Client Newsflash

Indonesian Constitutional Court Reviewed Fiduciary Security Law

On January 6, 2020, the Indonesian Constitutional Court (Mahkamah Konstitusi) rendered its decision number 18/PUU-XVII/2019 (“Decision No. 18/2019”) in relation to the judicial review of Article 15 paragraphs (2) and (3) of Law Number 42 of 1999 dated September 30, 1999, on Fiduciary Security (the “Fiduciary Security Law”). Briefly, the petition for the review was submitted by Apriliani Dewi and Suri Agung Prabowo, a married couple whose fiduciary security over their car was enforced by a multi-finance company, PT Astra Sedaya Finance. The petitioner claimed that certain provisions in the Fiduciary Security Law were unjustifiable and unfair, and against their constitutional rights.

Decision No. 18/2019 declares that interpretations of certain provisions in the Fiduciary Security Law are unconstitutional and do not have legal effect if not interpreted according to Decision No. 18/2019. Those phrases are 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.

Decision No. 18/2019 stipulates that 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).

Further, Decision No. 18/2019 stipulates that 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.

Given this, financing documents should be carefully drafted to expressly set out the events of default provisions. Failing which, creditors may have to go through a lengthy dispute resolution mechanism merely to determine an event of default before seeking repayment of the loan or enforcement of security interest. This should not be an issue for sophisticated financing transactions as, we are certain, the documents for these transactions will set out detailed and comprehensive provisions regarding events of default and the consequences thereof.

 

January 24, 2020

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