Bankruptcy is a term that is closely related to financial issues. In business, bankruptcy reflects a condition in which the borrower is experiencing difficulties in fulfilling their obligations (debts) to the lender.
Many people often equate this condition with insolvency. But are bankruptcy and insolvency the same? Let’s take a closer look at what bankruptcy truly means in the discussion below.
What Is Bankruptcy?
Bankruptcy refers to a situation where a debtor is unable to settle debts that are due to creditors and the case is eventually taken over by the court for liquidation.
In Indonesia, the legal basis governing bankruptcy is Law Number 37 of 2004 concerning Bankruptcy and Suspension of Payment Obligations (PKPU), also known as the Bankruptcy Law.
According to this regulation, bankruptcy means that a debtor has two or more debts that are due and must be paid immediately. A company’s bankruptcy status can only be declared by the commercial court based on a request submitted either by the debtor or the creditor.
In a bankruptcy situation, the company loses its rights to control and manage its assets. As a result, all assets must be handed over to a curator to be processed for debt settlement in accordance with the court’s decision and legal provisions.
Causes of Bankruptcy
Corporate bankruptcy does not occur without reason. Some common causes include:
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The company as debtor has two or more debts with amounts too large to repay.
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Weak and ineffective leadership, resulting in poor financial decision-making.
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Unhealthy financial management, such as unstable income, lack of expense control, unclear budgeting, and inefficient cash flow.
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The company is unable to meet consumer needs for products or services, leading to weak market acceptance.
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The company is slow to innovate or stops innovating, causing it to fall behind market trends.
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The company fails to monitor competitors effectively, making it less relevant and unable to survive market competition.
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Excessive business expansion leading to uncontrolled cash outflow, fraud, and other problems.
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Pricing strategies that are too high compared to similar market offerings, resulting in competitive disadvantage.
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Force majeure events such as pandemics, natural disasters, or global economic crises that result in revenue loss and debt default.
Differences Between Bankruptcy and Insolvency
In essence, both bankruptcy and insolvency are worrying situations that businesses try to avoid. However, they do not mean the same thing.
Simply put, bankruptcy can occur due to excessive debt. In this case, a company is unable to repay its debt to the creditor when it becomes due, even if its financial condition is otherwise still relatively stable.
Meanwhile, insolvency refers to a situation in which a company suffers significant losses due to poor financial performance until it eventually collapses (permanently ceases operations). Insolvency can be caused by operational and managerial issues.
Unhealthy finances make it impossible for the company to generate profit. As a result, major losses cannot be covered, and operational funding becomes unsustainable.
Parties Authorized to File for Bankruptcy
Bankruptcy status can only be granted by the Commercial Court upon a bankruptcy petition. The parties entitled to file include:
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One or more creditors.
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The debtor themselves without coercion.
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The Attorney General, if it concerns public interest.
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The Financial Services Authority (OJK), if the debtor is a banking institution.
Requirements for Filing for Bankruptcy
To file for bankruptcy, several requirements must be met:
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The debtor has debts and two or more creditors.
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The debtor is proven to have failed to pay at least one due and collectible debt.
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There is an official petition for a bankruptcy declaration.
How to File for Bankruptcy
In general, the bankruptcy filing process is quite complex. It is advisable to seek assistance from a lawyer experienced in bankruptcy law. Through consultation, you will receive legal guidance and help with documentation.
Required documents include: application forms, asset lists, debt lists, financial statements, repayment plans, and other supporting documents.
Steps in filing for bankruptcy include:
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Once all required documents are complete, submit the bankruptcy filing to the Commercial Court.
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Wait for the court’s review and verification process, which includes examining whether the debtor has two or more creditors and at least one due and collectible debt, and scheduling a hearing for the bankruptcy case.
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If approved, the curator will continue the process by assessing debts, verifying claims, managing bankrupt assets, selling assets, and distributing proceeds to creditors according to the law.
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During the process, there will be a peace proposal (accord). If successful, settlement is halted and the court proceeds with homologation to legalize the peace agreement.
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If not approved, the court process continues to settlement, where assets must be liquidated.
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Next, liquidation is carried out, where the debtor’s assets are sold to repay creditors.
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Finally, rehabilitation takes place to restore the debtor’s reputation once the bankruptcy process is officially completed.
How to Prevent Bankruptcy
Although bankruptcy is concerning, it can actually be prevented or minimized. Ways to reduce the risk include:
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Asset Management: Sell old unused assets and replace them with new productive items. Allocate the proceeds to debt repayment.
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Having a Professional Mentor: To minimize the risk of bankruptcy, work with a professional mentor who is experienced and competent in restructuring operations and improving business performance.
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Financial Control: Monitor cash outflows and reduce spending on unnecessary items. Review financial performance periodically.
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Focus on Debt: Prioritize debt repayment and take this obligation seriously. Never ignore financial liabilities to avoid debt accumulation.
Understanding bankruptcy — including the causes, requirements, procedures, authorized parties, preventive measures, and the difference from insolvency — can help business owners realize that the risk is real.
Therefore, proactive steps are needed to navigate financial challenges and maintain business continuity. If you need a solution to support various financial needs, you may consider applying for financing at BFI Finance.
BFI Finance offers loan facilities with collateral such as House/Shop Certificates, Car BPKB, and Motorcycle BPKB. The process is easy, relatively fast, and secure because it is officially licensed by the Financial Services Authority (OJK).
What are you waiting for? Apply for credit and get the funds you need safely and transparently to support your business finances with BFI Finance!
