Shutting down healthy companies over false accusations is not a good way to attract investors, says Janet Lipski

Corruption, conspiracy and intrigue are good ingredients for a crime novel, but they make for a bad insurance story. Yet these are the elements surrounding the recent battle between Indonesia's fourth largest life insurer, PT Asuransi Jiwa Manulife Indonesia (AJMI), and a bankrupt family concern. The conflict, at least, has done much to expose the country's under-developed legal system, not to mention its shady judges.

Reform demand

The decision by a commercial court in Jakarta to declare bankruptcy at AJMI, a subsidiary of Canada's Manulife Financial Corp, no doubt sent shock waves through the Indonesian capital's business community. Fuelled by the prospect of losing badly needed investors, foreign businesses found themselves, once again, calling for sweeping legal reforms to combat questionable legal practices in the sprawling island country.

AJMI stood accused of failing to pay in 1999 a $2.6m dividend to its former (and now defunct) joint-venture partner PT Dharmala Sakti Sejahtera (DSS). In October 2000, Manulife Financial had paid DSS approximately $20m for a 40% stake in AJMI, increasing its ownership to 91%. However, Roman Gold Assets Ltd, a British Virgin Islands registered company, announced that it had bought the same shares two weeks before they were sold to Manulife in an auction orchestrated by the Indonesian government.

Officials sold the DSS stake in AJMI to recover money channelled into the DSS banking operation, which collapsed during the 1997 financial crisis. Manulife alleged that the former owner of DSS, the Gondokusumo family, used Roman Gold and Harvest Hero, a company registered in Hong Kong, as smokescreens in order to win back the 40% stake and ruin AJMI.

In the summer of 2002, the receiver appointed to manage the winding-down of DSS handed a petition to the commercial court requesting the bankruptcy of AJMI over supposedly unpaid 1999 dividends. However, Manulife contended that the shareholders had decided not to declare dividends, and its assertion that AJMI was financially sound was echoed by the Indonesian finance minister. Nevertheless, the unpaid dividend was deemed to be a debt, one which was sufficient under Indonesian bankruptcy laws to allow a commercial judge to declare a firm bankrupt. Consequently, despite its high solvency rating, AJMI was declared bankrupt on 13 June.

Enforced closure

Amid concerns of how foreign investment would be affected, AJMI was forced to close its 73 branches for a few days. The court appointed a receiver to oversee the $400m unit. Unappeased, however, AJMI filed an appeal to the Supreme Court. In addition, Manulife requested that the appointed receiver, a lawyer named Mr Kalisutan who had acted for Harvest Hero, be replaced with an internationally known firm, claiming that Mr Kalisutan was linked to the Gondokusumo family. Allegations were also made that the lawyer had withdrawn from the Indonesian Receivers Association in May, and therefore was not qualified for the job.

Resignation


Mr Kalisutan was forced to resign on 27 June, the day after AJMI was granted the go-ahead to reopen its doors, and following the appointment of a new receiver by an appeal court. Until then, the government had been reluctant to intervene, but as a result of mounting pressure, not least from the Canadian government, and amid fears of an international backlash, the Indonesian authorities urged the Supreme Court to make a swift decision regarding Manulife's appeal against the bankruptcy ruling. In addition, both the Ministry of Justice and Human Rights, and the Jakarta High Court launched separate investigations into alleged bribery surrounding the three judges responsible for the initial controversial ruling.

On 8 July, the Supreme Court ruled unanimously to drop the bankruptcy ruling, saying that DSS receiver Paul Sukran had not obtained approval from a supervising judge when filing the bankruptcy petition. A month later, on 7 August, the Ministry recommended that the three judges, who had already been suspended from duty during the inquiry, be sacked. However, the case would go before a judicial honour council, at which the judges would be allowed to defend themselves. Furthermore, one of the three judges indicated that he would file a lawsuit against the government over his suspension, claiming that he had opposed the decision of the two other judges. However, he refused to comment on the suggestion that this decision had been made only after he met with one of Manulife's lawyers, and before the judges' verdict was issued. In addition, a judge from the same panel later admitted to having received "gratitude money" in previous cases. He insisted that accepting such monies from grateful hearing participants does not constitute corruption.

While Jakarta can breath a little more easily now that international and domestic pressure has lifted, scepticism of the government's commitment to overhaul the courts and its judiciary remains high. Moreover, while the salaries of law enforcers remain low, it will be extremely difficult for Indonesia's judicial leaders and legislators to meet investors' demands for anti-corruption measures in the courts. The outlook for investors, then, remains bleak, but it is even more bleak for a country desperate for foreign money.

By Janet Lipski

Janet Lipski is a freelance journalist.
Corruption, conspiracy and intrigue are good ingredients for a crime novel, but they make for a bad insurance story. Yet these are the elements surrounding the recent battle between Indonesia's fourth largest life insurer, PT Asuransi Jiwa Manulife Indonesia (AJMI), and a bankrupt family concern. The conflict, at least, has done much to expose the country's under-developed legal system, not to mention its shady judges.

Reform demand

The decision by a commercial court in Jakarta to declare bankruptcy at AJMI, a subsidiary of Canada's Manulife Financial Corp, no doubt sent shock waves through the Indonesian capital's business community. Fuelled by the prospect of losing badly needed investors, foreign businesses found themselves, once again, calling for sweeping legal reforms to combat questionable legal practices in the sprawling island country.

AJMI stood accused of failing to pay in 1999 a $2.6m dividend to its former (and now defunct) joint-venture partner PT Dharmala Sakti Sejahtera (DSS). In October 2000, Manulife Financial had paid DSS approximately $20m for a 40% stake in AJMI, increasing its ownership to 91%. However, Roman Gold Assets Ltd, a British Virgin Islands registered company, announced that it had bought the same shares two weeks before they were sold to Manulife in an auction orchestrated by the Indonesian government.

Officials sold the DSS stake in AJMI to recover money channelled into the DSS banking operation, which collapsed during the 1997 financial crisis. Manulife alleged that the former owner of DSS, the Gondokusumo family, used Roman Gold and Harvest Hero, a company registered in Hong Kong, as smokescreens in order to win back the 40% stake and ruin AJMI.

In the summer of 2002, the receiver appointed to manage the winding-down of DSS handed a petition to the commercial court requesting the bankruptcy of AJMI over supposedly unpaid 1999 dividends. However, Manulife contended that the shareholders had decided not to declare dividends, and its assertion that AJMI was financially sound was echoed by the Indonesian finance minister. Nevertheless, the unpaid dividend was deemed to be a debt, one which was sufficient under Indonesian bankruptcy laws to allow a commercial judge to declare a firm bankrupt. Consequently, despite its high solvency rating, AJMI was declared bankrupt on 13 June.

Enforced closure

Amid concerns of how foreign investment would be affected, AJMI was forced to close its 73 branches for a few days. The court appointed a receiver to oversee the $400m unit. Unappeased, however, AJMI filed an appeal to the Supreme Court. In addition, Manulife requested that the appointed receiver, a lawyer named Mr Kalisutan who had acted for Harvest Hero, be replaced with an internationally known firm, claiming that Mr Kalisutan was linked to the Gondokusumo family. Allegations were also made that the lawyer had withdrawn from the Indonesian Receivers Association in May, and therefore was not qualified for the job.

Resignation


Mr Kalisutan was forced to resign on 27 June, the day after AJMI was granted the go-ahead to reopen its doors, and following the appointment of a new receiver by an appeal court. Until then, the government had been reluctant to intervene, but as a result of mounting pressure, not least from the Canadian government, and amid fears of an international backlash, the Indonesian authorities urged the Supreme Court to make a swift decision regarding Manulife's appeal against the bankruptcy ruling. In addition, both the Ministry of Justice and Human Rights, and the Jakarta High Court launched separate investigations into alleged bribery surrounding the three judges responsible for the initial controversial ruling.

On 8 July, the Supreme Court ruled unanimously to drop the bankruptcy ruling, saying that DSS receiver Paul Sukran had not obtained approval from a supervising judge when filing the bankruptcy petition. A month later, on 7 August, the Ministry recommended that the three judges, who had already been suspended from duty during the inquiry, be sacked. However, the case would go before a judicial honour council, at which the judges would be allowed to defend themselves. Furthermore, one of the three judges indicated that he would file a lawsuit against the government over his suspension, claiming that he had opposed the decision of the two other judges. However, he refused to comment on the suggestion that this decision had been made only after he met with one of Manulife's lawyers, and before the judges' verdict was issued. In addition, a judge from the same panel later admitted to having received "gratitude money" in previous cases. He insisted that accepting such monies from grateful hearing participants does not constitute corruption.

While Jakarta can breath a little more easily now that international and domestic pressure has lifted, scepticism of the government's commitment to overhaul the courts and its judiciary remains high. Moreover, while the salaries of law enforcers remain low, it will be extremely difficult for Indonesia's judicial leaders and legislators to meet investors' demands for anti-corruption measures in the courts. The outlook for investors, then, remains bleak, but it is even more bleak for a country desperate for foreign money.

By Janet Lipski

Janet Lipski is a freelance journalist.