LPS Regulation Number 1 of 2025 Amends the Order of Creditor Payments and Accelerates Bank Liquidation

Introduction

On 30 December 2025, the Indonesia Deposit Insurance Corporation (“LPS”) issued LPS Regulation Number 1 of 2025 on Amendments to LPS Regulation Number 1 of 2022 on Bank Liquidation (“LPS Regulation 1/2025”), which took effect on 31 December 2025.

This Regulation constitutes a follow-up to the enactment of Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector (the “P2SK Law”). LPS considers it necessary to make adjustments to enhance governance, effectiveness, and efficiency in the business processes for the implementation of bank liquidation. These amendments are intended to strengthen the legal framework for resolving banks whose business licenses have been revoked, to clarify the hierarchy of obligation payments, and to optimize asset recovery rates through more agile liquidation mechanisms.

 

Comparison

LPS Regulation 1/2025 amends several provisions of LPS Regulation Number 1 of 2022 on Bank Liquidation (“LPS Regulation 1/2022”). The following table sets out a comparison between LPS Regulation 1/2025 and LPS Regulation 1/2022:

 

Key Provisions

New Order of Payment of Bank Obligations

Pursuant to Article 41 (1), LPS Regulation 1/2025 amends the priority order for the payment of bank obligations from the proceeds of asset liquidation by adding one category, namely obligations to Bank Indonesia in relation to short-term liquidity loans or short-term liquidity financing based on sharia principles and monetary operations, as well as obligations to LPS in relation to the placement of LPS funds with the Bank. The priority order for the payment of bank obligations is as follows:

1. Outstanding employee salaries;
2. Employee severance pay;
3. Litigation/auction/operational costs;
4. Rescue costs/LPS claims;
5. Taxes;
6. Obligations to Bank Indonesia/LPS;
7. Uninsured deposits;
8. Other creditors’ rights.

Time Limit for Secured Creditors

Articles 31 (3) and (4) stipulate that secured creditors whose collateral assets are under the control of the bank are required to submit a request for the handover of such assets no later than 60 (sixty) calendar days from the announcement of dissolution. If the creditor fails to meet this deadline, the creditor is deemed to have relinquished its preferential position and waived its right of direct execution, such that settlement will be conducted through the general liquidation mechanism (as a concurrent creditor). In addition, Article 31A introduces an obligation for creditors who are in the process of enhancing the status of collateral to report such process within 30 days from the date the bank’s business license is revoked.

Flexibility in Asset Sale Strategies

Based on Article 35 (2), the Liquidation Team is authorized to sell assets or receivables without first conducting collection efforts against the Debtor, in order to accelerate the winding-up process. In determining the base price for asset sales, Article 40 (1) enriches the pricing variables by including “historical asset recovery data” in addition to market value and liquidation value. If the first auction fails due to the absence of bids meeting the base price, the Liquidation Team is authorized to conduct a re-announcement and apply more flexible follow-up mechanisms, including designating the highest bidder as the buyer even if the bid is below the base price, following a compliance review.

Strengthening of Governance over Liquidation Team Incentives

Article 62B affirms the principle of a budget-based ceiling, whereby the total incentives and additional incentives paid may not exceed the funds available in the Bank under Liquidation. Furthermore, Article 53 (2) introduces an absolute requirement that incentives may only be disbursed if the Bank under Liquidation no longer has any outstanding operational loan obligations to LPS.

Procedure for Debt Reduction (Haircut) Applications

Under Article 66, a Debtor submitting an application for a debt reduction is required to attach a stamped Anti-Bribery and Gratuities Statement Letter. This requirement obliges the Debtor to declare that no bribes have been given to the Liquidation Team. If bribery is subsequently proven, the Debtor agrees to bear legal responsibility in accordance with applicable laws.

 

Transitional Provisions

Article II provides that, for Banks under Liquidation whose business licenses were revoked prior to 31 December 2025, the process of asset liquidation and/or receivables collection shall continue to be carried out in accordance with LPS Regulation 1/2022. However, specifically for applications for incentive payments submitted by the Liquidation Team prior to 31 December 2025 but not yet approved by LPS, the process shall follow the new provisions under LPS Regulation 1/2025.

 

Closing

LPS Regulation 1/2025 represents a strategic measure to enhance effectiveness, efficiency, and governance in the bank liquidation process. Through the regulation of a new order of payment of obligations that includes obligations to Bank Indonesia and LPS, the establishment of time limits for secured creditors, and increased flexibility in asset sale strategies, LPS Regulation 1/2025 is expected to optimize asset recovery rates and accelerate the resolution of banks whose business licenses have been revoked.