Breach of natural justice in making of bankruptcy-related orders against S'pore PRs by Indonesian court: Court of Appeal

SINGAPORE – In a split decision, the three-judge Court of Appeal in Singapore has ruled that there was a breach of natural justice in the making of bankruptcy-related orders against a businessman and his family by an Indonesian court.

These orders – against Mr Paulus Tannos, his wife Madam Lina Rawung and their children Pauline and Catherine – had earlier been recognised by the High Court of Singapore. The four are Indonesians, but hold Singapore permanent residency and reside here.

The High Court decision was eventually overturned by the apex court, with Chief Justice Sundaresh Menon and Judge of Appeal Tay Yong Kwang holding that the family had not been given a fair opportunity to contest the proceedings in the Indonesian court.

However, Justice Woo Bih Li disagreed, finding that they had earlier known of the court proceedings but chose not to attend.

Indonesian media reports state that Mr Tannos is a suspect in an ongoing corruption case in his home country involving an Indonesian government project working on the country’s electronic national identity cards.

According to the judgment by the apex court dated Aug 27, the businessman is a majority shareholder of Indonesian company PT Megalestari Unggul (MLU).

In 2011, MLU was granted a loan of 200 billion rupiah ($18.5 million) by another Indonesian company, with Mr Tannos and his family allegedly the guarantors of the loan.

MLU was subsequently unable to repay the loan in 2012 and the debt was eventually assigned to a third Indonesian company – PT Senja Imaji Prisma (SIP) – and two individuals.

This meant that MLU instead owed SIP and the individuals the outstanding loan.

In December 2016, SIP commenced legal proceedings in Indonesia against MLU and the Tannos family over the debt, urging the court to make Penundaan Kewajiban Pembayaran Utang (PKPU) orders against them.

Under Indonesian bankruptcy laws, a PKPU order temporarily suspends the repayment obligations of a debtor so that it can propose a plan to its creditors for the restructuring of its loans.

If the debtor fails to propose a plan which is approved by the majority of its creditors, a bankruptcy order will be made against it.

SIP subsequently attempted to serve notice of the PKPU proceedings to the Tannos family at their registered address in Indonesia. This delivery of legal documents failed, as there was an “incomplete address”, according to the records of the Indonesian courier company.

An advertisement of the proceedings was also placed in a local Indonesian newspaper with limited circulation.

The Tannos family and their lawyers were not present in court during the PKPU proceedings, and the PKPU orders were eventually issued in their absence on Jan 9, 2017.

However, their lawyers attended subsequent meetings with the creditors, claiming that the family had not received any notice of the PKPU proceedings or the court orders, among other things.

As the meetings did not result in a successful loan restructuring plan, the Indonesian court later pronounced MLU insolvent and the Tannos family bankrupt.

It also appointed individuals to administer the insolvency process and as receivers and administrators of the Tannos family’s estate.

The family owns property in Singapore.

The orders by the Indonesian court were later recognised by the High Court of Singapore in January 2018, after an application by the receivers.

These individuals were also empowered by the court to administer and distribute the family’s property in Singapore.

About a month later, the Tannos family commenced proceedings in the High Court to set aside the court’s earlier recognition of the orders but had their application dismissed.

They then appealed to the apex court in Singapore against the High Court’s dismissal of their application, claiming that the Indonesian court orders were not final and conclusive, as there were pending appeals and reviews against the orders before the Supreme Court of Indonesia.

The family also maintained that they had learnt of the court proceedings against them in Indonesia only after the PKPU orders were advertised in two major Indonesian newspapers.

The orders made by the Indonesian court were therefore obtained in “breach of natural justice”, they argued through their lawyers – Senior Counsel Philip Antony Jeyaretnam and Lau Wen Jin.

In their judgment, CJ Menon and Justice Tay noted that the case in Indonesia had not further developed since 2018 but agreed that the family had been deprived of a fair opportunity to contest the PKPU proceedings.

The judges said that it would be illogical for the family to have not appeared in court to contest the making of the PKPU orders against them if they had earlier learnt about the proceedings.

“Indeed their conduct at the creditors’ meetings and their subsequent efforts to mount an appeal and seek review suggested that they were perfectly committed to seeking to vindicate their rights before the Indonesian courts but were left with no avenue to do so,” wrote Chief Justice Menon, who delivered the majority decision.

Both the Chief Justice and Justice Tay also said that the Court of Appeal, in deciding whether the Indonesian court orders were made in accordance with the requirements of natural justice, is not bound by the views of the Indonesian court.

“As the (court orders) were to be recognised in Singapore, it is for the Singapore court to be satisfied on the evidence that the manner in which the orders had been obtained complied with the core principles of natural justice,” wrote CJ Menon.

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