National Meeting of Supreme Court Justices Concludes that Assets of State and Region-Owned Enterprises Can Be Seized

en.hukumonline.com (Wednesday, October 20, 2010)  

The 2010 National Meeting of Justices of the Supreme Court (“2010 Rakernas”), which concluded last Thursday (14/10), affirmed the authority of the General Civil Division Court to seize assets of both State-Owned Enterprises (SOEs) or Region-Owned Enterprises (ROEs) when they are named as defendants in a civil law suit. 

The 2010 Rakernas decision also outlines how the seizure of assets is to be effected.

In order to comply with Article 50 of Law No. 1 of 2004 on the State Treasury, which prohibits the seizure of state-owned property, the Court’s authority shall apply only to those assets that comprise the enterprise’s equity, and which no longer belong to the state. Further, the enterprise’s acting management must be considered, as the Court may only seize assets that are managed by the defendant enterprise and which are no longer managed by the state.

Deputy Chief Justice for General Civil Cases, Atja Sondjaja, was encouraged by the decision, which she admitted provided much needed clarity on this issue. Previously, two schools of thought had led to discordant judicial interpretations and much confusion, she added.

Indeed, during the 2010 Rakernas a debate had emerged between justices who believed that state-assets could not be confiscated and those who believed they could. Both factions pointed to existing legislation to substantiate their arguments.

The ‘NO’ party reasoned that such assets were derived from the state budget, and therefore could not be seized according to Article 50 of the State Treasury Law. They buttressed their argument with Article 1 (11) of the same Act, which provides that “property is all goods purchased or obtained at the expense of local budgets.”

The ‘YES’ party argued that reasoning similar to that applied to limited liability companies (LLC) should be determinative. Pursuant to Law No. 40 of 2007 on LLC, an LLC’s owners and their assets are protected for acts and debts attributable to the LLC.  The owner’s assets are protected from seizure because they are considered separate from those belonging to the LLC.

According to the ‘Yes” party the converse should be true to allow an SOE/ROE’s property to be seized. As such property can be distinguished from that of its owners, which includes the government in the case of SOE/ROE, and it can be seized in the event of liability.

This debate has been a contentious issue for some time.

In February of 2009, the Central Jakarta District Court authorized the seizure of two vessels owned by PT Djakarta Lloyd (Persero), which at the time was a SOE.

PT Djakarta Lloyd had argued that as a SOE Article 50 of State Treasury Law prohibited the seizure of the company’s assets. The Presiding Justice disagreed and found that SOE assets cannot be considered state property, as SOE are not government institutions.

Numerous subsequent Courts had challenged the decision and the reasoning behind it.

The Rakernas 2010 is considered a compromise between the two schools of thought as it incorporates aspects of both. However, it too has already attracted derision.

The decision is considered controversial because it may result in the non-application of current anti-corruption law to putative embezzlers. Under the provisions of the Corruption Act, the Corruption Eradication Commission cannot investigate and prosecute those who may have committed graft unless their alleged acts of caused losses to the state.

Under the Rakernas decision SOE are now distinguishable from the state itself, and losses to such enterprises may be considered outside the public spectrum.

Ali/Suharti/Esteban Kahs-Garay