1. Introduction

One of the greatest threats to creditors' interests in bankruptcy proceedings does not come solely from the debtor's inability to pay its debts, but from the debtor's own deliberate acts of transferring, concealing, or embezzling assets as a bankruptcy ruling approaches. A debtor aware of its impending bankruptcy may try to "rescue" its assets from creditors' reach by transferring them to third parties, often affiliated parties such as family members, relatives, or subsidiaries.

To prevent such practices, Indonesian bankruptcy law provides a legal instrument known as actio pauliana, governed by Articles 41 to 50 of Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (the "Bankruptcy Law"). This instrument is one of the Receiver's key tools for annulling a debtor's legal acts that harm creditors, so that the value of the bankruptcy estate can be maximised for the benefit of all creditors.

2. Legal Basis and Elements of Actio Pauliana

Article 41(1) to (3) of the Bankruptcy Law provides that the Receiver may seek the annulment of any legal act that the debtor was not obliged to perform, that was carried out before the bankruptcy ruling was pronounced, and that is proven to harm creditors' interests. From this provision, three cumulative elements can be identified:

a.     A legal act that was not obligatory (not a legal obligation). This covers transactions the debtor was not actually required to carry out, such as selling assets far below market value or repaying a particular creditor preferentially before the debt fell due. Payment of a debt that has fallen due and must be paid is generally not included in this category, since the debtor is obliged to make it. Special rules apply to gifts (Articles 43 and 44), for which it is sufficient to prove that the debtor knew or should have known of the harm, and to payments of debts that are already due and payable (Article 45).

b.     The act harms creditors' interests. Harm here is understood collectively: not the loss of a single creditor, but a reduction in the bankruptcy estate that should have been shared proportionally among all creditors.

c.     Knowledge on the part of both the debtor and the counterparty. Article 41(2) states that annulment may only be granted if it can be proven that, at the time the act was carried out, the debtor and the party with whom it was carried out knew or should have known that it would harm creditors. The "should have known" standard matters because it broadens the scope of proof: the Receiver does not have to prove subjective bad intent, but only needs to show that, under reasonable circumstances, the counterparty ought to have been aware of the transaction's adverse impact on creditors. This burden is eased by Article 42: for non-obligatory acts carried out within one year before the bankruptcy ruling was pronounced and falling under Article 42(a) to (g), such as agreements in which the debtor's obligations far exceed those of the counterparty, payments of debts not yet due, or transactions with family members or affiliated parties, the debtor and the counterparty are presumed to have known of the harm, unless proven otherwise.

3. Filing Procedure

An actio pauliana claim is filed by the Receiver with the Commercial Court handling the relevant bankruptcy case (Article 47(1)). In practice, the Receiver usually first reports indications of fraudulent transactions to the Supervisory Judge and discusses them at a creditors' meeting before formally filing the annulment claim. This is important because actio pauliana claims often involve complex evidence, including tracing fund flows, assessing whether transaction prices were fair, and proving affiliations between the parties.

If the claim is granted, the asset that was the object of the transaction returns to the bankruptcy estate, and the party that received it must return it to the Receiver (Article 49(1)). If the asset can no longer be returned in kind, for example because it has been resold to a good-faith third party, the obligation to return it becomes an obligation to compensate the bankruptcy estate (Article 49(2)). Conversely, whatever the debtor received from the counterparty must be returned by the Receiver to the extent that the bankruptcy estate has benefited, and for any shortfall, the counterparty may come forward as a concurrent creditor (Article 49(4)).

4. Protection of Good-Faith Third Parties

One tension that often arises in applying actio pauliana is how to protect third parties who buy the asset in good faith from the initial recipient, without knowing of any defect in the earlier transaction. Article 49(3) of the Bankruptcy Law states that the rights of third parties acquired in good faith and not free of charge must be protected, but it does not set out in detail how this layered protection works. As a result, courts often have to weigh, case by case, the interest in recovering the bankruptcy estate against legal certainty for third parties who transacted fairly. The general principle usually followed is that a third party who genuinely acted in good faith and paid a fair price remains protected, while the obligation to return the value falls on the party that received the initial transfer from the debtor.

5. Case Study: PT Asuransi Jiwa Bumi Asih Jaya

One example of a successful actio pauliana claim is Commercial Court Decision No. 06/Pdt.Sus.Gugatan Lain-Lain-AP/2020/PN.Niaga.Jkt.Pst jo. No. 27/Pdt-Sus-PKPU/2015/PN.Niaga.Jkt.Pst, in the bankruptcy of PT Asuransi Jiwa Bumi Asih Jaya. After the Financial Services Authority (OJK) revoked the company's business licence on 18 October 2013, PT Asuransi Jiwa Bumi Asih Jaya went on to sell more than 12.3 million of its shares in PT Nusantara Bona Pasogit to a buyer on 8 January and 9 February 2015, within one year before the company was declared bankrupt. OJK's bankruptcy petition was initially rejected by the Commercial Court on 16 April 2015, before the Supreme Court granted OJK's appeal and declared the company bankrupt in Decision No. 408 K/Pdt.Sus-Pailit/2015 on 28 August 2015. In 2020, the Receiver team, as plaintiff, filed an actio pauliana claim arguing that the transactions were made to avoid paying creditors, and that the debtor and the counterparty knew or should have known that the transactions harmed creditors, especially as they took place after OJK had revoked the business licence. The panel of judges found that the parties should have known that the transactions harmed creditors, especially as they took place after the licence was revoked. The court therefore granted the claim in full, declared the share sale null and void, and ordered the buyer to return 13,216,185 shares (including shares from converted dividends) to the bankruptcy estate and to hand over dividends of Rp3,763,216,765 to the Receiver to restore creditors' rights.

6. Conclusion

Actio pauliana is one of the most vital instruments available to the Receiver to preserve the integrity of the bankruptcy estate and to prevent "dishonest" debtors from harming creditors by transferring assets ahead of bankruptcy. In practice, the Receiver must prove that the elements of actio pauliana under the Bankruptcy Law are met so that the debtor's harmful legal acts can be annulled by the court. However, the effectiveness of this remedy depends heavily on the Receiver's ability to uncover problematic transactions and on the court's support in assessing bad faith on the part of those involved.