Practical problem on land for collateral purposes in Indonesia

By: Fatahillah Hoed

Law No.4 Year 1996 is primary reference to pledge the land in Indonesia. The Law announces the term “Hak Tanggungan” to use instead “Hipotik”, which customarily utilized in previous era of Law No.4 Year 1996.
Hak Tanggungan is not restricted only to the land, it’s also any object stand permanently connected to the land.
Article 1 Section 1 Law No.4 year 1996, defined Hak Tanggungan as Security Right imposed on the Land Right as Refers to the Law No.5 Year 1960, including or not cover any other object which integrated with such Land, to redeem certain debt to the creditor.
There will not be a problem to the object such as building or factory. The minimum security value to the land and building could be based only to land and building itself regardless the purpose of the building.
The problem shall arise when the object have volatile price in the market which could easily remove from the land. Inserting the object could boost the collateral value of the land which increases debtors lending limit. As long as the Debtors pay his monthly installment, the business will be as usual.
It will be very tricky when the Debtors proposed restructuring or demand lower terms and condition. The Creditor will require further calculation before accepting the Debtors proposal. If the Creditor forecast the risk exceeds the minimum burden, Creditor could instruct the Debtor to refinance the debt through another party. The worst condition when the Debtors already hit the bottom faster than the Creditor Expectation.
This condition shall bring the Creditor to the last two alternatives:
Remain in Silence. The Creditor shall not conduct any further action with consideration that character of Hak Tanggungan is Droit de suit refers to article 7 Law No. 4 Year 1996 which basically signify that as long as the Debtors not fully paid their debt, Hak Tanggungan remain valid to the land regardless the owner of the land. These alternatives shall create uncertainty from creditor’s commercial perspective since the interest and cost of money will be limitless which the longer time consume will increase more uncollectible interest by the Creditors. The risks for the land to be abandon also require fully consideration from the Creditors, which will cause longer time for the debt to be fully paid. It will bring more headaches when there is more than one level of Hak Tanggungan on such Land which means there will be probability fighting between creditors when the land value was not sufficient to fully pay each Creditor especially the workers also were not paid for the last several Months. The Remain in Silence will create more loss because there will be nothing left after the fight.
Initiate Legal Action. The Creditor has to take action to secure the collateral. The Workers will have their support from Industrial Relationship Court (Court which authorizes to settle cases related to the workers and the Employer) and the Debtor will get in touch with any support available. The Creditor should listing any support available to them based on prevailing Law and Regulation which will require urgent response to initiate Legal Action.
It will depend to the Creditors based on their specific condition and Debtor’s Character whether they will remain in Silence or initiate legal action. The only thing remain will be the only full protection is from the Creditor itself, by forecasting the further condition of the Debtor before it’s too late.