Difficulty in meeting payment obligations does not necessarily mean that a company will end up in bankruptcy. Under Indonesian law, a company facing financial pressure may encounter two different legal mechanisms: the Suspension of Debt Payment Obligations, commonly referred to as PKPU, and bankruptcy.

Both mechanisms operate within the debt settlement regime under the Commercial Court. Their purposes and legal consequences, however, are different.

PKPU is primarily intended to provide the debtor and its creditors with time and a formal forum to negotiate a restructuring through a composition plan. Bankruptcy, by contrast, places the debtor's assets that form part of the bankruptcy estate under a general attachment and transfers their administration and, where necessary, liquidation to a curator under the supervision of a supervisory judge.

This distinction matters because decisions taken at an early stage of financial distress can determine whether a company still has an opportunity to preserve its operations or whether it will enter a process involving the administration and liquidation of its bankruptcy estate.

Legal Framework for PKPU and Bankruptcy in Indonesia

The principal legal framework governing PKPU and bankruptcy remains Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations, commonly referred to as the Bankruptcy and PKPU Law.

The law remains in force in 2026. However, certain provisions have been revoked by Law No. 4 of 2023 on Financial Sector Development and Strengthening, commonly referred to as the P2SK Law.

These changes primarily concern the mechanisms for filing bankruptcy and PKPU petitions against certain entities operating in the financial services sector, including banks, securities companies, certain capital market institutions, insurance companies, reinsurance companies, and pension funds.

Accordingly, where a company operates within one of these regulated sectors, the special rules applicable under the financial sector regulatory framework must also be considered. Reliance on the general provisions of the Bankruptcy and PKPU Law alone may not be sufficient.

The P2SK Law was subsequently amended by Law No. 4 of 2026, which came into force on 17 June 2026. As a result, any analysis involving bankruptcy or PKPU proceedings concerning financial services institutions should take into account the P2SK Law in its current form.

For companies that do not fall within such special regulatory regimes, the principal rules governing bankruptcy requirements, PKPU, composition plans, asset administration, and relations with creditors continue to be based on the Bankruptcy and PKPU Law.

PKPU Is Primarily Intended for Debt Restructuring

PKPU does not mean that a company has already been declared bankrupt. On the contrary, the mechanism is intended to provide the debtor with an opportunity to propose a settlement of its debts before the relationship with creditors proceeds into the administration and liquidation of a bankruptcy estate.

Article 222 of the Bankruptcy and PKPU Law generally allows PKPU proceedings to be initiated where a debtor has more than one creditor and there is concern that the debtor will be unable to continue paying debts that have become due and payable.

A PKPU petition may be submitted by either the debtor or a creditor, subject to the requirements of the law.

The central element of PKPU proceedings is the composition plan, known in Indonesian as rencana perdamaian.

A debtor may propose different forms of settlement that remain commercially feasible. These may include rescheduling payment obligations, instalment arrangements, amendments to the payment structure, grace periods, or other lawful arrangements that can be agreed with creditors.

PKPU is therefore not a mechanism for eliminating debt obligations. Its purpose is to provide the parties with an opportunity to reorganize the manner in which those obligations will be satisfied.

During PKPU proceedings, the debtor does not lose all authority over the company.

Under Article 240 of the Bankruptcy and PKPU Law, the debtor may continue managing its assets, but acts relating to the management or transfer of those assets require the consent of the court-appointed administrator.

This arrangement differs substantially from bankruptcy. In PKPU, the administrator works alongside the debtor and supervises actions affecting the debtor's assets.

As a result, business operations may continue to the extent permitted under the legal framework governing the PKPU process.

Bankruptcy Places the Debtor's Assets Under General Attachment

Bankruptcy has a different legal character.

Article 1 point 1 of the Bankruptcy and PKPU Law defines bankruptcy as a general attachment over all assets of the bankrupt debtor, the administration and liquidation of which are carried out by a curator under the supervision of a supervisory judge.

For companies generally, Article 2 paragraph (1) provides that a debtor having two or more creditors and failing to fully pay at least one debt that has become due and payable may be declared bankrupt by a court decision, either upon its own petition or upon the petition of one or more creditors.

This means that the Indonesian bankruptcy regime does not first require proof that the company's total liabilities exceed its total assets.

The statutory requirements for filing a bankruptcy petition are therefore different from a balance-sheet insolvency test based on the company's financial statements.

Once a bankruptcy decision is issued, the consequences are considerably more significant than in PKPU proceedings.

The debtor loses the right to control and administer assets forming part of the bankruptcy estate, and that authority is transferred to the curator.

A bankruptcy declaration does not, however, necessarily mean that the company's operations must cease immediately on the same day.

Under certain circumstances, business activities may continue in accordance with mechanisms available under the Bankruptcy and PKPU Law.

The principal difference concerns control. Once bankruptcy has been declared, administration of the bankruptcy estate is placed in the hands of the curator rather than remaining under the unrestricted control of the company's directors.

Key Differences Between PKPU and Bankruptcy

These distinctions show that PKPU is better understood as a court-supervised negotiation and restructuring process, while bankruptcy is a collective mechanism for dealing with a debtor's obligations once its assets have become subject to a general attachment.

PKPU May Ultimately Lead to Bankruptcy

Although PKPU is designed to provide room for restructuring, it does not guarantee that a company will avoid bankruptcy.

One of the most important stages in PKPU proceedings is the creditors' vote on the composition plan.

Article 281 of the Bankruptcy and PKPU Law establishes the voting requirements that must be satisfied for a composition plan to be approved.

Where the plan receives the required creditor support and is subsequently homologated by the court, the composition becomes binding in accordance with the law.

If the plan fails to obtain the required approval, however, the debtor may ultimately be declared bankrupt.

The same may occur where the legal requirements for continuing the PKPU process are no longer satisfied or where another circumstance specified by the Bankruptcy and PKPU Law results in the termination of PKPU and the declaration of bankruptcy.

For this reason, PKPU should not be treated merely as a means of obtaining additional time.

The debtor should use the process to demonstrate that its proposed repayment structure has a sound financial basis and offers creditors a more viable outcome than the bankruptcy alternative.

The 270-Day Maximum Does Not Guarantee That the Debtor Will Receive the Entire Period

Article 228 paragraph (6) of the Bankruptcy and PKPU Law provides that the total duration of PKPU, including any extensions, may not exceed 270 days from the date on which the temporary PKPU decision is pronounced.

This is a maximum period. It is not an automatic entitlement given to every debtor.

The proceedings may end earlier, for example where the composition plan has already been approved or where the legal conditions for continuing PKPU are no longer satisfied.

For a company, the available period should be used to complete the verification of claims, prepare cash-flow projections, determine realistic repayment capacity, negotiate with different groups of creditors, and develop a proposal that can actually be implemented once the composition is approved.

An overly optimistic proposal may create further difficulties after homologation.

By contrast, a proposal supported by reliable financial information and realistic projections is more likely to gain creditor confidence.

Differences in Available Legal Remedies Also Matter

The legal remedies available in bankruptcy and PKPU proceedings are not entirely the same.

For a bankruptcy declaration, the Bankruptcy and PKPU Law provides a cassation mechanism subject to the applicable statutory provisions.

The legal remedies available in PKPU cases are more restricted.

An important development arose from Constitutional Court Decision No. 23/PUU-XIX/2021.

The Constitutional Court opened a limited avenue for cassation against a PKPU decision where the PKPU petition was submitted by a creditor and the debtor's composition proposal was rejected.

The Court did not open the possibility of judicial review for the same circumstances.

This is significant because the consequences of a failed PKPU process can be substantial.

Where rejection of the composition results in the debtor being declared bankrupt, the consequences extend beyond debt restructuring and affect control over all assets included in the bankruptcy estate.

Bankruptcy Law Developments in 2026

Several important developments in 2026 should also be taken into account when applying the Bankruptcy and PKPU Law.

In Constitutional Court Decision No. 181/PUU-XXIII/2025, decided on 25 May 2026, the Court provided an interpretation concerning the Elucidation of Article 292 of the Bankruptcy and PKPU Law.

The Court held, in the relevant context, that a bankruptcy declaration causes the debtor's bankruptcy estate to immediately enter a state of insolvency, with that state of insolvency taking effect once it is declared by operation of law by the supervisory judge at a creditors' meeting and recorded in the minutes.

The decision is particularly relevant to determining the point at which insolvency takes effect where bankruptcy arises from a PKPU process.

Another development arose in Constitutional Court Decision No. 74/PUU-XXIV/2026, dated 29 April 2026.

The Court provided a new interpretation of Article 74 paragraph (1) of the Bankruptcy and PKPU Law.

Under that interpretation, the curator is required to submit a report on the development of the administration of the bankruptcy estate to the supervisory judge every three months, with copies also provided to the creditors and the bankrupt debtor or its legal representative through registered mail, electronic mail, or an application.

This requirement strengthens transparency in bankruptcy proceedings because information concerning the administration of the bankruptcy estate is no longer confined to communications between the curator and the supervisory judge.

Creditors and the bankrupt debtor are also entitled to receive updates on the progress of the administration.

Practical Impact on Companies and Directors

For company management, the distinction between PKPU and bankruptcy should ideally be understood before payment difficulties develop into proceedings before the Commercial Court.

Where a company still has a viable business and its cash flow can reasonably be restored, restructuring through direct negotiations or through PKPU may provide an opportunity to preserve enterprise value.

The success of any restructuring, however, depends heavily on transparency and the company's ability to demonstrate a credible source of repayment.

Directors should also maintain a comprehensive understanding of the company's liabilities.

The creditor list, security arrangements, maturity dates, potential disputes concerning claims, key contracts, asset position, and cash-flow projections can all materially affect the legal and commercial strategy available to the company.

The analysis is different from a creditor's perspective.

Creditors must assess whether restructuring is likely to provide a better recovery than bankruptcy.

Whether a creditor is secured, preferred, or concurrent will also affect its interests and strategic position in the proceedings.

Accordingly, a decision to pursue restructuring, initiate PKPU, respond to a PKPU petition, or seek bankruptcy should not be based solely on the amount of outstanding debt.

The viability of the business, asset structure, security interests, number and type of creditors, repayment capacity, and likely recovery should be assessed as a whole.

Conclusion

PKPU and bankruptcy are both mechanisms for resolving debt, but they produce significantly different legal consequences for a company.

PKPU gives debtors and creditors an opportunity to seek a settlement through a composition plan.

During that process, the debtor continues to have a role in managing the company, although certain actions remain subject to supervision and require the administrator's consent.

Bankruptcy has more extensive consequences.

Assets forming part of the bankruptcy estate become subject to a general attachment, and authority over their administration is transferred to the curator.

The proceedings then focus on addressing creditor rights through the mechanisms established by law.

For a company beginning to experience liquidity pressure, understanding the distinction at an early stage can provide greater room to determine an appropriate strategy.

The longer a company waits to assess its financial condition and liability structure, the fewer options may remain once the dispute has reached the Commercial Court.