Supreme Court Chamber’s Formulation on Personal Guarantees in Bankruptcy and Postponement of Debt Payment Obligation Cases

Get an understanding of the Supreme Court guidelines on personal guarantees (borgtocht) in bankruptcy and PKPU cases under Supreme Court Circular Letter No. 2 of 2024.

1. The guarantor is only required to guarantee the value of the guaranteed creditor’s receivables, and is not required to guarantee all debts to other creditors.
2. The guarantor’s assets cannot be included as bankruptcy estate.

A personal guarantee is an accessory agreement in which a third party (the guarantor) commits to fulfilling the debtor’s obligations to the creditor if the debtor fails to meet those obligations.

The characteristics of a borgtocht include being accessory, voluntary, and limited. Accessory means the borgtocht cannot stand alone without the principal agreement between the creditor and the debtor. Voluntary means the borgtocht is granted voluntarily based on an agreement. Limited means the guarantor only guarantees obligations stipulated in the borgtocht agreement.

Referring to the explanation above, the guarantor is only responsible for the debtor’s debt to the specific creditor agreed upon in the borgtocht agreement. In its application to bankruptcy and PKPU cases, the Supreme Court, through the Circular Letter No. 2 of 2024, emphasized that the guarantor in bankruptcy and PKPU cases is only obligated to guarantee the debtor’s debt to the creditor explicitly specified in the borgtocht agreement. Thus, the guarantor is not liable for the debtor’s entire debt to other creditors.

This provides certainty and legal protection for the guarantor in carrying out his responsibilities.

Indonesian Civil Code stipulates that all of a debtor’s assets serve as collateral for their debts. However, this provision does not automatically apply to the assets owned by the guarantor.

The circular letter provides guidance that the guarantor’s assets cannot be included as part of the bankruptcy estate unless proven otherwise. Unfortunately, the Supreme Court does not provide further clarification regarding the limitations of this exception. Nevertheless, to ensure creditor protection, the guarantor’s assets should be included in the bankruptcy estate if it can be proven that the assets are directly linked to the obligations of the debtor being guaranteed.

This provision offers legal protection to guarantors, ensuring that their assets are not misused during bankruptcy or PKPU proceedings.