UP Academic Proposes Insolvency Test to Prevent Premature Bankruptcy

JAKARTA - The Doctor of Law Program of the Faculty of Law, Pancasila University (UP) proposes the reconstruction of Law Number 37 of 2004 concerning Bankruptcy and Debt Payment Suspension (PKPU) through the implementation of an insolvency test as a condition before the court issues a bankruptcy decision. The proposal is considered important to prevent companies that are still financially healthy from being bankrupt just because they meet administrative requirements.

The idea was conveyed in the summary of Michael Gerald Jusanti's dissertation which was defended at the open session of the Doctoral Program in Law at the Faculty of Law, Pancasila University.

Michael assessed that the provisions in the current Bankruptcy Law still open the door for companies that are economically viable to operate (going concern) to be declared bankrupt simply because they meet the formal requirements in the form of two creditors and one debt that has matured.

"Currently, companies that are still economically solvent and viable (going concern) can be declared bankrupt prematurely only because of the formal requirement of two creditors and one debt due without considering their financial condition as a whole. We recommend cash-flow tests and balance-sheet tests as substantive prerequisites before the decision is made," said Michael.

According to him, the implementation of the testing instrument will provide legal certainty for business actors, including the founders of start-up companies, agency owners, and corporations that carry out business activities with many business partners.

Michael explained that the mechanism can also prevent the misuse of bankruptcy instruments as a tool of pressure in commercial disputes. With the objective testing of the company's financial condition in the Commercial Court, only companies that really experience real bankruptcy conditions can be declared bankrupt.

The Rector of Pancasila University who also acted as the Chairman of the Open Session, Prof. Dr. Adnan Hamid, said that the study was a form of academic contribution of universities in supporting national economic development through legal updates.

"Pancasila University is committed to producing legal thinking that favors fair certainty. Bankruptcy law should not hinder business dynamics and job creation for the community," said Adnan.

Meanwhile, the Head of the Doctoral Program in Law at Pancasila University who is also the Head of the Evaluator, Prof. Dr. Agus Surono, stated that the results of the research will be encouraged to be input material in the legislative process.

"The academic work of Pancasila University will not stop in the library drawer. We will encourage the results of this dissertation to become academic manuscripts as official inputs for the DPR in revising the Bankruptcy Law to be more just for business actors," said Agus.

The proposed application of cash-flow tests and balance-sheet tests is expected to strengthen legal certainty in bankruptcy cases while creating a healthier business climate by providing protection for companies that still have the financial ability to continue operations.