Assessing the Effectiveness of Asset Execution and Insolvency in Recovery Strategies

Manuel Simbolon

The increase in non-performing loans (“NPLs”) has prompted creditors, particularly banks, to reassess the effectiveness of their existing recovery strategies. This article examines three primary approaches: asset execution, civil litigation, and formal mechanisms through Suspension of Debt Payment Obligations or Penundaan Kewajiban Pembayaran Utang (“PKPU”) and bankruptcy, along with the practical challenges they pose, ranging from legal uncertainty and technical constraints to moral hazard risks. Ultimately, selecting a recovery strategy requires a more careful, strategic, and case-specific approach. 

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Economic pressure and evolving business dynamics have increased the risk of NPLs. In this context, creditors, particularly banks, are required to adopt more strategic and measured approaches to recovery. 

In practice, recovery options remain relatively conventional. Creditors generally rely on two primary avenues: asset execution and insolvency mechanisms, including PKPU and bankruptcy. In certain cases, civil litigation is also used to support recovery efforts, particularly where recovery extends beyond collateral or when banks seek to pursue guarantors. These approaches have long served as the principal tools for addressing debtor default. 

However, with evolving market practices, ongoing regulatory developments, and changes in debtors’ mindset and knowledge, a more pressing question arises: do these approaches still deliver effective and optimal outcomes? 

Asset Execution 

In credit recovery, collateral execution, particularly land security rights or hak tanggungan, often serves as the initial step for creditors. From a legal perspective, this right is supported by the executorial tittle embedded in collateral certificate.  

In practice, execution is generally carried out through two approaches: parate execution (parate eksekusi) and court-assisted execution (fiat eksekusi). 

Parate execution allows creditors to enforce collateral execution directly without court involvement, including through public auctions conducted by the State Assets and Auction Service Office or the Kantor Pelayanan Kekayaan Negara dan Lelang (“KPKNL”). However, in practice, implementation often faces resistance from debtors, including, in some cases, through civil claims, as well as challenges in obtaining vacant possession of the asset following the auction. 

As an alternative, creditors may pursue court-assisted execution. This involves formal submission to the district court for warning orders (aanmaning), seizure orders, and court-supervised auctions. While often used as a procedural safeguard, this route entails greater complexity, higher costs, and increased time uncertainty. In practice, the execution of collateral through the court may give rise to jurisdictional complexities. Although the parties to a credit agreement may have contractually agreed to a chosen legal domicile before a particular District Court, it is not uncommon for the collateral to be located within the territorial jurisdiction of a different District Court. 

In such cases, a warning order (aanmaning) will be issued by the District Court chosen in the agreement. However, for further execution steps, such as execution seizure and auction orders, the court issuing the warning order must delegate authority to the District Court where the collateral is located. This creates a practical challenge in that the process requires continuous monitoring between the originating court (which issues the aanmaning), and the receiving court (which carries out the execution). 

For creditors, this means they must be fully aware of and track all orders issued by the originating court, and all follow-up orders issued by the receiving court.  

This is critical because the KPKNL will not proceed with scheduling an auction unless all required documents are complete, from aanmaning, execution seizure, to the court’s auction order. In addition, banks should conduct regular checks on the collateral’s status with the relevant authorities. For example, land assets should be periodically verified with the National Land Agency or Badan Pertanahan Nasional (“BPN”). 

From a practitioner’s perspective, the role of legal counsel in court-supervised execution should not be reduced to merely filing an application and awaiting a judicial order. The legal counsel’s function is to ensure that the execution process is procedurally sound and actively managed. This includes conducting a thorough pre-execution legal review of credit and security documents, identifying potential risks such as title defects or competing claims, and anticipating jurisdictional issues where multiple courts may be involved. Legal counsel must also oversee the procedural sequance from aanmaning to execution, seizure, and ultimately auction authorization, while maintaining consistent coordination with the relevant courts and ensuring that all documentation meets the KPKNL requirements of . Continuous monitoring of the collateral’s legal status through relevant authorities is also necessary to mitigate the risk of disruption at later stages. 

Ultimately, the value of legal counsel in this process lies in reducing avoidable delays, minimizing procedural risk, and maintaining process integrity. While legal counsel cannot control whether an auction will succeed commercially or whether the asset will attract a buyer at the optimal price, a disciplined and proactive approach can significantly improve the efficiency and reliability of the execution process. 

Civil Litigation 

In addition to asset execution, creditors, particularly banks, may pursue civil litigation as part of their recovery strategy. This approach is typically used where recovery extends beyond collateral enforcement, including cases involving personal or corporate guarantees, or where legal certainty over a dispute is required. 

Litigation provides a formal legal basis through a court judgment, strengthening the creditor’s position and serving as a foundation for further enforcement actions despite being inherently time-consuming and costly. During this period, the value of the underlying assets may decline, and even a favourable judgment often requires subsequent enforcement steps, such as court-assisted execution. 

Despite these limitations, litigation remains strategically relevant. It enables creditors to expand the recovery base by pursuing additional liable parties and often functions as a pressure mechanism to encourage restructuring or settlement. 

Against this backdrop, creditors may also consider insolvency mechanisms, namely PKPU and bankruptcy, which offer a collective forum for resolving debtor obligations in a single, integrated process. 

PKPU and Bankruptcy 

PKPU, in principle, is designed as a collective restructuring mechanism to align all creditors under a single court-supervised process and maximize recovery compared to bankruptcy liquidation. In practice, its use is becoming increasingly routine. Data compiled from the SIPP of 5 (five) Commercial Courts shows that PKPU filings reached 716 cases in 2025, increasing from 624 cases in 2024 and remaining close to the historical peak of 757 cases in 2021. Bankruptcy filings continue to account for only a small share of total cases (approximately 13–17%). This confirms that PKPU has effectively become the primary mechanism for addressing financial distress in Indonesia. In this environment, banks should selectively approach PKPU only where there is a clear upside to recovery, a viable business, and a restructuring timeline that does not materially erode value. 

At the core of this decision is the distinction between viable and non-viable debtors, which should be assessed early and pragmatically. A viable debtor is one whose business remains operational, generates cash flow, and operates in an industry with future prospects, where financial distress is primarily driven by leverage or temporary liquidity constraints. In such cases, restructuring may preserve value. By contrast, a non-viable debtor is characterized by the absence of sustainable operations, limited assets, or indications of asset dissipation, often in structurally declining or sunset sectors. For these debtors, prolonged restructuring typically destroys value, and liquidation or aggressive enforcement action is more appropriate. Misclassifying a debtor at this stage often leads to suboptimal outcomes. 

Equally important is recognizing when PKPU is inevitable, meaning that a court-supervised process will proceed regardless of the bank’s preference. This is typically indicated by debtors’ early maneuvers, including preparation to file. In such situations, timing becomes critical. If the debtor is viable, the bank should consider initiating or entering PKPU early to maintain influence over the appointment of the administrator, aligning creditors, and maintaining information flow. If the debtor is non-viable, early participation remains important, but the strategy should shift toward accelerating exit or pushing liquidation. Conversely, where PKPU is not yet inevitable, banks should prioritize bilateral restructuring and legal pressure to avoid court processes altogether. 

At the same time, the practical reality of PKPU raises increasing concerns around moral hazard and process integrity. It is not uncommon for the process to appear pre-arranged with aligned creditors and coordinated voting blocs to nominate administrator candidates and influence the appointment of administrators. Debtors have also become more sophisticated in using PKPU not only as a restructuring tool but also as a mechanism to delay execution, alleviate pressure, and, in some cases, gradually dissipate or reposition assets. In more aggressive scenarios, PKPU may be strategically engineered in advance, effectively allowing the debtor to shape and control the process from the outset. 

In this context, a bank’s approach must be practical and defensive. If PKPU is inevitable, the bank should step in early to initiate the process, secure influence, and maintain control. Where the restructuring lacks a credible recovery prospect, the bank should be prepared to reject the plan and resort to bankruptcy. The objective is not to passively participate in PKPU, but to control exposure and prevent value leakage in a process that is increasingly tactical rather than purely rehabilitative.  

Finally, in PKPU, the outcome is not determined at the end, but rather by who controls the process at the beginning. As a strategy, restructuring/PKPU needs to be shaped. If you are not shaping the restructuring, you are financing someone else’s strategy.Ultimately, asset execution, PKPU, and bankruptcy remain legal instruments available to creditors in their pursuit of recovery. However, each has its own characteristics, limitations, and risks. 

No single approach can be considered universally effective. The success of any recovery strategy depends on a careful, case-by-case assessment that takes into account legal considerations, asset conditions, and the risks inherent in each available option. 

For further information on restructuring and asset recovery strategies tailored to your business needs, please contact our Restructuring & Insolvency Team at ADCO Law. 

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