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Are you in installments on a motorcycle or a car?

Can leasing companies immediately execute a motorcycle or a car if the installments paid late?

Did you know that the Constitutional Court has made significant changes to the execution of security in the event of delay or default from the buyer?

On 6 January 2020, the Constitutional Court of the Republic of Indonesia (the “Constitutional Court”) made its decision number 18/PUU-XVII/2019 related to the Fiducia Security. The decision stated that the phrases “executorial power” mentioned in Article 15 paragraph (2) of the Law Number 42 Year 1999 Regarding the Fiducia Security (the “Fiducia Security Law”) and “default” mentioned in Article 15 paragraph (3) of the Fiducia Security Law are inconsistent with the Indonesian Constitution of 1945 (the “1945 Constitution”).[1] This Constitutional Court Decision will bring a big change to the prevailing practice of the execution, especially to the execution by way of executorial title.

The decision will also affect business practices in Indonesia, particularly vehicle leasing. In general, dealer and leasing company or banks rely upon the provision of the Fiducia Security Law in the course to reclaim the vehicle that is not fully paid by the consumer who purchases the vehicle by way of installment or credit.

The Executorial Title in the Fiducia Security               

In the prevailing practice, according to Article 29 of the Fiducia Security Law, execution may be performed in the following way:

  1. The execution of executorial title;
  2. The sale of the good which is the object of the Fiducia Security by the authority of the Fiducia Security Grantee through public auction and take repayment from the proceeds of the sale;
  3. Privately made sale under a mutual consent of the Grantor and the Grantee if in this way the highest prices can be reached to the benefit of both parties.

Then what is executorial title? Article 15 paragraph (2) of the Fiducia Security Law stated that Fiducia Security Certificate has the same executorial power with court decisions that have permanent legal force. Further, paragraph (3) of Article 15 also stated that, if the debtor is in default, the Fiducia Security Grantee (the creditor) has the right to sell the good that becomes the object of the Fiducia Security by its own authority. Therefore, the executorial title referred to by the Fiducia Security Law is the right of the Fiducia Security Grantee (the creditor) to sell the good that becomes the object of Fiducia Security on its own authority, if the debtor is in default. This may be performed by the Fiducia Security Grantee by the virtue of a Fiducia Security Certificate, which is issued by the Fiducia Security Office, and the existence event of default under the agreement between the Fiducia Security Grantor and Fiducia Security Grantee.

With the existence of the Fiducia Security Grantee’s (creditor) right to perform execution of the Fiducia Security Object by way of executorial title, the creditor (leasing company) may directly sell the Fiducia Security Object when the debtor (vehicle consumer) is in default. An example of an event of default is when the debtor is late in making installment as agreed.

As a note, Fiducia Security is a form of security for a loan agreement similar to other forms of security documents, such as pledge, mortgage, and hypothec. The difference with the pledge is that Fiducia Security Object is under the possession of the debtor/Fiducia Security Grantor. While in Pledge, the pledged good is under the possession of the creditor/pledgee.

This condition, that the Fiducia Security Object is under the possession of the Fiducia Security Grantor, has given rise to another problem in its execution, especially by way of executorial title. In practice, when the debtor is in default, the creditor who wishes to execute the Fiducia Security makes any efforts to take back or even seize (even with force) the good from the Fiducia Security Grantor (the debtor), even frequently using the service of debt collector.

Fiducia Security is so often used in vehicle leasing. Financing companies and banks provide credit to the consumer to purchase a vehicle, in which the consumer who uses their service will be able to purchase a vehicle with an installment/credit but the purchased vehicle will be used as the security for their loan or credit with a Fiducia Security. In practice, the vehicle dealer indeed sells the vehicle to the consumer but the payment of the vehicle purchase price, at first will be paid by the bank or financing companies, and after that, the consumer is obliged to pay the purchase price to the bank or financing companies through installments.

Now, the question is, how is the execution of Fiducia Security after the Constitutional Court Decision?

In order to answer this question, we need to look at the decision.

1. Regarding “Executorial Power”

According to the Constitutional Court, the phrase “Executorial Power” referred to in Article 15 paragraph (2) of the Fiducia Security Law should be interpreted as follow:

to the fiducia security that has no agreement or consensus regarding event of default and the debtor is reluctant to hand over voluntarily the object of the fiducia security, then the mechanism and legal procedure to execute the Fiducia Security Certificate must be performed and the same with the execution of a court decision that has permanent legal force”.

Furthermore, the same phrase referred to in the elucidation of the Article 15 paragraph (2) of the Fiducia Security Law should be interpreted as:

to the fiducia security that has no agreement or consensus regarding event of default and the debtor is reluctant to hand over voluntarily the object of the fiducia security, then the mechanism and legal procedure to execute the Fiducia Security Certificate must be performed and the same with the execution of a court decision that has permanent legal force

It can be concluded that according to the Constitutional Court Decision the Execution of the Fiducia Security Certificate should be performed in the same way as the execution of a court decision that has permanent legal force (in kracht van gewijsde).

The execution of a court decision that has permanent legal force is performed in accordance with the provision of the Article 196 of the Herzien Inlandsch Reglement or Article 208 of the Reglement tot Regeling van Het Rectswezen in de gewesten buiten Java En Madura, which stated that:

“if the losing party is reluctant or in default to fulfill the decision voluntarily, then the winning party shall submit a request, orally, or in writing, to the chairman of the district court as referred to in paragraph one of article 195, to execute the decision. The Chairman shall summon the losing party and shall give warning, that they must fulfill the decision in a certain period of time as determined by the chairman, which shall be at the maximum of eight days”

However, as a note, this can be performed if in the process of executing the Fiducia Security Certificate, between the debtor and creditor:

  • There exists an agreement or consensus about the default; and
  • The debtor willingly and voluntarily hands over the fiducia security object.

2. Regarding the “default”

Further, regarding the term “default” as referred to in Article 15 paragraph (3) of the Fiducia Security Law, the Constitutional Court stated that this term should be interpreted as follow:

“the event of default shall not be determined unilaterally by the creditor but by the consensus or agreement between the creditor and debtor or by a legal remedy which will determine the occurrence of default”

Therefore, what the Constitutional Court means in this decision is that the creditor cannot unilaterally declare that the debtor is on default, but there should be an agreement or consensus between the creditor and debtor that determine that a default has occurred or through a legal remedy in order to determine that the default has occurred.

In conclusion, based on the Constitutional Court’s Decision, the execution of Fiducia Security by way of executorial title may only be performed if there is already an occurrence of default, which may only be determined from: a) agreement or consensus of the parties, or b) through a legal remedy that will determine that the default has occurred. In addition, in order that the execution by way of executorial title may be performed, besides the occurrence of default, it requires the debtor to willingly and voluntarily hand over the fiducia security object.

The Determination of Event of Default

To determine the occurrence of default, the consensus of the parties (creditor and debtor) is needed. Let us see the Constitutional Court’s consideration on Point 13.7 paragraph 3:

“Therefore it is clear as long as the Fiducia Security Grantor (debtor) has admitted that the default occurred and voluntarily hand over the fiducia security object, then it will become the full authority of the fiducia security grantee (creditor) to perform the execution by themselves  (parate eksekusi). However, if the contrary occurs, where the fiducia security grantor does not admit that the ‘default’ has occurred and reluctant in handing over the fiducia security object voluntarily, then the fiducia security grantee (creditor) may not perform the execution by themselves but should submit a request for execution to the district court. in this way, the constitutional right of the fiducia security grantor (debtor) and the fiducia security grantee (creditor) will be equally guarded.”

Therefore, to determine whether a default has occurred or not, it needs an agreement or consensus from the debtor. If the debtor admits that they have defaulted, then the default has legally occurred.

This is a problem also because, in most agreements made by and between the creditor and debtor, there is already an event of default clause. The question now is that if the agreed event of default under the agreement occurred, is it still necessary for the admission from a party to declare that they have defaulted? The Constitutional Court Decision does not answer this, and only focuses its consideration on the consensus that the default has occurred.

The Indonesian Civil Code (the ”ICC”) regulates about the event of default under the Article 1238 , which states:

“the Debtor shall be deemed in default by virtue of an order or other similar deeds, or by virtue of the power of the obligation itself, that is if the obligation causes the debtor in default by the lapse of the stipulated time period.”

This provision is prevailing in the Indonesian law of obligation, and of course to the loan obligation. According to Article 1238 of ICC, in order to determine a default, a creditor should issue an order, which is in practice called a summation (somasi), to the debtor, and if the debtor still does not fulfill its obligation after receiving the order, then the debtor may be deemed to be in default. Other than that, the debtor may be deemed to be in default by virtue of the power of the obligation, in which if the obligation itself has set a period of time to deliver its obligation and the debtor does not fulfill it within the period of time then legally the debtor is deemed to be in default. For example, by not fulfilling its obligation to pay the installment at the latest on the tenth day on the following month, then the debtor is deemed to be in default. 

Article 1238 becomes the basis for the creditor to make their own determination on whether the debtor is in default or not, either by issuing an order or by the virtue of the agreement itself, that is by the lapse of time period.

However, with the Constitutional Court’s Decision, in order to execute the Fiducia Security, the Creditor should obtain consensus or admission form the debtor that the debtor is in default. Certainly, this is not easy, and in practice will be very difficult. The Debtor may choose, and the possibility is that they will choose, to refuse to admit or consent that they are in default, although there is still a possibility that they will admit or consent.

Then, if the debtor refuses to admit that they are in default, what can a creditor do? As stated in the Constitutional Court’s Decision, the occurrence of default shall be determined with a legal remedy. Therefore, in order to determine that the debtor is in default or not, the creditor should file a lawsuit against the debtor to the district court.

Impact of the Constitutional Court’s decision

It is known that a lawsuit process from the beginning until the end is not a simple and quick process; it could even last for several years. In order to legally determine that the debtor is in default, the trial process will not only happen the district court level, because the losing debtor, for example, may exercise its right to appeal to the high court, a Cassation to the Supreme Court, and a Review to the Supreme Court. In practice, a trial in one court level may take months. Hence, to reach a permanent legal force decision (assuming that the case was examined and adjudicated in the District Court, High Court, and Supreme Court) it may take 2 or 3 years.

For example, the creditor files a breach of contract lawsuit against the debtor to the District Court. In the District Court, the debtor is declared to be in default. Unsatisfied with the decision, the debtor appeals to the High Court. The result is that the High Court still declares that the debtor is in default. If the debtor is still unsatisfied with the decision, he or she still has the right for cassation and further a review. As long as the debtor still uses the legal remedy available for them, then there is no permanent legal force decision, except after the issuance of the Supreme Court’s decision in the cessation level, and at the same time, the creditor is unable to execute the Fiducia Security.

This is not an easy condition for the creditor. For the creditor, the long process of legal remedy will affect the cost, time, and resources needed in order to execute a Fiducia Security. At first, the creditor has avoided this condition in the execution of Fiducia Security. As they would prefer the condition before the Constitutional Court’s decision, because with the right of executorial title the creditor may execute the Fiducia Security from the defaulted debtor without first having a legal remedy to the court. The consequence is that this condition may affect the leasing company, because Fiducia Security may be seen as a security that is no longer inexpensive in its execution. This may give rise to a new policy of strategy that is employed by the leasing company in running its business. 

From the above explanation, we can conclude that the Constitutional Court Decision related to the execution of Fiducia Security by way of executorial title will change the practice of executing fiducia security. In order to perform execution by way of executorial title it is necessary for the creditor and debtor to have a consensus about the occurrence of default. If there is no consensus, then there must be a legal remedy to the district court.

Hope this is useful,

Fredrik J Pinakunary Law Offices


[1] The complete decision of the Constitutional Court are:

  1. Declaring that the phrases “executorial title” and “equal to a court decision that has permanent legal force” as referred to in the Article 15 paragraph (2) of the Fiducia Security Law to be inconsistent with the 1945 Constitution and shall have no binding legal force in so far as they are not interpreted as “to the fiducia security that has no agreement or consensus regarding event of default and the debtor is reluctant to hand over voluntarily the object of the fiducia security, then the mechanism and legal procedure to execute the Fiducia Security Certificate must be performed and the same with the execution of a court decision that has permanent legal force”;
  2. Declaring that the term “default” as referred to in the Article 15 paragraph (3) of the Fiducia Security Law to be inconsistent with the 1945 Constitution and shall have no binding legal force in so far as they are not interpreted as “the event of default shall not be determined unilaterally by the creditor but by the consensus or agreement between the creditor and debtor or by a legal remedy which will determine the occurrence of default”; and
  3. Declaring that the phrases “executorial title” as referred to in the elucidation of the Article 15 paragraph (2) of the Fiducia Security Law to be inconsistent with the 1945 Constitution and shall have no binding legal force in so far as they are not interpreted as “to the fiducia security that has no agreement or consensus regarding event of default and the debtor is reluctant to hand over voluntarily the object of the fiducia security, then the mechanism and legal procedure to execute the Fiducia Security Certificate must be performed and the same with the execution of a court decision that has permanent legal force”.

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