
corporate insolvency law108109. It is believed these philosophies are essential to
balance the interests of creditors, debtors, the public as well as the other stakeholders
who are affected by the company’s insolvency110. Accompanying this is the
establishment of the CLRC111. The CLRC is tasked with the responsibilities to review
104 Hikmahanto Juwana, ‘Reform of Economic Laws and its Effects on The Post-Crisis Indonesian Economy’
(2005) 43 The Developing Economies, 72-90
105Tomasic and others (n 32) 259
106 Linnan (n 100) 114
107 Tomasic and Bahrin (n 97) 150
108 Azmi (n 81) 333
109 Kamarul Bahrin, ‘Insolvency Law in Malaysia’ in Roman Tomasic (ed), Insolvency Law in East Asia (Ashgate
Publishing Limited 2006)

110 Azmi (n 81) 77
111 Companies Commission of Malaysia ‘History- Corporate Law Reform Committee’ (ssm.com.my) <
https://www.ssm.com.my/Pages/Publication/CLRC/History.aspx > accessed 9 July 2022
26
the current legal framework involving companies as well as to propose amendments
necessary for companies to operate “in a cost effective, consistent, transparent and
competitive business environment in line with international standards of good
corporate governance”112. Interestingly, some of the recommendations made by the
CLRC are similar to the Cork Report especially in the areas of rehabilitation of the
failing company, an equal treatment of the creditors, the causes of the company failure
and the culpability of those who are responsible for the failure as well as the realisation
and distribution of the company assets in a systematic manner113. The
recommendations from the CLRC had inspired the idea of transition from liquidation
culture to corporate rescue culture in Malaysia114. However, it was argued that the
spirit of corporate rescue culture has not been effectively adopted in Malaysian
corporate insolvency regime since the rescue mechanisms are not readily available to
all the affected companies115 and that some of the provisions116 in relation to corporate
rescue mechanisms are secured-creditors friendly117.
Meanwhile in Indonesia, since there is no minimum debt limit stipulated in the
Indonesian Bankruptcy Law, it is believed that their bankruptcy law incorporates a
broader concept in regard to corporate debt118. In relation to this, Hoff argued that non-
discrimination is one of the principles of bankruptcy law thus the Indonesian
Bankruptcy Law was drafted to expedite the process of debtors' bankruptcy without
112 ibid
113 Ruzita Azmi and Adilah Abd Razak, ‘Theories, Objectives and Principles Of Corporate Insolvency Law: A
Comparative Study Between Malaysia and UK’ (3rd International Conference on Management, Penang, 10-11
June 2013)< https://core.ac.uk/download/pdf/42979632.pdf > accessed 23 June 2022
114 Thim, Azmi and Abdul Rahman (n 35)
115 ibid 192
116 Companies Act 2016, ss 398, 411, 400 and 421
117 Muir Hunter, “The Nature and Functions of a Corporate Rescue” (1999) JBL 491, 493
118 M. Hadi Shubhan, ‘Deconstructing Simple Evidence In Bankruptcy Petition For Legal Certainty’ (2019), 9
Indonesia Legal Review 2, Article 2
27
connecting it to the nature of bankruptcy119. However, this argument was rejected by
Shubhan (2019) who stated that the principle of bankruptcy law has nothing to do with
non-discrimination principle but instead the absence of minimum debt amount in the
bankruptcy regulation might just mean that the bankruptcy petition will often be used
as a mere debt collecting device. However, it was suggested that this can result in
financial loss for the creditors who have larger debts against the debtor 120. Further,
unlike Malaysia who has adopted certain solvency tests for different transactions121,
the Indonesian bankruptcy law does not prescribe any solvency test 122. The
Indonesian bankruptcy law essentially indicates the principle of simple evidence where
the petitioner must be able to prove in the existence of at least one unpaid, past-due,
and recoverable debt and at least two creditors 123. It is believed that the simple
verification process is to enable foreign creditors to bankrupt the debtors in Indonesia
in a swift manner124 and this will consequently result in an effective debt collection
process and Indonesia can quickly emerge from the economic crisis as soon as
possible125. Nevertheless, it was suggested that the Indonesian economic
environment does in reality practice corporate solvency126.
119 Jerry Hoff, Indonesian Bankruptcy Law (Tatanusa 1999)

120 Shubhan (n 118) 72
121 Companies Act 2016, ss 112 (1), 112 (2) and 112 (3) and 132 (3)
123 Shubhan (n 118) 81
124 M Fauzi, ‘Insolvency within Bankruptcy: The Case in Indonesia’ (2018) SHS Web Conference
125 Susanti Adi Nugroho, Hukum Kepailitan Di Indonesia Dalam Teori Dan Praktek Serta Penerapan Hukumnya,
(Kencana Prenada Media 2018)

126 Boedi Haryantho, M. Hadi Shubhan and M. Zaidun, ‘The Principle of Solvency as a Consideration for Judge in
Solving Bankruptcy Case in Indonesia’ (2020) 96 Journal of Law, Policy and Globalization, 20- 25
28
CHAPTER FOUR
4.0 THE EFFORTS TO HARMONISE INSOLVENCY LAWS AT REGIONAL AND
NATIONAL LEVELS
4.1 The Insufficiency of International Standard Principles
One of the multilateral bodies that have been actively encouraging the development
of principles of insolvency law in Asian countries to be closely aligned with the
international standards is the Asian Development Bank (ADB). The ADB had
published a report by Ronald Harmer on ‘Insolvency Law Reforms in the Asian and
Pacific Region’ in 2000 (The ADB Report) to emphasise ‘good practice standards’ on
corporate insolvency regimes in Asian economies127. The ADB Report highlighted that
there are still some ‘common basic policies and principles of approach in the
insolvency law regimes of countries with different legal traditions’128. There is another
effort sought by the ADB in promoting harmonisation of insolvency laws which is the
TA 5975 - REG: Promoting Regional Cooperation in the Development of Insolvency
Law Reforms129. However, this effort was specifically focused to harmonise
enforcement of cross-border insolvencies which will is irrelevant to the scope of this
paper. Secondly, there is the UNCITRAL Legislative Guide on Insolvency Law130
which serves as a referencing tool for the national legislators in formulating new laws
127 Ronald Harmer, ‘Insolvency Law Reforms in the Asian and Pacific Region’ (2000) 1 Law and Policy Reform at
the Asian Development Bank, 8–86
128 ibid
129 Asian Development Bank, ‘Technical Assistance Completion Report’ (September 2008) <
https://www.adb.org/sites/default/files/project-document/64987/34496-reg-tcr.pdf > accessed 9 August 2022

130 UNCITRAL Legislative Guide on Insolvency Law < https://uncitral.un.org/sites/uncitral.un.org/files/media-
documents/uncitral/en/05-80722_ebook.pdf > accessed 9 August 2022
29
and regulations or assessing the efficiency of current laws and regulations131. It is
apparent that this legislative guide is not legally binding to Malaysia and Indonesia.
Furthermore, instead of harmonisation, the recent annual UNCITRAL session was
focused on identifying appropriate processes and solutions for the insolvency of Micro,
Small and Medium Enterprises (MSMEs)132.
Also, the IMF had published a report, Orderly and Effective Insolvency Procedures:
Key Issues which sought to provide policy options for countries to consider when
formulating their insolvency regimes133. One of the most recent works published by
the IMF is the Policy Options for Supporting and Restructuring Firms Hit by the Covid-
19 Crisis which is described as a “menu of policy options” for legislative bodies to
consider in designing a targeted policy support for the restructuring of firms impacted
by the pandemic134. Last but not least, there is the World Bank Group's Insolvency and
Debt Resolution division that aims to help governments to improve their credit
environments by making their insolvency systems more efficient through international
standardisation, detailed diagnostics and technical supports 135. One particular effort
initiated by the World Bank is the Forum on Asian Insolvency Reform (FAIR) which is
a forum for a high-level dialogue between ministry officials involved in the development
131 ibid
132 UNCITRAL ‘Report of Working Group V (Insolvency Law) on the work of its fifty-eighth session’ (21 May
2021) A/CN.9/1052
133 International Monetary Fund, ‘Orderly and Effective Insolvency Procedures: Key Issues’ (May 1999) <
https://www.imf.org/external/pubs/ft/orderly/> accessed 19 August 2022

134 Juliana Araujo, Jose Garrido and others, ‘Policy Options for Supporting and Restructuring Firms Hit by the
COVID-19 Crisis’ (2022) International Monetary Fund Departmental Paper 2

135 The World Bank, ‘Insolvency and Debt Resolution’ (www.worldbank.org , 1 February 2021) <
https://www.worldbank.org/en/topic/financialsector/brief/insolvency-and-debt-resolution > accessed 30 July

2022
30
of insolvency regime through sharing of experience and knowledge to promote
insolvency reform in the Asia-Pacific region136.
It is thus clear that the efforts implemented by the multilateral bodies are focused on
creating standardised principles to be adopted by national legislators and not
harmonisation per se. It was argued that these principles have developed a certain
convergence of the insolvency laws among the Asian countries137. Although the aim
of convergence and harmonisation is centered on the unification of different legal
systems, both of these concepts essentially entail different processes138. Therefore, it
is the contention of this paper that whilst encouraging a certain convergence amongst
the states, harmonisation should be seen as Malaysia and Indonesia’s utmost
important goal as APEC member economies. As correctly suggested by John H.
Merryman (1977), “in several instances, the aim for convergence of legal systems is
simply an expression of a desire for simplicity. It corresponds to public dissatisfaction
with complexity and attempts to impose order where there is disorganised diversity”139.
Furthermore, legal convergence which may be achieved by regular implementation of
the same legal principles is generally identified as a more “passive” approach in
contrast to harmonisation which can be seen as a more “active” method140.
136 OECD, ‘Insolvency in Asia - Forum on Asian Insolvency Reform (FAIR)’ (www.oecd.org) <
https://www.oecd.org/corporate/ca/corporategovernanceprinciples/insolvencyinasia-
forumonasianinsolvencyreformfair.htm > accessed 30 July 2022
137 Lawrence Westbrook, Charles D. Booth, Christoph G.Paulus and Harry Rajak, A Global View of Business
Insolvency Systems (The World Bank Group 2010)

138 Loukas Mistelis, ‘Is Harmonisation a Necessary Evil? The Future of Harmonisation and New Sources of
International Trade Law’ in Ian Fletcher, Lukas Mistelis and Marise Cremona (eds), Foundations and
Perspectives of International Trade Law (Sweet and Maxwell 2001) 3
139 John Henry Merryman, ‘Comparative Law and Social Change: On the Origins, Style, Decline & Revival of the
Law and Development Movement’ (1977) 25 The American Journal of Comparative Law, 457–483
140 Bruno Deffains, ‘The Economics of Legal Harmonization and Legal Convergence’ in Yun-chien Chang, Wei
Shen and Wen-yeu Wang (eds) Private Law in China and Taiwan (Cambridge University Press 2016)
31
4.2 Harmonisation Experience in the EU – A Lesson Learnt
At this juncture, it is also relevant to discuss the development of harmonisation of
insolvency laws in the EU. In the 1960s, the EU council had established a special
committee to draw up a convention to address the difficulties presented by the
reciprocal enforcement of bankruptcy and insolvency judgments across the EU
Member States141. Following this, it was pointed out in the 1970 draft Convention on
Bankruptcy, Winding-up, Arrangements, Compositions, and Similar Proceedings that
the aim to develop the convention was not to modify the existing national insolvency
laws of the Member States but rather to provide solutions for problems arising when
an insolvency involves between different member states and any attempt to harmonise
the national insolvency laws of the Member States would take a very long time 142.
Consequently, the European Insolvency Regulation 2000 (EIR 2000) was introduced.
It was highlighted by the Commission that the differences of the insolvency laws have
the greatest negative impact on the development of an efficient insolvency legal
framework in the internal market143. Accordingly, the EU had implemented various
approaches to harmonise the insolvency laws of the Member States by way of
recommendations, regulations and directives over the past decades144.
141 Alegría Borrás, ‘Explanatory Report on the Convention, drawn up on the basis of Article K.3 of the Treaty on
European Union, on Jurisdiction and the Recognition and Enforcement of Judgments in Matrimonial Matters’
(1998) C 221/27 Official Journal of the European Communities, 28
142Commission (EC), ‘Report on the convention relating to bankruptcies, compositions and analogous
procedures’ (1970) (Working Document) Commission 16.775/XIV/70-E

143 Commission (EC), ‘Communication from the Commission to the European Parliament, the Council and the
European Economic and Social Committee - A New European Approach to Business Failure and Insolvency’
COM (2012) 742 final
144 Emilie Ghio and others, ‘Harmonising Insolvency Law in The EU: New Thoughts On Old Ideas In The Wake Of
The Covid-19 Pandemic; (2021) 30 International Insolvency Review 3, 427-459
32
Unlike the EU, there is no supranational entity that possess executive and legislative
powers within APEC economies. Anyhow, instead of implementing the similar efforts
concerted by the EU in harmonising national insolvency laws of the Member States,
perhaps Malaysia and Indonesia can learn from the experience of the EU. It was
recently discovered that the harmonisation instruments provided by the EU for
restructuring and insolvency laws were of limited assistance to the to the Member
States during the surge of systemic insolvencies due to Covid-19 pandemic145. It was
further observed that state-centered initiatives have led in significant degrees of legal
alignment followed by a natural convergence and the Member States were in fact the
driving force behind the process of harmonisation146. Hence, this paper argues that
the legislators of Malaysia and Indonesia should understand that that the states are
truly the “co-drivers” of harmonisation process and the countries should take a more
proactive approach in ensuring harmonisation of insolvency laws. This argument
relates back to the discussion in chapter 4.1 whereby Malaysia and Indonesia should
not regard the multilateral bodies as the only catalysts in pursuing harmonisation of
insolvency laws.
4.3 What Can Malaysia and Indonesia Do to Harmonise Their Insolvency Laws?
Malaysia and Indonesia's common economic interests in relation to regional trade
provide a strong foundation for the harmonisation of corporate insolvency laws. As
proven by the regulatory trends shown by Malaysia and Indonesia in adopting
145 ibid
146 ibid 443
33
measures in response to Covid-19147, it is clear that APEC economies are gradually
moving towards a common path and learning from each other’s experience, thus
promoting a significant degree of bottom-up legal convergence, similar to the EU148.
While there is a diversity in regulatory and policy conditions in every country,
lawmakers in every country were obliged to respond to a global crisis. The aftermath
of the Covid-19 pandemic has proven that corporate failure is no longer often attributed
to bad management of companies149. Malaysia and Indonesia have taken
considerable efforts by introducing temporary measures and insolvency law reforms
to minimise the impact of Covid-19 to companies150151. This paper therefore argues
that this common effort shared by both countries in implementing a targeted response
to help companies should be a continuing effort by Malaysian and Indonesian
legislators, supplemented by the constant support from APEC and other multilateral
bodies like the World Bank, the ADB, the UNCITRAL and the OECD. In doing so, the
objective to help companies should not be limited to times of global crises but it should
be an ongoing commitment of the states, supported by the multilateral bodies’
promotional activities. As correctly observed by Estrella Faria, without effective
promotion efforts from the multilateral bodies, the efforts and resources committed by
states in the formulation of uniform legal instruments risk being wasted152. With due
147 OECD, ‘Regulatory responses to the COVID-19 pandemic in Southeast Asia’ (www.oecd.org, 11 October
2021) < https://www.oecd.org/coronavirus/policy-responses/regulatory-responses-to-the-covid-19-pandemic-
in-southeast-asia-b9587458/#section-d1e1298> accessed 12 August 2022
148 Emili Ghio and others (n 144) 441
149 ibid
150 Cintya Sekar Ayu Permatasari and Octa Nadia Mellynda, ‘Temporary Measures on Bankruptcy: Alternatives
to the Moratorium on Act 37/2004 in Resolving Indonesian Bankruptcy During the COVID-19 Pandemic’ (2021)
5 Lex Scientia Law Review 2, 19-40
151 Antonia Menezes and Akvile Gropper., ‘Overview of Insolvency and Debt Restructuring Reforms in
Response to the COVID-19 Pandemic and Past Financial Crises : Lessons for Emerging Markets’ (2021)
Equitable Growth, Finance and Institutions COVID-19 Notes, World Bank Group
<https://openknowledge.worldbank.org/handle/10986/35425 >accessed 12 August 2022
152 José Angelo Estrella Faria, ‘Future Directions of Legal Harmonisation and Law Reform : Stormy Seas or
Prosperous Voyage?’(2009) 14 Uniform Law Review 1-2, 5-34
34
respect, apart from the experts’ research and recommendations published by
APEC153, it is also time for Malaysia and Indonesia to actively participate in policy
dialogue sessions conducted by APEC in the hopes of achieving an understanding
between the two differing legal systems despite the fact that Indonesia’s relationship
with Malaysia is rarely straightforward154. One reason could be is because of the
limited resources on comparative law studies in the field of insolvency law between
Malaysia and Indonesia. This demonstrates the significance of comparative law
exercise in both countries. It is therefore argued that comparative law studies should
be implemented in the early stages of studies of law. Both Malaysia and Indonesia
have to make commitment in ensuring that their law students are well aware of the
existence of diverse legal systems especially the laws of their neighboring countries
and the implications towards their local laws. It is important to produce legal
practitioners, judges and legal scholars who are knowledgeable and are willing to learn
from the experience from other countries, especially in the area of legal reform. This
effort would enable Malaysia and Indonesia to identify the limits of harmonisation as
well as to reflect and deliberate more thoroughly on whether and how to modify its own
corporate insolvency laws155.
153 APEC Economic Committee, ‘Consultation Paper On Resolving Corporate Insolvency In APEC Economies In
The Aftermath Of The Covid-19 Pandemic’ (May 2021) <
https://www.apec.org/publications/2021/05/consultation-paper-on-resolving-corporate-insolvency > accessed
12 August 2022
154 Marshall Clark and Juliet Pietsch, Indonesia–Malaysia Relations - Cultural heritage, politics and labour
migration (Routledge 2014) 1

155 Joseph Minattur, ‘Major Legal Systems in The World Today by René David And John E.C. Brierley’ (1979) 21
Journal of the Indian Law Institute 3, 419-426
35
CHAPTER FIVE
5.0 CONCLUSION
This study reveals that there is no harmonisation of corporate insolvency laws of two
APEC member economies namely Malaysia and Indonesia. To recapitulate, Chapter
One demonstrated the idea of harmonisation of insolvency laws and its beneficial
impacts to international commercial transactions which are to minimise trade barriers
within the APEC region by lowering transactions costs amongst businesses and
consumers as well as to ensure legal certainty. Chapter Two then provided a detailed
comparative analysis of the insolvency laws of Malaysia and Indonesia whereby it was
observed that the three areas which differentiate Malaysian and Indonesian corporate
insolvency law are; (i) Indonesian bankruptcy system does not distinguish personal
bankruptcy and corporate insolvency; (ii) there is no legal provision in Malaysia which
allows the conversion of restructuring process to liquidation; and (iii) there is possibility
of recognition of foreign liquidator in Malaysia but not in Indonesia due to their territorial
principle. Moving on, Chapter Three observed that the differences in the legal heritage,
the economic policy and the philosophies of insolvency law are arguably the reasons
for divergence of insolvency laws in Malaysia and Indonesia. Finally, Chapter Four
summarised that the international principles developed by the various multilateral
bodies are indeed not sufficient to cultivate harmonisation of corporate insolvency laws
amongst APEC member economies. Further, learning from the experience of the EU,
this paper proposes that Malaysia and Indonesia are truly the co-drivers in a
harmonisation effort and both of these countries should take more proactive
36
approaches in harmonising corporate insolvency laws, particularly to achieve the
open-regionalism aspiration put forward by APEC.
37
Legislations
Companies Act 1965 (Malaysia)

Companies Act 2016 (Malaysia)
Law Number 37 of 2004 on Bankruptcy and Suspension of Payment (Indonesia)
Law Number 40 of 2007 on Limited Liability Company (Indonesia)
Reglement Op De Burgelijke Rechtsvordering (Civil Procedural Law) (Indonesia)
Rules of the Court of Appeal 1994 (Malaysia)
Case law
Decision No. 67/PUU-XI/2013 Constitutional Court of Indonesia
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APEC Economies: Critical Analysis on the Harmonisation

of Malaysia and Indonesia’s Corporate Insolvency Regimes

Zawin Najah Binti Badrul Hisham

Supervisor – Dr Joy Malala

Word count – 9952 words

I would like to express my gratitude to my dissertation supervisor, Dr Joy Malala. This

support. To Professor Dalvinder Singh, thank you for reaffirming my interest in

Corporate Insolvency Law through the discussions held in the seminars. To my

this dissertation. To the best of my knowledge, this dissertation contains no material

of the requirements of any other academic degree or non-degree program.

This is a true copy of the dissertation, including final revisions.

By way of comparative analysis, this study observes that there is no harmonisation of

ADB Asian Development Bank

shared interest - their international trade transactions”1.

Harmonisation of national laws is generally acknowledged as fundamental for

facilitating international trade and commercial transactions2. In 2020, it was reported

achieve open-regionalism amongst its member economies4. In accordance with this

mutual agreement on ensuring stronger cooperation in policy-making approaches to

countries is further concretized by the free-trade agreements introduced to the bloc

Comprehensive and the Progressive Agreement for Trans-Pacific Partnership

Declarations/2020/2020_aelm/Annex-A> accessed 22 February 2022

papers/leaders-declarations/2011/2011_aelm> accessed 22 February 2022

cooperation among its member countries, particularly in the area of corporate

insolvency will be used interchangeably.

1.1 Background of the Study

harmonisation of insolvency laws and its implications towards APEC member

economies. As such, this paper seeks to identify whether there is a harmonisation of

1.2 Outline of Chapters

the following outline:

Chapter One: Introduction

This chapter provides an introduction and a general discussion on the background of

general discussion on the theory of harmonisation and the positive impacts of

Chapter Two provides a comparative analysis of the insolvency legal frameworks in

found within their insolvency regimes.

Chapter Three: The Reasons of Divergence of Insolvency Laws of Malaysia and

Malaysian and Indonesian insolvency laws.

Chapter Four: The Efforts to Harmonise Insolvency Laws at Regional and

multilateral bodies as well as the initiatives adopted by the EU in harmonising

harmonising their insolvency laws will also be explored.

Chapter Five: Conclusion

1.3.1 Harmonisation of Commercial Laws

Harmonisation can be described as a process which entails conformity of different

rules to certain degrees8. Harmonisation can also be understood as a process of

a political or economic grouping by harmonising domestic laws governing domestic

(2013) 18 Unif. L. Rev. , 50 - 64

of negotiation and information between businesses and consumers, rendering cross-

border transactions difficult12. Hence, harmonisation is necessary to remove the legal

international trade arena, harmonisation of commercial laws has been identified to

regulated where registration, recognition and qualification requirements are

significant15. Furthermore, harmonisation is believed to enhance a country’s

attractiveness as a trading partner16 aside from attracting foreign investors and

Focus On Domestic Regulations In Trade Agreements’ (January 2020) <

especially for parties who engage in international commercial transactions. In addition,

efficient enforcement regimes in place which ultimately led to a considerable level of

confidence among secured creditors21.

1.3.3 Harmonisation of Corporate Insolvency Laws

November 2019) < https://www.pwc.com/gx/en/news-room/press-releases/2019/apec-survey-2019.html >

to formulate the particular rules, theories, procedural regimes, and visions of

recognised that complete harmonisation of national insolvency laws may not be

on the report issued by INSOL Europe, it was highlighted that harmonisation of

insolvency laws is necessary to curb the problem of ‘insolvency tourism’ where a

particular jurisdiction is chosen over another jurisdiction because it might be likely

be detrimental to the creditors or other stakeholders25.