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NOTABLE RULINGS ISSUED BY THE CONSTITUTIONAL COURT AT THE END OF 2021 (Indonesia)

NO&T Asia Legal Review

*Please note that this newsletter is for informational purposes only and does not constitute legal advice. In addition, it is based on information as of its date of publication and does not reflect information after such date. In particular, please also note that preliminary reports in this newsletter may differ from current interpretations and practice depending on the nature of the report.

Introduction

The Constitutional Court of the Republic of Indonesia issued two important decisions at the end of 2021. The first decision was issued on November 2021 regarding the enactment of Law No. 11 of 2020 on Job Creation (“Omnibus Law”). The Constitutional Court declared that the Omnibus Law is “conditionally unconstitutional” due to some errors in formality. Based on this decision, the Constitutional Court required the government to fix the errors within two years from the issuance date of the decision.

The second decision was issued in December 2021 with respect to the legal remedy for suspension of debt payment obligation (“PKPU”) proceeding. Based on this decision, the relevant parties in PKPU proceeding are now allowed to submit a cassation to the Supreme Court as a legal remedy for PKPU decision handed down by the Commercial Court. Prior to the issuance of this decision, PKPU decision by the Commercial Court was a final and binding decision and therefore no legal remedy was available for the disputing parties if they were not satisfied with it.

These two decisions from the Constitutional Court are vital for Indonesian legal system, especially the one related to the Omnibus Law. As we have explained in our previous newsletter (here), arguably the Omnibus Law was hailed as the most significant legal reform in Indonesia as it amended 78 existing laws and since its enactment, the Government has issued more than 50 implementing regulations. The decision by the Constitutional Court which declared the Omnibus Law “conditionally unconstitutional” may have a huge impact on its implementation.

We have prepared our review and analysis of those two decisions below.

1. Constitutional Court Decision on Omnibus Law

On 25 November 2021, the Constitutional Court issued the decision No. 91/PUU-XVVII/2020 with respect to the review of the Omnibus Law brought by several petitioners from various backgrounds, including university students, non-governmental organizations, and academic scholars. The petitioners argued that the enactment of the Omnibus Law is contrary with the formality for making laws pursuant to the prevailing laws and regulations. In brief, the petitioners argued the following issues:

  • The drafting of Omnibus Law by using “Omnibus” method (i.e. one law can amend various laws) is vague and ambiguous. It is not clear whether the Omnibus Law is a new law, an amendment of a law, or a revocation of law;
  • The “Omnibus” method is not recognized under the Indonesian legal system. The petitioners argued there is no law or regulation which allows the government to draft a law in the “Omnibus” form, hence it should be declared invalid.
  • There are several versions of Omnibus Law available in the public domain as well as substantial last minute changes prior to the enactment.

Based on the above arguments, the petitioners requested the Constitutional Court to declare the Omnibus Law unconstitutional and therefore be null and void.

Having heard the explanation from the petitioners and the government, the Constitutional Court declared that the Omnibus Law is “conditionally unconstitutional” as it fails to meet the formality requirements for drafting and preparing the law pursuant to the prevailing laws and regulations. According to this decision, the Constitutional Court ordered the government to fix the formality errors within two years from the date of its decision. Unfortunately, it is no clear what such “fix” means and by what method or arrangement the government should “fix” it. If we take a look at the relevant laws and regulations regarding the drafting and preparing of laws, it would imply that the government should redo all necessary formality procedures including but not limited to conducting academic study and public discussion. The Constitutional Court in its decision clearly stipulated that there was a lack of public participation for the enactment of the Omnibus Law, hence we are of the view that the government will take necessary action to fulfill this requirement.

The phrase “conditionally unconstitutional” would mean that in the event the government fails to “fix” the errors within such two years period, i.e. by 25 November 2023, the Omnibus Law will be deemed unconstitutional and thus be null and void. This would mean that the laws in effect prior to its amendment by the Omnibus Law would then be reactivated as original. In addition to declare the Omnibus Law “conditionally unconstitutional”, the Constitutional Court in its decision also restricted the government to (i) perform actions or policies that are strategic and have broad impact under the Omnibus Law, and (ii) issue new implementing regulations under the Omnibus Law.

It is not clear what kind of actions or policies are strategic and have broad impact under the Omnibus Law, hence it would give rise to numerous questions on how this order should be implemented in practice. From legal perspective, it is not the authority of Constitutional Court to restrict the government to perform certain acts or policies. Furthermore, with respect to the restriction of issuing new implementing regulations, it may cause legal uncertainty on the implementation of the Omnibus Law. Even though the government has issued numerous implementing regulations in various forms, we note that some technical regulations are yet to be issued. Due to this restriction, there may be a delay on the issuance of such technical regulations.

Upon the issuance of this decision, the government has responded that they respect the decision and will comply with the orders from the Constitutional Court. This two years period is critical for the government to “fix” some errors on the enactment of the Omnibus Law. The government expresses that they will strive to comply with the court orders and prevailing laws and regulations, and also guarantees public and investors that there will be no hindrance to business activities in Indonesia.

2. Constitutional Court Decision on PKPU Decision

On 15 December 2021, the Constitutional Court issued the decision No. 23/PUU-XIX/2021 with respect to the review to the Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligation (“Law 37/2004”). The petitioner argued that Article 235 and Article 293 which state that there is no legal remedy for PKPU decision issued by the Commercial Court is contrary to the Constitution of 1945 and should be declared unconstitutional and thus be null and void.

The petitioner further argued that legal review should be available for any legal proceedings, including PKPU proceeding. Without any legal remedy available, the relevant party does not have any chance to submit an appeal to the higher-level court while there may be a possibility that the Commercial Court (as first-level court) is incorrect to examine the case or wrongly applies the laws. The petitioner argued that the original version of Law 37/2004 gives the impression that the Commercial Court is always correct in handing down the decision while judges may err sometimes. Based on this reason, the petitioner believed that there must be a legal remedy for PKPU decision mainly for checks and balance purposes.

Having read the explanation from the petitioner and the government, the Constitutional Court partly accepted the claim submitted by the petitioner and decided that Article 235 and Article 293 shall have no legal effect to the extent that it is not interpreted that it is allowed for the relevant party to submit a cassation to the Supreme Court for PKPU decision which is initiated by creditor and PKPU decision with respect to the rejection of settlement plan proposed by the debtor. In other words, the opportunity to submit a cassation is limited for two conditions, namely (i) PKPU decision where such PKPU is initiated by creditor, and (ii) PKPU decision which rejects the settlement plan proposed by the debtor.

In their consideration, the Constitutional Court explained that those two PKPU decisions may be contentious in nature, hence there may be a party who suffers losses due to the decision by the Commercial Court. Furthermore, the Constitutional Court also explained that the decision issued by the Commercial Court can potentially lead to partiality or at least there is a possibility of errors in the application of the laws by the judges. As such, the suffering party must have a legal remedy to protect its legal right.

Based on this decision, PKPU decision where such PKPU is initiated by creditor, and PKPU decision which rejects the settlement plan proposed by the debtor are now allowed to be appealed in the form of cassation to the Supreme Court. The cassation decision by the Supreme Court will be the final and binding decision, thus no legal review / peninjauan kembali is allowed against the cassation decision of the Supreme Court.

This newsletter is given as general information for reference purposes only and therefore does not constitute our firm’s legal advice. Any opinion stated in this newsletter is a personal view of the author(s) and not our firm’s official view. For any specific matter or legal issue, please do not rely on this newsletter but make sure to consult a legal adviser. We would be delighted to answer your questions, if any.

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