Indonesian Constitutional Court Reviewed Article 15 (2) of Fiduciary Security Law,

On August 31, 2021, the Constitutional Court (Mahkamah Konstitusi) rendered its decision number 2/PUU-XIX/2021 (“Decision No. 2/2021”) in relation to the judicial review of Article 15 paragraph (2) of Law No. 42 of 1999 dated September 30, 1999, on Fiduciary Security (the “Fiduciary Security Law”). Briefly, the petition for the review was submitted by Joshua Michael Djami, an employee of a finance company. The petitioner is an internal collector and is certified in the collection sector. The petitioner claimed that certain provisions in the Fiduciary Security Law were unconstitutional, against their constitutional rights, and detrimental to his line of work, specifically in collection and enforcement of encumbered goods.

The Constitutional Court previously decided based on its decision number 18/PUU-XVII/2019 (“Decision No. 18/2019”) the following:

  • The phrases the ‘enforcement power’ (kekuatan eksekutorial) phrase and the ‘similar to a final and binding decision’ (sama dengan putusan pengadilan yang berkekuatan hukum tetap) phrase contained in Article 15 paragraph (2) of the Fiduciary Security Law and the ‘event of default’ (cidera janji) phrase contained in Article 15 paragraph (3) of the Fiduciary Security Law are unconstitutional;
  • Article 15 paragraph (2) of Fiduciary Security Law must be interpreted that if the parties do not agree on an event of default and the debtor does not voluntarily surrender the object of the fiduciary security, the enforcement of the fiduciary security must then be conducted in the manner and mechanism for the enforcement of a final and binding court decision (i.e., through court enforcement procedures); and
  • In interpreting Article 15 paragraph (3) of the Fiduciary Security Law, an event of default should not be decided unilaterally by a creditor, but by an agreement of the parties or through a legal measure determining such event of default.

Article 15 paragraph (3) of the Fiduciary Security Law enables the unilateral enforcement (parate eksekusi) that was declared unconstitutional by Decision No. 18/2019. So, the enforcement may not be implemented in the absence of an acknowledgement by the debtor of a breach of contract, and the voluntary surrender of the object under the fiduciary agreement.

Decision No. 2/2021 further reiterates the above decision provided that the request for enforcement by the district court is only as an alternative which may be taken by a creditor if the parties did not acknowledge and/or agree with the occurrence of breach of contract, and the voluntary surrender of the fiduciary object.

In conclusion, after the assessment of the facts and the laws, the Court rejected the petition for review in its entirety by the applicant and reiterated Decision No. 18/2019 pertaining to the enforcement of fiduciary certificates. If a debtor did not acknowledge a breach of contract on its part, and is reluctant to voluntarily surrender the object, then the creditor is prohibited from unilaterally enforcing the fiduciary. The creditor is required to request for an execution order from the relevant district court. Further, the Court decided that this means of execution has indeed provided protection to all elements/parties (i.e., the debtor, the creditor and the fiduciary object) and that the request for execution to the court provides protection between the parties and prevents arbitrariness in the execution of such object.



September 22, 2021

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