INVESTMENT PROTECTION UNDER THE COMPREHENSIVE INVESTMENT PROTECTION OF ASEAN INCLUDING CROSS BORDER INSOLVENCY TO BE COMPLIANCE WITH ACIA 1

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1 INVESTMENT PROTECTION UNDER THE COMPREHENSIVE INVESTMENT PROTECTION OF ASEAN INCLUDING CROSS BORDER INSOLVENCY TO BE COMPLIANCE WITH ACIA 1 Dr. Ricardo Simanjuntak 2 INTRODUCTION The establishment of the ASEAN Economic Community ( AEC ) at the end of this year (2015) 3 is the realization of the ASEAN leaders strong commitment in transforming the ASEAN region into a powerful, highly competitive and economically integrated region as envisioned in the ASEAN vision 2020 and affirmed in the Declaration on the ASEAN Economic Community Blueprint ( AEC Blueprint ) on 20 November The ASEAN vision to integrate all of the ten ASEAN member states markets and production capacities to a single market and production base will progressively transform the ASEAN region into a more dynamic, competitive and powerful market and production base, with an equitable economic development, and fully integrated with the world global economy. The ASEAN liberalized market and production base will consequently encourage free movement of goods, free movement of services, free movement of skilled labour and freer movement of investment and capital within the ASEAN region that grows opportunities for every ASEAN member states and citizens to get and enjoy every benefit of it. 1. This paper is presented in the ALA Workshop on Business Law, held during the ALA general Assembly on February 2015 at Makati Sangri- law Hotel, Manila, Philippines. 2. The paper writer is a senior advocate, a founding partner of the Law Firm, Ricardo Simanjuntak&Partners, addressed at Wirausaha Building 2 nd floor, Jl. Rasuna Said Kav. C5, Kuningan, Jakarta Selatan, Indonesia. 3. Three pillars of the ASEAN Community, namely; the ASEAN Economic community (AEC), The ASEAN Security Community (ASC), and the ASEAN Socio-Cultural Community (ASCC). According to the ASEAN blue print, These three pillars are seen as the integral organs having to work in tandem in establishing the ASEAN Community. 1

2 Even though the target realization of the AEC - to be implemented at the end of is not free from critics and controversies 4, multinational business players and investors have in fact shown their big interest over the coming integrated market and set up their business strategies facing the AEC. For example, the ASEAN Business Outlook Survey , released by the US Chamber of Commerce finds that majority of surveyed business executives confirm their belief that ASEAN markets will still be more important for their companies worldwide operations and revenues over the next two years. According to the survey, there are at least three reasons that support the business executive s confidence to the AEC, namely; economic recovery in the ASEAN region, limited growth opportunities in other regions and the improvement in infrastructure. The similar fact has also been expressed by the ACIA guidebook for business and investors published by the ASEAN secretariat in 2013 stating the fact that over the past two decades, the ASEAN region has seen a burgeoning of home grown transnational enterprises with significantly scaled up cross-border merger and acquisition activities in all key sectors of the world economy. As has been mentioned in the survey, the improvement in the ASEAN infrastructure will be one of fundamental keys in ensuring stronger and sustainable inflow of investments into the ASEAN region. The strategy for attracting foreign direct investments (FDI) both from intra-asean investors and non ASEAN investors, cannot be made anymore only through the promotion of a free and open investment regime, but must also be by guaranteeing a higher overall level of protection to the ASEAN member states investors (ASEAN investors) and their investments. It is among others, the rationale behind the revision of the ASEAN Investment Guarantee Agreement (AIGA) and the ASEAN Investment Area (AIA) 6 to be the ASEAN Comprehensive Investment Agreement (ACIA) that has been effective since 29 March Ji Xianbai, Why the ASEAN Economic Community will struggle, The diplomat.com/2014/09/why-the-aseaneconomic-community-will-struggle/ 5. ASEAN Business Outlook Survey 2015, conducted by Amcham, Singapore and the US Chamber of Commerce of international affair, 6. The promotion and protection of the investment in ASEAN had previously been agreed among the ASEAN member under the ASEAN Investment Guarantee Agreement (AIGA) in 1987, while the cooperation of the ASEAN 2

3 According to the Article 1 of the ACIA, the objective of ACIA is not only to develop comprehensive rules and policies in liberalizing, jointly promoting the ASEAN integrated market and production base, but also to enhance a protection to the investors of the ASEAN member states and their investments with the improvement of transparency and predictability of the investment rules, regulations and procedures. By adopting international best practices and following the latest trends in international investment rule making, ACIA is believed to offer many potential benefits to ASEAN investors when choosing the ASEAN region as their focused destination for investments. As the topic given above, this paper will begin its analysis to see what is ACIA and how it becomes a beneficial protection to the ASEAN investors and their investments, specifically when the investors face legal problems or investment disputes with a member state where their investment or business activities are destined. This relates to the ASEAN member states commitment for an equal treatment and protection to every ASEAN investor and their investments in their own country territory. Further, realizing that the ASEAN market liberalization will not only result a success story of profit gains, but, unfortunately can also lead to a higher risk of regional scaled competition that may even cause an unresolved business failure, the protection of the investors and their investments in the case of bankruptcy becomes important analysis of this paper. This paper will also share Indonesia s commitment to the protection of foreign investors in Indonesia as well as the acknowledgement of the foreign investor in accordance with the current Indonesia bankruptcy law. ACIA Framework and its protections to the investors in the ASEAN region. As has been introduced above, ACIA is a comprehensive investment framework, collectively developed and agreed by all of the ASEAN member states in order to create a liberal, facilitative, transparent and competitive investment environment in member states for establishing more liberal and transparent investment climate in order to increase the FDI inflow into ASEAN region, was agreed under the ASEAN Investment Area (AIA) in

4 the territory of any ASEAN member state (ASEAN region). The ACIA s fundamental principles and action plans in enhancing the realization of a free flow of investment within the ASEAN region have basically been agreed in the AEC blueprint 7. Being the review to the AIA and AIGA, with no back tracking commitments, the ACIA is agreed not only to strengthen the commitment for a progressive liberalization, promotion, and transparency for a free flow of investment in the integrated investment area, but also to strengthen a commitment for enhancing protection of all of the ASEAN investors and their investments in the ASEAN region. The meaning of investors and investment is defined in ACIA in order to have a clear direction how they will be protected. In the Article 4 (d) of ACIA, an investor is defined as a natural person or a juridical person of a member state that is making, or has made an investment in the territory of any ASEAN member state. The meaning of a juridical person is further defined in Article 4 (e) as a legal entity duly constituted or otherwise organized under the applicable law of a member state, whether for profit or otherwise, and whether privately-owned or governmentally-owned, including any enterprise, corporation, trust, partnership, joint venture, sole proprietorship, association or organization. Whereas the meaning of investment is defined in Article 4 (c) of ACIA, namely every kind of asset, owned or controlled, by an investor, including but not limited to; i. Movable and immovable property and other property rights such as mortgages, liens or pledges; ii. Shares, stock, bonds and debentures and any other forms of participation in a juridical person and rights or interest derived there from; 7. According to the AEC blueprint, there are four fundamental pillars for ACIA to achieve its objectives, namely; 1. To provide enhanced protection to all investors and their investments to be covered under the comprehensive agreement; 2. To provide a more transparent, consistent and predictable investment rules, regulations, policies and procedures; 3. To promote ASEAN as an integrated investment area and production network; 4. To provide a progressive liberalization of ASEAN member states investment regime to achieve free and open investment by

5 iii. Intellectual property rights which are conferred pursuant to the laws and regulations of each member state; iv. Claims to money or to any contractual performance related to a business and having financial value, but not from the claim to money that arise from commercial contracts for sale of goods or service, or from the extension of credit in connection with such commercial contracts. v. Rights under contracts, including turnkey, construction, management, production or revenue sharing contracts; and vi. Business concessions required to conduct economic activities and having financial value conferred by law or under a contract, including any concessions to search, cultivate, extract or exploit natural resources. The investment also includes amounts yielded by investments, in particular, profit interest, capital gain, dividend, royalties and fees. Any alteration of the form in which assets are invested or reinvested shall not affect their classification as investment. For the protection to the above investors and investments, ACIA obliges every ASEAN member state to apply a fair and equal treatment to all of the ASEAN investors and their investments in their each territory. The governments of the ASEAN member states must assure that every policy or power exercised by them relating to the investment policy be based on their applicable law and regulations and must not be in discriminatory with the treatment to their local investors and investments. The host member states must not deny justice in any legal and administrative proceedings in accordance with the principles of due process, and must not make any arbitrary decisions jeopardizing the investors legal rights. The ACIA also obliges a member state to provide a full protection and security to all of the ASEAN investors and their investments in its territory from any physical danger or loss at all times, and provide compensation for any loss suffered, for example, because of armed conflicts, riots, or civil strife. The protection of the investors is also ascertained by prohibiting a host member state to expropriate or nationalize any 5

6 covered investment in its territory, either directly or through measures equivalent to expropriation or nationalization. The expropriation of the investment can only be allowed for a public purpose, conducted in a non-discriminatory manner and in accordance with due process of law with an a fair, just and prompt-payment compensation to the investors. Further, ACIA also protects the right of the investors to make any transfer, freely and without delay, into and out of the host member state s territory, in relation to the covered investment, such as, a transfer for the payment of their capital contributions to their investments, the transfer of profits, capital gains, dividends, royalties, license fees, technical assistance, payment made under the contract, including a loan agreement, and others as agreed in the article 13 of ACIA. For the effective implementation of the above commitments, the real support and cooperation among the member states in assuring a clear and reciprocal protection of the ASEAN investors and their investments in their each territory is a key of fundamental success. The frameworks of cooperation among the ASEAN member states in providing the facilitation of the investments into and within the ASEAN region is agreed in the Article 25 of ACIA, among others by ; a. Creating the necessary environment for all forms of investments; b. Streamlining and simplifying procedures for investment applications and approvals; c. Promoting dissemination of investment information, including investment rules, regulations, policies and procedures; d. Establishing one-stop investment centers; e. Strengthening databases on all forms of investments for policy formulation to improve ASEAN s investment environment; f. Undertaking consultation with the business community on investment matters, and 6

7 g. Providing advisory services to the business community of the other member states. The commitment of the investors protection collectively agreed by the ASEAN member states in the ACIA becomes a contractually binding obligation between the ASEAN member state and the investors of another member country. It means that breaching the implementation of ACIA will potentially cause a legal dispute between the investor and the host ASEAN member country. ACIA does not introduce a concept of the ASEAN integrated court in handling any dispute born from the ACIA implementation between the investors and the host member country 8, but addresses the dispute settlement mechanism either through a local court or administrative tribunal of the host member state having a jurisdiction over the disputes, or addresses the dispute to the International Centre for Settlement of Investment Dispute (ICSID), or the UNCITRAL Arbitration Rules, or to other international arbitration institution agreed by the parties, should the first alternative for settling the dispute through a Mediation, Conciliation, or Consultation or negotiation proves fail to achieve. The decision of a panel of Arbitrators is taken by a majority of votes and will be a final and binding decision to disputing parties 9. This is basically in line with the implementation of the United Nations Convention of the Recognition and Enforcement of the Foreign Arbitral Award on 10 June 1958 (more known as the New York Convention 1958) that has been acknowledged or ratified by all of the ASEAN member states 10, and also the implementation of the Convention on the Settlement of Investment Disputes between States and national of other States, agreed in 8. However, according to the Article 27 of ACIA, ACIA maintains the application of the ASEAN Protocol on Enhanced Dispute Settlement Mechanism, in Lao PDR on 29 November 2004, as a settlement mechanism in the event that there is a disagreement or dispute between the members of the AEC concerning the interpretation or application of the ACIA. 9. Article 35 (4) of ACIA; The tribunal shall reach its decisions by a majority of votes and its decision shall be binding. 10. All of the ASEAN member states has ratified of accessed the New York Convention 1958, namely; Indonesia on 7 October 1981, Malaysia on 5 November 1985, Thailand on 21 December 1959, Philippines on 6 July 1967, Brunei Darussalam on 25 July 1996, Vietnam on 12 September 1995, Singapore on 21 August 1986, Lao PDR on 17 June 1998, Cambodia on 5 January 1960, and Myanmar on 16 April 2013, further see; The New York Arbitration Convention, convention. Org/Contracting-states/List-of-contracting-states. 7

8 Washington DC, USA on 24 October 1945 (more known as ICSID) that has also been ratified by all of the ASEAN member countries. 11 In other words, the commitment of the ASEAN member countries to reciprocally recognize and enforce the decision of an international arbitration decision in their each territory that has basically been enforceable as the member to the New York Convention 1958 and The Washington Convention in term of dispute between an ASEAN member state and the investor of another member state has been enhanced by ACIA among the ASEAN member states. As Indonesia is also the signatory to the New York Convention 1958, the provision of binding and enforceable decision of the International Arbitration agreed in the ACIA is not a new one. According to the article 66 (a) of the Law no. 30 of 1999 on Arbitration and Alternative Dispute Settlement, the decision of the International Arbitration made in territory of the states member to the New York Convention 1958 is recognized and enforceable in Indonesia 12. The same is also applicable to the dispute between states and the member of another state as regulated in the Washington Convention, where all of the ASEAN member states have also been the signatories to it. As the collective agreement of the ASEAN member states in ACIA is to enhance the reciprocal recognition and enforcement of the international arbitration awards within the ASEAN region, it is very important for the ASEAN member states to sit together and evaluate the seriousness of the ASEAN member countries in respecting and enforcing the decisions of the international arbitration decided in the states being members to the New York Convention 1958 so far. This will be very important to build a better and more serious commitment in reciprocally recognizing and enforcing 11. All of the ASEAN member states has ratified the Washington Convention 1965, namely : Indonesia on 28 September 1950, Malaysia on 17 September 1957, Brunei Darussalam 21 September 1984, Singapore on 21 September 1965, Philippines on 24 October 1945, Thailand on 16 December 1946, Vietnam 20 September 1977, Lao PDR on 14 December 1955, Cambodia 14 December 1955, Myanmar on 19 April Further see en.wikipedia.org/wiki/member_states_of_the_united_nation#cite_note Indonesia has some international Arbitration institutions, such as; the Indonesia National Arbitration Body (locally abbreviated as BANI ), the Indonesia Capital Market Arbitration (locally abbreviated as BAPMI ) and the Indonesia Insurance Mediation and Arbitration Centre (locally abbreviated as BAPMI ). 8

9 international arbitration awards, especially decided within the ASEAN member states, in the ASEAN region. The encouragement of the ASEAN commitment and seriousness in reciprocally recognizing and implementing an international arbitration award must also be paired with the serious commitment of the local court of each of the ASEAN member states as the main partner in the execution of an international arbitration awards. It means that the cooperation among the ASEAN member states court in establishing further collective law of procedures in the recognition and enforcement of an international arbitration award in the ASEAN region will also be a fundamental key in the implementation of ACIA 13. The Indonesia s Foreign Investment Policy and the commitment to be a safe and chosen investment destination in AEC As one of the core members of ASEAN, Indonesia is not only agreeable to the ASEAN vision 2020, but also strongly supports fastening the establishment of AEC as the implementation of the ASEAN Single market and production base, from the year 2020, to be the year Even though there have been some pessimistic look, especially from the local business community, to the Indonesia s readiness in facing the AEC in the year 2015 but Indonesia is still in its commitment and has even shown its strong efforts to improve its national economic and legal infrastructures for being ready to compete with other ASEAN member countries within the AEC. With regards to a foreign investment, Indonesia has enacted the Law no. 25 of the year 2007 on Investment (The investment Law no.25/2007) as the reformation of the Indonesian investment laws no. 1 of the year 1967 on Foreign Capital investment and 13. Besides binding by ACIA, the recognition and enforcement of the ASEAN member countries to an international arbitration award will not be separated from the building trust of the ASEAN member states to the quality and transparently of the International Arbitration (institutionally or ad hoc) domiciled or done in each of the ASEAN member state. Therefore, further cooperation in building high standard capacity of the Arbitration and their arbiters becomes increasingly important to collectively realize. 9

10 the Law no.8 of 1968 on Domestic Capital Investment. The Investment law no.25/2007 was basically prepared with the vision to welcome the globalization of economic movement, especially the ASEAN economic integration. This is expressly stated in the consideration of the Law, quoted as below: That, in confronting global economic changes and Indonesia s participation in a variety of international cooperation, it is necessary to create investment climate whose nature is conducive promote legally certain, impartial, and efficient, by continuously considering the interest of national economy. The progressive liberalization of the investment regime in the ASEAN member countries as agreed in the ASEAN investment framework of ACIA has basically been covered in the Indonesia Investment Law no.25/2007 and its implementing regulation of the Presidential regulation Number 36 of the year According to Article 12 of the Investment Law no.25/2007, It is stated that all of business sectors are opened for investments in Indonesia, except the business sectors that are stated by the investment law and its implementing regulations as closed or open with conditions to foreign investments. Further, with the consideration of providing faster development to the liberalization of the Indonesian investment regime to be strongly competitive and more comfortable to the ASEAN investors facing the implementation of AEC, the Presidential regulation Number 36 of the year 2010 was reviewed to be the Presidential Regulations of the Republic of Indonesia number 39 of 2014 that gives more and clearer rooms for foreign investments In Indonesia. This has also been followed by the reformation in the body of the Indonesia Investment Coordinating Board (more known by its abbreviation BKPM ) 14, in providing better services and certainty in all stepping process of investments in Indonesia. 14. The address of BKPM, Jl. Gatot Subroto no. 44, Jakarta 12190, Indonesia, Website: info@bkpm.go.id. 10

11 The investment Law no.25/2007 provides the same treatment to any investors from other countries making investment in Indonesia in accordance with the applicable Indonesia law and regulations. The law has also confirmed that the Indonesia government will not nationalize nor take over the ownership right of the investors, except through the law, where if the government has to nationalize or take over the ownership right of the investors, the government must compensate the investor with the amount is stipulated based on the market price. The Investment law no. 27/2007 does not clearly explain what is the meaning of except through the law as the reason to allow the Indonesia government to nationalize or take over the ownership right of the foreign investors. But, considering that Indonesia is the parties to ACIA, it has to be interpreted based on Article 14 of the ACIA exceptions, namely ; a. For a public purpose b. In a non discriminatory manner c. On payment of prompt, adequate and effective compensation, and d. In accordance with due process of law. The dispute settlement mechanism between the government of Indonesia and its foreign investor is regulated in the Article of 32 (4) of the Investment Law no. 25/2007. The investment dispute can be settled through an international arbitration institution based on the agreement between the disputing parties. The amicable settlement process in settling the disputes is also recognized in the Indonesia Investment Law no. 25/2007, as well as in the ACIA. AEC and the Cross Border Insolvency Regulation The ASEAN integrated market and production base, in one side can give a great success to ASEAN business players (investors) in transnationally growing bigger and bigger in the territories of the ASEAN member states that has been integrated in to a single market and production base. However, on the other side, the liberalized ASEAN market also increases more risks, with very high level of competitions, more volatile 11

12 market that can cause a business failure or even a financial collapse to a loser. When an ASEAN business player or company fails in running its business causing severe distress to its financial condition making the company unable to settle its due date and payable debt to its creditor, a bankruptcy law will be the law to decide whether the company will still be subject to rescue (restructuring) 15 or has to be liquidated 16. Michael J. White basically explains that the settlement of the insolvent debtor outside of the bankruptcy law mechanism will create uncertainty and unfair treatment to the creditors rights, since the creditor will race to get payments first, either directly or through legal action and will leave the creditors get unpaid or paid less, even though as unsecured creditors they have a right to be paid on pro rata basis. The creditors effort to get payment through legal action will make a longer process and costly, because the debtor will be busy in defending itself against creditor s lawsuits, and at the end, even though the creditor (s) can win the case, it will not change the situation, since the main reason why the debtor does not pay is because the debtor has been insolvent 17. The rescue option will strongly depend on many factors, including the total value of the assets owned by the need to be restructured company and more importantly, where the assets are domiciled. When the assets of the company are domiciled abroad or in some ASEAN member states territories, it will be very difficult, if not almost impossible, for an administrator to do their job facing the fact that a rescue 15. According to the Indonesian Bankruptcy Law No.37 of the year 2004, the rescue option can be pursued through a Suspension of Payment of a Debt (locally known by its abbreviation, PKPU) filed to the Indonesian Commercial Court. The administrator (Indonesian called Pengurus ) will be appointed by the Indonesian Commercial Court to administrate and manage all of the assets of the debtor in PKPU in relation to the restructuring plan that will be proposed by the debtor to all of its creditors. 16. Frederick Tung states; when a firm fails, bankruptcy law attempt to maximize the value of the firm s assets for the benefit of the firm s creditors. Bankruptcy law also determines how that value should be distributed among the creditors. The failure of multinational firms typically leaves assets and unpaid creditors in several jurisdictions. However no overarching international bankruptcy system exists. Instead the national bankruptcy laws of several states might plausibly to apply to govern the firm s bankruptcy or particular aspect of the case. Conflicting claim of jurisdiction often arise. Frederick Tung, Fear of Commitment in International Bankruptcy Geo.Wash. Int l L Review, Vol.33, June 2001,p Michael J.White, The Corporate Bankruptcy Decision, article in Jagdeep S. Dhandari and Lawrence A. Weiss (ed); Corporate Bankruptcy, Economic and Legal Perspectives, Cambridge University Press, 1996, p

13 process (suspension of payment) granted by a court in one state will not automatically be recognized by or enforceable in a foreign country where the debtor s assets are located, nor the recognition of an administrator appointed by the court in order to manage the rescue proceedings. The same problem will be also faced by a receiver appointed by the court for a liquidation process when the company is declared bankrupt. This makes almost impossible for the administrator or receiver to access the debtor s assets domiciled abroad except through a re-litigation strategy that will create longer time, extra costs and uncertainty. This is I believe why Michael Sloan states that Asian region does not have adequate laws to deal with the insolvency of multinationalcorporate collapse. 18 The need of a cross border insolvency regulation seems to be inevitable facing the consequence of the implementation of AEC. It will inevitably lead to the increasing need of a clear and applicable answer of how to cope with a cross border assets of ASEAN insolvent debtors, since the absence of that will leave a legal uncertainty for transnational business players and investors in settling debt disputes with their debtors in the ASEAN integrated region 19. The implementation of the Indonesia bankruptcy law no. 37 of 2004 (the Indonesia Bankruptcy law) 20 for example, cannot be put to a maximum implementation 21, when 18. Michael Sloan, The lack of adequate insolvency frameworks for major corporate collapse in Asia, an Asian Development Bank Presentation for the Forum on Asian Insolvency Reform, Session III-New Delhi, India on 3-5 November Andrew T Guzman has correctly stated that the growth of international business, has consequently brought with it a growth in the number of international business failure. According to him, the increased number of international insolvencies has brought intention to the question of how to deal with international bankruptcy, Further, please read, Andrew T. Guzman, International bankruptcy, in defense of universalism, Michigan Law Review, The University of California, Berkeley vol.98:2178, p.2177 (2000) 20. Indonesia has reformed its bankruptcy law in 1998 as part of the comprehensive package in curing the Indonesia from the very bad and deep monetary crisis in The old Indonesian bankruptcy law inherited from the Netherlands law, had been improved in making clear a legal basis for a debtor to be declared bankrupt. The Indonesian bankruptcy law no.37/2004 (The Indonesia bankruptcy law) theoretically regulates a clear and strict time frame, transparency and also introduces a special bankruptcy judges in the Commercial Court (even though it is still part of the general court) that was introduced specially for handling the bankruptcy case or suspension of payment of the debt (PKPU) cases, as well as introduces a private receiver and administrator, since before the reformation, it was only handled by the receiver from the Indonesian Orphanage chamber (BHP). 13

14 the assets of a bankrupt debtors are located abroad. Even though the international bankruptcy as regulated in the Article confirmed that all of the bankrupt assets located everywhere, including abroad, are subject to a public attachment as regulated in the Article 21, but it is realized that the said universal application will not bind a foreign states based on the principle of territorial sovereignty of the states (the principle of territoriality). The decision of bankruptcy that has been granted by the Indonesia Commercial court, will not automatically be acknowledged in a foreign state, as well as the receiver appointed for managing and liquidating the bankruptcy estates. The article of the Indonesia bankruptcy Law 22 will only bind the local unsecured creditors or the unsecured creditors domiciled in Indonesia to basically not be allowed to get a separate payment from any of a bankrupt debtor s assets domiciled abroad, for example; by taking a separate legal action in the country where the bankrupt estates are domiciled. This basically shows the eagerness of Indonesia for the decision of its court to be recognized and be enforceable universally. On the other hand, Indonesia also apply the principle of territoriality in its region, not recognize a foreign bankruptcy decision as well as a foreign receiver being appointed in managing and liquidating the foreign bankrupt debtor s assets domiciled in Indonesia. As the ASEAN integrated market and production is the end goal of AEC, the collective measures in establishing a just, transparent and high quality and certain solution of an insolvency case in ASEAN region also becomes inevitable. This is basically stated by Jay Wrestbrook in his article concluding that the global market requires global 21. maximum implementation means an opportunity for the appointed receiver to decide the best steps in maximizing the value of the bankruptcy estates, for example; by using the assets abroad to pay the obligations of the debtor to its creditors maximally, or using the assets in restructuring or maintaining the going concern of bankrupt company for a better value, rather than having to liquidate them in a piece meal sale. 22. The reformation of the Indonesian bankruptcy law in 1998 was conducted in very urgent basis that made the enactment of the reformed bankruptcy law was based on the Government Regulation No in lieu of the Bankruptcy regulations 1905, that was then replaced by the Law no.4 of the year 1998, and again replaced by the Law no.37 of the year

15 bankruptcy law. 23 The importance and inseparable existence of a cross border insolvency law in the globalised market has also been emphasized by Bob Wessel stating that the insolvency law is a by-product of globalization. 24 This supports the arguments that the ASEAN integrated market and production base will need cross border insolvency regulations facing the fact that more and more, the international movements or the international scaled business activities of the ASEAN business players and investors will be followed by the existence of their assets and obligations at least in many, if not in all territories of the ASEAN member states. The changing of the member states response to the effect of the economic globalization has rightly explained by Andrew T Guzman in its article, among others quoted as below: Traditionally, national governments could focus on their domestic economies without undue attention to international issues. Today, however, a country s policymakers must respond to the growth in international business activities with appropriate legal changes. Failure to do so will cause their legal regime to fall further and further out of step with the needs of the global market place. 25 This has also been emphasized by Prof. C.F.G Sunaryati Hartono 26 in her book stating that the globalization of economy is not anymore a choice, but has already become a reality that cannot be avoided for its existence. Therefore, the action that must be taken by the member states is to prepare and built their global capabilities and competencies to invite as maximum investments and capitals to their each territory as they can. 23. Jay Wrestbrook Lawrence,J.L, A global Solution to Multinational Default, 98 Michigan Review 2276 ( ) 24. Bob Wessel, Cross border Insolvency Law, Kluwer Law International 2007, article preview. 25. Andrew. T. Guzman, Loc Cit Prof. C.F.G Sunaryati Hartono, Politik Hukum Menuju Satu Sistem Hukum Nasional.Bandung, Alumni 1991, p.71 15

16 Further, learning from the experience of the European Union, the existence of AEC cannot theoretically be separated from the need of the existence of the ASEAN cross border bankruptcy regulations. The similar essence had been clearly voiced by Jona Israel 27 in the process of the establishment of the European Economic Community, as below; The internal market demands the effective regulation of insolvency also and particularly when a debtor s assets and liabilities are spread over more than one member state. After all, such a multi-jurisdictional debtor is exactly what the community is aiming for with its freedoms and goal of optimal allocation of resources on a European scale. The Commitas Europea dictates a reformulation of cross-border insolvency law according to these demands. The theory is strongly supported by Bob Wessels stating the absence of the cross border insolvency regulation in EC market is viewed as a lack of protection of persons and business in the integrated economic region, among others quoted as below: In order to complete the internal EC Market, the absence of a treaty on Insolvency Proceedings was viewed as a lack in the legal protection of persons and business. Only national law (including its private international law) is applicable in the event of a (legal) person going bankrupt. At the same time a whole range of cross border activities is increasingly taken by persons-notably legal persons, companies trading only within the borders of one member state. The debate about which of the principle of universality 28 and the principle of territoriality 29 is better for resolving the problem of a transnational bankruptcy has 27. Israel Jona, European Cross-Border Insolvency Regulation, Intersentia Antwerpen-Oxford 2005, hlm The principle of Universality describes that the bankruptcy estates collectivity is to be achieved through concentration of proceedings in a single forum and through the application of a single law, the lex fori concursus. The supporter of the principle of universality finds some weaknesses in the implementation of the principle of territoriality, such as; 1). There will be a potential unfair treatment between the local creditors and for the foreign 16

17 long existed and come to no clear result up to now. Hannah L. Buxbaum 30 basically explains that the globalization of economic markets and attendant changes in crossborder regulatory strategies has challenged the fundamental principle of private international law, from a traditional model of conflict analysis that is based on territorial sovereignty in order to effectuate its domestic regulatory interests by applying its own law to the dispute, to substantive model of conflict resolutions that can see the protection its economic policy interest to the substance of applicable law. As the main intention of the 10 member countries of AEC is an economic consolidation to create single market that, is strongly believed, will create prosperity within the AEC region, all of the business relationship in the context of creating free trade area will be step by step built by mutual commitments that directly or indirectly will become the rules of play for the 10 ASEAN member states. Mutual consents or cooperation of the ASEAN member states to provide common management and operational systems of AEC will be step by step formalized as the regulations binding the 10 member states, including the cooperation to establish the regulations in settling business dispute born from insolvency problems. creditors, since the foreign creditors can potentially receive the information late, 2). The difference of a legal system can give different understanding regarding the class of the creditor, 3). Unpredictable time frame and high cost, 4). Multiple proceedings can lead to conflicting and incompatible results and could severely impair the proper restructuring or liquidation of the insolvent company, and 5). A debtor can place its assets abroad in order to avoid being touched by the receiver in the bankruptcy status. 29. On the other side, the supporter of the principle of territoriality also find some weakness in the implementation of the principle of universality, such as; 1). The acknowledgment of the foreign country will principally be based on reciprocal basis, 2). The reciprocal basis will almost be impossible to achieve if based on the political consideration, since the acknowledgment to the principle of universality can be seen as the reducing of the sovereignty power of a state 3). There must be a strong economic interdependence (specifically economic interdependence) between the countries in order to give a chance to mutually negotiate and commit for the implementation of the principle of universality 29, 4). There must be a clear legal consequence to the country that breaches the mutual commitment. Therefore, in the absence of any reciprocal commitment between the countries, the administration and liquidation process of the bankruptcy estate should be based on the law where the bankruptcy estates are domiciled. 30. Conflict of Economic Laws, from Sovereignty to substance, Virginia Journal of International Law, Vol.42:

18 Economic inter dependent Liberalization: flows of capital, investment, production, services, and human resources Global Competition ASEAN and 10 member states with the total of people almost 630 millions with PDB of USD 2,1 trillion in 2013 Strengthning ASEAN Global Market The integration of the economy increases not only he wealth of business players in ASEAN region but also the obligations/debts Economic cooperation encourages cooperation in building legal infrastructures in creating legal certainty in AEC region Building a transnational capacity of the receiver in AEC introduction and study the law of member countries to increase mutual understanding and trust among AEC members. Cooperation of Law Based on International Comity Using UNCITRAL model law Cross Border Insolvency as a model law/general reference Establishing cooperation between the courts of the Member States and also with the receiver in realizing the transnational capacity Establishing commitment for mutual application of Cross Border Insolvency Regulations in AEC through Convention or Treaty Enacting the Cross Border Insolvency become the law of the AEC. Comparing to EU, ASEAN has many specific challenges that the EU did not have when it started the economic cooperation around 55 years ago. Different with EU, the 10 member of ASEAN comes from a very heterogeneous economic status, such as; from the best economic performance, like Singapore, to the need to support economic situation, like; Cambodia, Myanmar, Laos and Vietnam (more known with CMLV ) 31, different history of the motive of countries integration 32, heterogeneous legal systems 33, heterogeneous cultures, human 31. Lee Leviter gives an example between Singapore and Myanmar as both members of ASEAN, where Singapore s GDP has achieved USD.52,200,- while Myanmar s GDP is very far below, namely only USD 1,100,-, Lee Leviter, The ASEAN Charter; ASEAN failure or member failure? J.D. Candidate,2011, New York University School of Law,p The members of European Economic Community basically comes from the same sentiments, the countries that had been successful in going out from the very heavy financial crisis in Europe benefited from the help of Marshall Plan in 1947, different with ASEAN where the initiative was more reasoned by the intention to create a safe area in ASEAN region. 18

19 resources, languages, concentration of religions, government policies and market concentrations. Therefore the ASEAN economic integration must be started with the cooperation among the member countries to focus on building the economic capacity of the member states, for example supporting the CMLV countries economic through the Vientiene Action Plan Therefore, the optimism of the 10 member countries to realize the ASEAN single market, Bob Wessels says, will be completed with the commitment to prepare the AEC cross border insolvency regulations as to create a certain, fast, efficient, just, and transparent way in settling the insolvent company s problems either by restructuring or liquidating them. Understanding that it is not an immediate result, the existence of the forum ASEAN Law Ministers Meeting (ALAWMM) will become important in arranging serious action plans to prepare the regulations for the cross border bankruptcy matter within the ASEAN/AEC region, as follows: 1. Conduct a serious, deep and continuous study to know more regarding the national bankruptcy law of every ASEAN member state in order to build a better understanding and mutual appreciation among the ASEAN member countries. 2. To build mutual trust between or among the member countries, by starting to see the closest possible countries to start a cooperation between/among the courts or other justice institutions to see what and how to measure the acceptable reason for each of the country to come to a reciprocal goals of commitments between/among them based on the international comity, including to work together to provide a standard conduct of judicial system in each of the member countries. 3. To introduce the UNCITRAL Model Law on Cross border Insolvency as the model law for the reference of the ASEAN member states to support the building of same understanding and perception among the ASEAN member states, that will be a good input for the member states in reforming their national bankruptcy laws. 4. To open a possibility for a legal cooperation between a court of the member states with the appointed administrator or receiver appointed by the local court of one of 33. Singapore and Myanmar use a common law system, Malaysia and Brunei Darusalam use a common law system that has been mixed with Islamic Law, and Indonesia, Laos, Thailand, Philipine and Vietnam use Civil law system. 19

20 the ASEAN member state in relation to the management of the assets located within its territory as an alternative, even though the AEC cross border insolvency regulations has not yet existed. 5. When the ASEAN member states are successful in doing the above points, with the facts that the economic integration has provenly benefited the ASEAN member states, it will be more prospective for the ALAWMM to promote the AEC cross border insolvency commitment through a convention or multilateral convention, as was done by EEC in The achievement of a strong single market in ASEAN will make the AEC cross border insolvency law as a harmonized law be more prospective to achieve. The above action plans, will be part of the effort for preparing the progressive solutions based on the increasing mutual trust and cooperation among the AEC member countries, in order to give mutual solution for them to cope with the problems of multinational insolvency problems that are believed will grow in ASEAN region as the consequence of the AEC. -THANK YOU- 20

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