Examining the Business Judgments Rule in the SOE Bank Haircut

Abstract

Restructured non-performing loans by partially or fully cutting off the customer's credit were also known as a haircut. The haircut method commonly used for dealing with the customer's deb considering their financial status and ability to repay.  However, the execution of a haircut policy is always faced with difficulties, mainly if the procedure is applied to state-owned banks (SOE) in Indonesia. This was due to the interpretation of the concept of Indonesian BUMN’s (state-owned enterprises) wealth which states that all wealth owned by BUMN is part of the state's wealth. A different practices applied in Malaysia which carries out privatization by separating Government Linked Companies (GLC) assets from state assets. As a result, this research examined the dimension of directors' accountability to the state's wealth concerning debt write-offs or a haircut in Indonesia and Malaysia using the Business Judgment Rule doctrine. This study used a normative juridical analysis methodology with a statutory approach in Indonesia and Malaysia. The results of this study indicates that the haircut policy is detrimental to state-owned banks, based on these findings, with certain conditions that apply, the directors can be released from the responsibility for using the Business Judgment Rule doctrine.