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Legal Protection for Venture Capital as an Investor in Startup Financing in the Event of Bankruptcy (Jurnal Hukum Mahasiswa)

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Research paperJurnal Hukum MahasiswaNovember 202610 pages15 min readEmelie Nugroho Hardin, I Ketut Sukawati Lanang Putra PerbawaOriginal source

Summary

  • In 1973, PT Bahana Pembinaan Usaha Indonesia (BPUI) was founded under Government Regulation No. 18 of 1973 to provide equity financing to investee companies (PPU).p.2
  • Pakdes No. 20/1988 and Keppres No. 61 of 1988 allowed the establishment of PT Bahana Artha Ventura to focus on financing small businesses, regulated under Minister of Finance Decision No. 1251/KMK.013/1988.p.3
  • Minister of Finance Decision No. 469/KMK.017/1995 separated venture capital operations from other financing institution activities to boost investor interest.p.3
  • Law Number 25 of 2007 on Investment establishes key principles under Article 3 and Article 14 to guarantee investor rights, protection, and information.p.3
  • Financial Services Authority Regulation (POJK) Number 25 of 2023 sets out operational and risk management rules for venture capital firms, but contains no explicit provisions for investee bankruptcy.p.4

Key insights

  1. Venture capital investment in Indonesia occurs via direct equity investment or indirect investment through convertible bonds.p.6
  2. Convertible bondholders are classified as creditors with higher payout priority during bankruptcy than direct equity holders.p.6
  3. Neither Law Number 37 of 2004 on Bankruptcy nor POJK Number 25 of 2023 contains explicit rules addressing venture capital protections during startup bankruptcy.p.6
  4. Preventive legal protection via liquidation preference in shareholders' agreements often fails during bankruptcy due to absolute priority rules applied by receivers.p.7
  5. Under Indonesian bankruptcy proceedings, direct equity investors are treated as residual claim holders and receive payouts last.p.8
  6. Compared to the US and Malaysia, Indonesia lacks integrated enforcement of liquidation preferences within its mandatory public order bankruptcy regime.p.7
  7. Authors recommend revising Law Number 37 of 2004 to grant venture capital investors formal rights to information and participation in bankruptcy proceedings.p.9

Funders mentioned

Concept Ventures

Topics and entities

Private debt and venture debtPrivate equityRegulationStartup fundingVenture capitalFinancial Services AuthorityPT Bahana Artha VenturaPT Bahana Pembinaan Usaha Indonesia

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