Vol. 5, No. 12, December 2024

E-ISSN: 2723 - 6692

P-ISSN: 2723 - 6595

http://jiss.publikasiindonesia.id/

Journal of Indonesian Social Sciences, Vol. 5, No. 12, December 2024 3256

KEYWORDS

ABSTRACT

Capital Market Law; Cross-

Border Bankruptcy; Holding

Company Bankruptcy; Investor

Protection; Subsidiary

Operations

This research examines the implications of holding company

bankruptcy on subsidiaries in Indonesia, focusing on capital market

law and investor protection. The bankruptcy of a holding company

can lead to operational disruptions for its subsidiaries, affecting

market confidence and devaluing investments. Investors in these

subsidiaries may face risks of unfair treatment during the

bankruptcy process. The study explores Indonesia's legal

framework, including the bankruptcy law and regulations enforced

by the Otoritas Jasa Keuangan (OJK), which are aimed at protecting

investors' rights and ensuring transparency. The case of Virtue

Dragon Indonesia, a subsidiary of a Chinese holding company,

highlights the complexities of cross-border bankruptcy and the

challenges of safeguarding minority investors. The research

underscores the need for stronger legal protections for investors

and suggests improvements in Indonesia’s capital market laws to

enhance investor confidence and market integrity.

Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)

Introduction

The growth of multinational holding companies with complex corporate structures is a defining

characteristic of globalization in today’s economy. Holding companies manage networks of

subsidiaries across various jurisdictions, including Indonesia. While this structure facilitates

operational efficiency and risk diversification, it also introduces significant vulnerabilities,

particularly in cases of holding company bankruptcy. When a parent company declares bankruptcy,

the repercussions often extend to its subsidiaries, even when those subsidiaries are financially

solvent. This situation raises critical questions in the context of Indonesia’s capital market law

regarding the legal standing and protection of subsidiaries and their stakeholders, especially

investors. Transparency is a fundamental principle of capital market operations, crucial for building

investor trust and ensuring informed decision-making. In Indonesia, the Financial Services Authority

or Otoritas Jasa Keuangan (OJK) plays a vital role in enforcing transparency and ensuring the rights

of investors. However, the intricate and layered nature of holding companies can obscure critical

information, such as the financial health of the parent company and its potential risks. This lack of

clarity poses a significant risk to investors, particularly those who have stakes in subsidiaries

Investor Protection and Corporate Responsibility in

Multinational Holding Bankruptcy: The Virtue Dragon

Indonesia and China Case

Yuga Narazua Khanza

Universitas Pelita Harapan, Indonesia

Email: 01659230076@student.uph.edu

Correspondence: 01659230076@student.uph.edu

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indirectly affected by the financial distress of the holding company. The relevance of this issue to

Indonesia’s regulatory framework is apparent, as it demands a robust response to uphold the

principles of investor protection as enshrined in Indonesian capital market law, including Law No. 8

of 1995 on the Capital Market and related OJK regulations (Anggriawan, 2023; Rachmadi, 2023).

The legal implications of holding company bankruptcies for subsidiaries in Indonesia highlight

a critical gap in the existing legal framework. Indonesian law provides limited clarity on whether

subsidiaries are liable for the debts of their parent company or whether they are protected as

independent legal entities. This ambiguity becomes more pronounced in cross-border corporate

structures, where subsidiaries and parent companies operate under different legal jurisdictions.

Addressing these challenges requires Indonesia’s legal system to align its capital market regulations

with international best practices while maintaining consistency with domestic laws such as Law No.

37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations (Basri et al., 2023; Sihotang,

2021). Furthermore, the issue of investor protection in Indonesia becomes even more pressing in

cases of holding company bankruptcy. Investors are entitled to legal safeguards from losses caused

by financial distress at the holding company level, particularly when subsidiaries are indirectly

affected. While generally aimed at fostering a fair and transparent capital market, Indonesian laws

and regulations may not sufficiently address these complex scenarios. Enhancing the legal framework

to ensure adequate protection for investors through more explicit disclosure, liability, and risk

management regulations aligns with OJK’s mandate. It supports the development of Indonesia’s

capital market.

In examining the implications of holding company bankruptcy on subsidiaries and the legal

protections for capital market investors, the case of Virtue Dragon Indonesia and its holding company

in China serves as a valuable example. This case highlights the complex dynamics and challenges

when a holding company’s financial troubles affect its subsidiaries, particularly in a cross-border

context. Virtue Dragon Indonesia, as a subsidiary of a Chinese holding company, faced significant

operational and financial instability when its parent company declared bankruptcy. The situation

underscored the risks faced by subsidiaries in foreign jurisdictions and the vulnerability of investors,

predominantly minority shareholders, who may be caught in the crossfire. The bankruptcy of a

holding company, particularly in another country, can have far-reaching implications for its

subsidiaries, including operational disruptions, loss of market confidence, and devaluation of

investments. Investors in the Indonesian subsidiary, like those in similar cases, may face difficulties

understanding their rights and accessing adequate legal protection, particularly in cross-border

situations. This case serves as a starting point for analyzing the broader issues related to the legal

frameworks that govern holding company bankruptcies, the protection of investor rights, and the

transparency required under capital market law. In this context, the Virtue Dragon Indonesia case

highlights the legal complexities surrounding capital market laws, investor protection, and the need

for more robust protections in international bankruptcy cases.

This research introduces a novel perspective by analyzing the implications of holding company

bankruptcies on Indonesian subsidiaries through the lens of capital market law. It fills a gap in the

current legal discourse by integrating corporate governance responsibilities, particularly those of

directors and commissioners, in mitigating bankruptcy risks. Additionally, the study explores the

jurisdictional challenges posed by cross-border corporate structures and their relevance to

Indonesia’s legal and regulatory framework. By addressing these issues, the research contributes to

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advancing Indonesia’s capital market laws and enhancing their alignment with global standards,

ensuring better investor protection and market integrity.

Research Methods

This research employs a qualitative methodology with a legal approach focusing on normative

juridical analysis. The research explores legal issues surrounding investor protection and corporate

responsibility in multinational holding bankruptcies, with a specific case study of Virtue Dragon

Indonesia and its parent company in China. The methodology integrates doctrinal legal research and

case study analysis to assess the effectiveness of legal frameworks governing cross-border

bankruptcy and capital market regulations.

The research follows a descriptive-analytical design to provide a comprehensive understanding

of how Indonesian legal frameworks address the complexities of holding company bankruptcies

involving cross-border elements. The study analyzes relevant laws, legal principles, and judicial

precedents.

Data Collection

The data used in this research comprises Primary Data: legal statutes and regulations, including

Indonesia's Law No. 8 of 1995 on the Capital Market and Law No. 37 of 2004 on Bankruptcy.

Secondary Data: academic journals, legal commentaries, case reports, and publications from

regulatory authorities like Otoritas Jasa Keuangan (OJK).

Data Analysis

The collected data is analyzed using qualitative content analysis. The legal texts, regulations,

and case law are interpreted contextually to determine their applicability in safeguarding investor

rights during multinational holding bankruptcies. Cross-border legal conflicts and jurisdictional

challenges are examined through comparative legal analysis.

Case Study Approach

The study adopts the case study method, focusing on the Virtue Dragon Indonesia case. This

approach provides an in-depth exploration of real-life legal challenges arising from the bankruptcy of

its Chinese parent company. The case study highlights the legal, financial, and operational

implications faced by the Indonesian subsidiary and its investors.

Legal Framework Analysis

The research critically evaluates the regulatory environment governing cross-border

insolvencies, emphasizing the roles of international frameworks such as the UNCITRAL Model Law

on Cross-Border Insolvency. Indonesian bankruptcy and capital market laws are examined for their

adequacy in protecting investors and ensuring corporate accountability.

This methodology ensures a comprehensive exploration of investor protection and corporate

responsibility in multinational holding bankruptcies by combining doctrinal research, legal analysis,

and case study evaluation.

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Results and Discussion

Implications of Holding Company Bankruptcy on Subsidiaries in Indonesia from the

Perspective of Capital Market Law

The bankruptcy of a holding company can significantly impact its subsidiaries, particularly in

Indonesia, where legal frameworks addressing such issues remain limited. Though legally

independent, subsidiaries are often operationally linked to the parent, exposing them to financial and

reputational risks during the holding’s financial distress. Cross-border complexities add challenges

as parent and subsidiary entities operate under different jurisdictions. From the perspective of capital

market law, regulations on transparency, liability, and financial independence are crucial to

safeguarding subsidiaries and their stakeholders, including investors. However, Indonesia's legal

framework requires further alignment with international standards to address these challenges

effectively.

a. Understanding Holding Companies and Subsidiaries in the Capital Market

A holding company is a business entity that owns controlling interests in other companies,

referred to as subsidiaries. Unlike operating companies, holding companies do not produce goods or

services directly but exist to oversee the operations and assets of their subsidiaries. This structure

allows for a strategic division of ownership and control, and it is commonly used in global business

environments, particularly in capital markets. Holding companies facilitate the aggregation of several

diverse entities under a single management umbrella, offering both operational efficiencies and

financial benefits. In the context of capital markets, holding companies are essential because they

enable investors to access a portfolio of businesses across various industries by purchasing shares in

the parent company. By investing in a holding company, investors can indirectly invest in multiple

subsidiary businesses without needing to manage individual investments. The capital market listing

of holding companies provides a streamlined method for raising capital, thereby supporting the

growth and diversification of subsidiaries (Bacchetta et al., 2024; Wu, 2024).

The primary advantage of the holding company structure lies in risk diversification. By creating

separate legal entities for different businesses, holding companies ensure that the financial failure of

one subsidiary does not necessarily affect others. This division of risk makes the holding company

structure appealing to investors, as it limits potential exposure to financial difficulties and creates a

more stable investment opportunity. Additionally, holding companies can leverage tax benefits

through intercompany transactions and profit distribution strategies. Holding companies also

provide a centralized governance model, where strategic decisions for the entire group of companies

are made at the top level. This centralized control allows for consistency in decision-making and more

straightforward implementation of corporate strategies across subsidiaries. The parent company

typically holds the most voting shares in each subsidiary, which grants it the power to appoint key

executives and manage the direction of the subsidiary’s operations. However, while this centralized

control is efficient, it can also raise concerns about transparency and accountability, mainly if there is

a lack of disclosure to the capital market. For subsidiaries, the relationship with a holding company

can offer financial stability and access to more significant resources. Subsidiaries may benefit from

economies of scale and shared services, such as administrative, legal, and financial support. Moreover,

raising capital through the holding company enhances their access to funding and facilitates

expansion. However, the dependency on the holding company for strategic direction can also limit

the subsidiaries' operational autonomy, especially when decisions at the parent level significantly

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impact their day-to-day activities. The role of subsidiaries in capital markets is equally important.

These entities often focus on specific products, services, or market segments, and their parent

company directly influences their financial performance. Investors in the capital markets view

subsidiaries as potential growth engines within the holding company structure. The financial

performance of subsidiaries is generally consolidated into the holding company’s financial

statements, giving investors a comprehensive picture of the entire group's health and growth

potential.

Despite their advantages, holding companies and subsidiaries can introduce legal and financial

obligations complexities. In cases where a holding company faces financial difficulties or bankruptcy,

the impact on its subsidiaries can be significant. Subsidiaries may face liquidity challenges,

reputational damage, or difficulty obtaining financing. This creates an added layer of risk for

investors, as the financial instability of the holding company can adversely affect subsidiary

operations and their market value. In capital markets, transparency is key to maintaining investor

confidence. Investors need accurate, timely, and comprehensive information about the financial

health and operations of holding companies and their subsidiaries. Regulatory bodies such as the

Otoritas Jasa Keuangan (OJK) in Indonesia ensure that holding companies provide adequate

disclosures regarding their subsidiaries' financial situations and risks (Jonathan et al., 2023). These

regulations aim to protect investors by ensuring they can make informed decisions based on reliable

information. The relationship between holding companies and subsidiaries also poses potential

challenges in terms of corporate governance. While holding companies control their subsidiaries,

there must be precise accountability mechanisms to ensure that subsidiaries are not exploited for the

benefit of the parent company at the expense of minority shareholders or other stakeholders.

Corporate governance structures, such as independent directors and audit committees, are essential

in maintaining fairness and ensuring that all parties' interests are protected.

b. Impact of Holding Company Bankruptcy on Subsidiary Operations

The bankruptcy of a holding company can have significant consequences for its subsidiaries,

particularly in terms of how it impacts their operations. While subsidiaries are typically distinct legal

entities, they often rely on their parent company for strategic direction, financial support, and shared

services. When a holding company faces bankruptcy, the ripple effects can extend to its subsidiaries,

potentially disrupting their day-to-day activities, market position, and financial stability. One of the

immediate impacts on subsidiary operations is the potential loss of financial resources. A holding

company often provides capital to its subsidiaries directly or through internal financing mechanisms.

If the parent company becomes insolvent, it may no longer be able to support its subsidiaries

financially. This can lead to liquidity problems for subsidiaries, making it difficult for them to continue

operations, meet debt obligations, or fund growth initiatives. In addition to financial difficulties,

subsidiaries may experience operational disruptions. The parent company oversees central

management functions, including administrative services, legal support, and procurement. A

bankruptcy at the holding level can result in the cessation or scaling back of these critical services,

forcing subsidiaries to either absorb these costs or find alternative arrangements. This can cause

inefficiencies and increase operating expenses, negatively affecting the subsidiary's profitability. The

reputational damage that a holding company’s bankruptcy inflicts can also extend to its subsidiaries.

Investors, customers, and suppliers often view the financial health of the parent company as a

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reflection of the subsidiaries’ stability. If the holding company fails, it may lead to a loss of confidence

in the subsidiaries, impacting their ability to attract investment, secure contracts, or maintain

customer loyalty. This is particularly damaging for subsidiaries that rely on the parent company's

reputation for credibility in the market. Moreover, the bankruptcy of a holding company can

complicate the subsidiaries' ability to raise new capital. Financial institutions and investors may

hesitate to fund a subsidiary when the parent company’s financial stability is in question. This can

hinder the subsidiary's growth prospects and its ability to weather the financial turmoil caused by

the parent company's bankruptcy. Subsidiaries might be cut off from critical lines of credit or unable

to refinance existing debt.

Legal complications can also arise during the bankruptcy of a holding company. While

subsidiaries are separate legal entities, intercompany liabilities and cross-guarantees can make them

vulnerable to claims from creditors. In some cases, the bankruptcy proceedings may affect the

subsidiary’s assets or operations, especially if the holding company has guaranteed loans or other

financial obligations on behalf of the subsidiary. This interconnectedness creates a complex legal

environment that subsidiaries must navigate carefully to protect their interests. Another critical issue

for subsidiaries is the potential restructuring of the entire group. A holding company bankruptcy

often leads to a broader restructuring process, which could include the sale or liquidation of

subsidiaries, changes in management, or shifts in business strategies. Subsidiaries might face

significant uncertainty as they await decisions on their future direction. This uncertainty can lead to

decreased employee morale, loss of key talent, and disruption in operations, further affecting the

subsidiary's long-term viability (Caligiuri et al., 2022; Wieprow & Gawlik, 2021).

Subsidiaries also need to consider the impact of the holding company’s bankruptcy on their

existing contracts and business relationships. Vendors, suppliers, and clients may reassess their

agreements with subsidiaries once the financial situation of the parent company becomes known. For

instance, creditors may demand early repayment of outstanding debts, or suppliers may become

reluctant to extend credit terms. This can create additional pressure on the subsidiary, further

hindering its ability to maintain normal operations. In some cases, subsidiaries may be forced to sever

ties with the holding company to protect their interests. This might involve restructuring the

subsidiary as an independent entity or seeking out new ownership or financing to ensure its survival.

The legal and financial processes involved in such a separation can be complicated and costly,

requiring significant resources to restructure and reestablish business operations independently.

Ultimately, the impact of a holding company’s bankruptcy on its subsidiaries is far-reaching, affecting

financial stability, operational efficiency, reputation, legal standing, and strategic direction. The

extent of these impacts depends on the level of interdependence between the parent and its

subsidiaries, the legal and financial arrangements in place, and the ability of subsidiary management

to respond effectively to the crisis. While some subsidiaries may emerge from bankruptcy unscathed,

others may face significant challenges that threaten their ability to continue operating successfully.

c. Legal Regulation of Cross-Border Bankruptcy in the Capital Market: Virtue Dragon Case in

Indonesia and China

Cross-border bankruptcy refers to situations where a company with operations in multiple

jurisdictions faces insolvency, triggering legal complexities regarding how its assets and liabilities are

handled in different countries. In the context of capital markets, cross-border bankruptcy poses

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significant challenges, as it involves multiple legal systems with differing rules and regulations. The

legal regulation of cross-border bankruptcy in the capital market is crucial for protecting investors,

ensuring market stability, and providing a framework for resolving the insolvency of multinational

companies. One of the primary challenges in cross-border bankruptcy cases is determining which

jurisdiction’s laws should apply to the proceedings. This issue arises when a holding company, for

example, operates in several countries and its subsidiaries are located in different jurisdictions. The

bankruptcy of the parent company can trigger insolvency proceedings in multiple countries

simultaneously, each with its own set of rules governing the liquidation or restructuring of assets.

This conflict of laws creates significant legal uncertainty and can result in delays, inefficiencies, and

inequities in treating creditors and shareholders.

International conventions and frameworks have been developed to address these issues and

provide guidelines for cross-border bankruptcy cases. The most notable is the United Nations

Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (Das,

2020). Adopted by many countries, including Indonesia, the Model Law aims to promote cooperation

between jurisdictions, ensuring that insolvency proceedings are handled efficiently and that

creditors’ rights are respected across borders. The Model Law establishes a framework for the

recognition of foreign insolvency proceedings and provides mechanisms for coordinating actions

among courts in different countries. In Indonesia, the legal framework for dealing with cross-border

bankruptcy issues is governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment

Obligations. This law provides a basis for resolving insolvency cases involving foreign elements, but

its application to cross-border situations is still evolving. Indonesia’s bankruptcy law allows for the

recognition of foreign judgments in some cases. However, it does not fully align with international

standards for cross-border insolvency, which may create challenges in enforcing foreign bankruptcy

rulings. This discrepancy can leave investors and subsidiaries in uncertain positions when a

multinational company goes bankrupt.

In the capital market context, cross-border bankruptcy is relevant for investors who hold

shares in companies with subsidiaries or operations in different countries. Investors are often

concerned about the potential impact of a holding company’s bankruptcy on their investments in

subsidiaries that are subject to different legal systems. The lack of harmonization in bankruptcy laws

across jurisdictions can lead to unequal treatment of creditors and investors, with some jurisdictions

giving priority to specific claims over others. This can create risks for investors, particularly those

holding shares in foreign subsidiaries, as the outcome of the bankruptcy proceedings may vary

significantly depending on the jurisdiction.

To mitigate the risks of cross-border bankruptcy, capital markets require legal provisions that

facilitate the protection of investors' interests. A key aspect of this is ensuring the transparency of

bankruptcy proceedings and the equitable treatment of creditors and shareholders across

jurisdictions. Regulators like Indonesia’s Otoritas Jasa Keuangan (OJK) play a vital role in ensuring

that companies listed on the Indonesian stock exchange comply with international standards for

disclosure and investor protection. In cases where holding companies with foreign operations face

bankruptcy, OJK and other regulators must cooperate with their international counterparts to ensure

that the rights of local investors are upheld. Furthermore, the issue of asset recovery becomes

complicated in cross-border bankruptcy situations. Holding companies often have assets in multiple

countries, which can complicate the liquidation process. Creditors may struggle to claim their share

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of the assets if they are scattered across jurisdictions with differing legal approaches to asset

recovery. Cross-border insolvency frameworks like the UNCITRAL Model Law help provide a

coordinated approach to asset distribution. However, enforcement can be difficult when local courts

do not recognize foreign rulings or when assets are tied up in complicated corporate structures

(Yukins & Nicholas, 2023).

Another key concern in the regulation of cross-border bankruptcy is the protection of minority

investors in subsidiaries. In cases where a holding company’s bankruptcy leads to the liquidation or

restructuring of its subsidiaries, minority shareholders may find themselves at a disadvantage.

Minority investors in subsidiaries may have limited ability to influence the bankruptcy proceedings,

mainly if the parent company exercises significant control over subsidiary management. Legal

frameworks must ensure that minority investors’ rights are protected and that they have an equitable

chance to recover their investments. The legal regulation of cross-border bankruptcy also affects the

ability of subsidiaries to continue operations independently. In some cases, subsidiaries may be

forced to merge with other entities or reorganize under new ownership, leading to significant changes

in business operations. These changes can have a direct impact on employees, customers, and

investors. To protect stakeholders and ensure a fair process, regulations must provide clear

guidelines on how subsidiaries should be treated in cross-border insolvency cases and how their

operations can be preserved or restructured effectively.

The case of Virtue Dragon Indonesia and its holding company in China provides a pertinent

example of the complex dynamics and legal challenges that arise in the event of a holding company’s

bankruptcy, particularly in a cross-border context. Virtue Dragon, a company with ties to a Chinese

holding entity, faced financial instability as its parent company in China declared bankruptcy. This

situation highlights several key issues regarding the implications of holding company bankruptcy on

subsidiaries in Indonesia and the legal protections for capital market investors. Firstly, the

bankruptcy of the holding company in China directly impacted Virtue Dragon Indonesia. As a

subsidiary, Virtue Dragon was financially dependent on the holding company, and its operations were

closely tied to the financial health and strategies set by the parent. The operational disruptions caused

by the bankruptcy of the holding company triggered concerns among investors in Indonesia, leading

to a loss of confidence and a significant devaluation of the company’s shares. This aligns with the

discussion on the impact of holding company bankruptcy on subsidiary operations, where

subsidiaries often face liquidity challenges and operational instability. Additionally, the Indonesian

capital market law, while offering mechanisms for transparency and investor protection, may

struggle to address the full extent of the challenges posed by a cross-border bankruptcy where

multiple legal jurisdictions and financial regulations are involved.

From the perspective of legal protection for capital market investors, the Virtue Dragon case

emphasizes the vulnerability of minority investors. Investors in the Indonesian subsidiary faced the

risk of losing their investments due to the collapse of the parent company, and the legal frameworks

designed to protect investors (such as the requirement for transparency and fair treatment) became

critical. In this case, the investors in Virtue Dragon Indonesia would have had the right to demand

timely disclosures regarding the bankruptcy and its effects on the subsidiary's operations. However,

the difficulty in enforcing these protections across borders raises important questions about the

effectiveness of national laws like Indonesia’s Otoritas Jasa Keuangan (OJK) regulations in protecting

investors when a holding company is located in another jurisdiction, such as China. The jurisdictional

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challenges involved in cases like Virtue Dragon Indonesia further illustrate the complexity of cross-

border bankruptcy. The bankruptcy proceedings of the Chinese holding company may not be easily

recognized or enforceable in Indonesia, leading to uncertainty for both creditors and investors. Legal

recourse for minority investors could be delayed or complicated due to the need to navigate both

Chinese and Indonesian bankruptcy laws. This reflects the broader cross-border bankruptcy issues

discussed earlier, where competing legal frameworks make it difficult to coordinate the bankruptcy

process and protect investors’ interests across different countries.

Finally, the case underscores the need for more robust legal protections for investors in such

complex, international bankruptcy scenarios. Investors in Indonesia would likely have faced

difficulties in recovering their investments, mainly if the parent company’s bankruptcy was managed

without full regard for the rights of minority shareholders in the subsidiary. The lack of

harmonization in cross-border bankruptcy laws and the priority given to creditors over minority

investors create potential risks for investor protection. This highlights the need for reforms in both

international bankruptcy law and national regulations to ensure that investors are not left vulnerable

in such situations. In conclusion, the Virtue Dragon Indonesia case demonstrates the intersection of

holding company bankruptcy, cross-border legal challenges, and the need for enhanced legal

protection for investors. It emphasizes the importance of ensuring that national regulations, like

those in Indonesia, adequately address the risks posed by such complex international corporate

structures and provide a more transparent framework for protecting investor interests in the event

of holding company bankruptcy.

Legal Protection for Capital Market Investors in Cases of Holding Company Bankruptcy

a. Disclosure Obligations of Issuers under Capital Market Law

Disclosure obligations of issuers under capital market law are critical for maintaining

transparency, fairness, and integrity in the financial markets. These obligations ensure that investors

have access to accurate, timely, and comprehensive information about a company’s financial health,

operations, and risks. In Indonesia, these disclosure requirements are governed primarily by the

Capital Market Law and enforced by the Otoritas Jasa Keuangan (OJK), Indonesia's financial services

authority (Chamdani et al., 2024; Mentari, 2021). The first key disclosure obligation is the

requirement for issuers to provide periodic reports. These reports include quarterly, semi-annual,

and annual financial statements, which independent auditors must audit. These reports provide

investors with insight into the issuer's financial performance, including income statements, balance

sheets, and cash flow statements (Suhardini & Ramdania, 2024). The goal is to give investors the

necessary information to make informed investment decisions and assess the company’s financial

position.

In addition to periodic financial reports, issuers must disclose material events or information

that could affect the company's stock price or financial position. These disclosures, known as

“material information,” must be made promptly and include details about events like mergers,

acquisitions, changes in management, or any significant legal issues. The timely disclosure of such

information helps prevent market manipulation. It ensures that all investors, both institutional and

retail, have equal access to important news that could influence their investment decisions. Issuers

are also required to disclose risks associated with their business activities. This includes information

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on both financial and operational risks, such as market volatility, regulatory changes, and potential

litigation. Full disclosure of risks allows investors to evaluate the potential upsides and downsides of

investing in a company, promoting more balanced decision-making. It is vital for investors in high-

risk industries or emerging markets, where uncertainties can significantly impact company

performance.

Moreover, under Indonesian capital market regulations, issuers must also disclose corporate

governance practices. This includes information about the structure and roles of the board of

directors, board of commissioners, and audit committees. Transparency regarding corporate

governance practices ensures that companies are held accountable to their shareholders and other

stakeholders. It also provides investors with insights into the company's decision-making processes

and its commitment to ethical business practices. Failure to comply with these disclosure obligations

can result in penalties, sanctions, and reputational damage to the issuer. The OJK has the authority to

impose fines, suspend trading of the company’s shares, or even delist the company from the stock

exchange if the issuer fails to meet disclosure requirements. The regulations are designed to ensure

that issuers maintain transparency, accountability, and trust in the capital markets, protecting the

interests of investors and the broader financial system.

b. Rights of Capital Market Investors in Holding Company Bankruptcy Situations

In the event of a holding company’s bankruptcy, investors in the capital market have certain

rights designed to protect their interests. However, these rights can vary depending on the

jurisdiction and specific circumstances. In Indonesia, these rights are governed by the Capital Market

Law, the Bankruptcy Law, and related regulations (Mutho et al., 2024). The primary rights of investors

in such situations include the right to information, the right to fair treatment, the right to seek redress,

and the right to participate in the bankruptcy process:

1) Right to information: Investors have the right to be informed about the financial condition of

the holding company and any significant developments that could affect the value of their

investments. This includes timely disclosures of the company’s financial statements, significant

corporate actions, and material events such as the initiation of bankruptcy proceedings. In the

case of bankruptcy, investors should be provided with information about the proceedings, the

company’s assets and liabilities, and how the bankruptcy might affect their investments. The

Otoritas Jasa Keuangan (OJK) in Indonesia ensures that issuers comply with disclosure

obligations, thus safeguarding investors' right to timely and accurate information.

2) Right to fair treatment: Capital market investors, particularly shareholders, have the right to

fair treatment during bankruptcy proceedings. This means that they are entitled to an equitable

distribution of the company’s remaining assets after the payment of priority creditors such as

employees and tax authorities. While the priority of claims is generally defined by law, investors

(predominantly minority shareholders) have the right to challenge any decisions that they

believe violate the principles of fairness, transparency, and equality in the bankruptcy process.

In the case of subsidiaries, investors also have a right to ensure that their interests are

considered if the bankruptcy affects subsidiary operations.

3) Right to seek redress: Investors also have the right to seek redress through legal mechanisms

if they believe their rights have been violated or if they have been mistreated during bankruptcy

proceedings. This can include filing complaints or lawsuits in court if they believe they have

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been unjustly excluded from the bankruptcy process or if the holding company’s management

has mismanaged their investments. Legal recourse may also be available if there has been fraud,

misrepresentation, or breach of fiduciary duty by the company's directors, officers, or other

responsible parties.

4) Right to participate in the bankruptcy process: Investors, particularly those holding shares or

bonds, have the right to participate in the bankruptcy proceedings to the extent permitted by

law. This includes the right to be notified of creditors' meetings, where they may have the

opportunity to vote on significant decisions regarding bankruptcy, such as the restructuring

plan or the sale of company assets. Shareholders may have a say in the direction of the company

during restructuring efforts. However, their influence will depend on the extent of their stake

and the level of control held by creditors in the proceedings. The bankruptcy administrator is

also obligated to inform shareholders about the process and the outcome of the proceedings.

In Indonesia, while these rights are clearly outlined under the Capital Market Law and the

Bankruptcy Law, investors may face challenges in ensuring they are upheld during the complex

process of holding company bankruptcy. The presence of multiple jurisdictions, different creditor

priorities, and varying interpretations of bankruptcy law can complicate the protection of investor

rights. However, the legal framework does provide mechanisms to ensure that investors are not left

vulnerable and that their interests are safeguarded to the extent possible.

c. Corporate Responsibility to Minority Investors in the Capital Market

Corporate responsibility to minority investors in the capital market is essential to ensuring

fairness, transparency, and accountability within the corporate governance structure. Minority

investors often lack the voting power or control that major shareholders possess, which can lead to

potential abuses or neglect of their interests. As such, legal and regulatory frameworks are designed

to safeguard the rights of these investors and ensure that they are treated equitably, especially in

matters like decision-making, financial disclosures, and corporate actions. One key aspect of

corporate responsibility to minority investors is the obligation to provide transparent and timely

information. Companies are required to disclose relevant financial data, material events, and

significant changes in their operations. This includes regular financial reports, such as annual reports

and quarterly statements, as well as updates on significant corporate actions like mergers,

acquisitions, or changes in executive leadership. Ensuring that minority investors have access to the

same information as major shareholders is vital for allowing them to make informed decisions about

their investments.

Another critical responsibility of companies toward minority investors is ensuring their

participation in key decisions. While minority investors may not hold enough shares to influence

corporate decisions directly, they are still entitled to have their voices heard, particularly in

shareholder meetings where significant decisions are made. In Indonesia, for example, the Capital

Market Law mandates that companies provide minority investors with the opportunity to vote on

matters such as mergers, acquisitions, or amendments to the company’s articles of association.

Companies must also ensure that voting procedures are fair and that the interests of minority

investors are appropriately considered, significantly when decisions may adversely affect them.

Protection from unfair treatment and abuse of power is another essential aspect of corporate

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responsibility to minority investors. Majority shareholders or controlling interests can sometimes

make decisions that disproportionately benefit them at the expense of minority investors. This may

include actions like squeezing out minority shareholders at an unfair price during a takeover or

restructuring or using company resources for personal benefit. Legal protections are in place to

prevent such abuses, ensuring that minority shareholders receive fair treatment, including a fair exit

opportunity and compensation if they are squeezed out or if their interests are diluted.

Corporate governance structures play a vital role in protecting minority investors by promoting

transparency, fairness, and accountability. The roles of the board of directors, audit committees, and

independent commissioners are crucial in this regard. In Indonesia, the Otoritas Jasa Keuangan (OJK)

oversees and enforces corporate governance standards for companies listed on the stock exchange.

These regulations ensure that the management of a company operates in the best interests of all

shareholders, including minority investors, and that they are not unduly influenced by controlling

shareholders. Finally, legal recourse is an essential aspect of corporate responsibility. Minority

investors who feel that their rights have been violated or that they have been unfairly treated can

seek legal redress. This could involve challenging decisions made at shareholder meetings, filing

lawsuits for breach of fiduciary duty, or seeking compensation for losses caused by unfair practices.

In Indonesia, minority investors are entitled to seek judicial review if they believe the actions of the

board or controlling shareholders have harmed their interests. In summary, corporate responsibility

to minority investors in the capital market is multi-faceted, encompassing the provision of

information, fair treatment in decision-making, protection from abuse, and access to legal recourse.

Ensuring that these responsibilities are met helps maintain trust in the financial markets, protect

investor rights, and promote a healthy, functioning corporate governance environment.

Conclusion

The implications of a holding company’s bankruptcy on subsidiaries in Indonesia, from the

perspective of capital market law, are significant. The bankruptcy of a holding company often triggers

operational and financial instability within its subsidiaries, which may lead to disruptions in their

day-to-day activities. Subsidiaries, being financially dependent on the parent company, may face

liquidity issues, loss of market confidence, and potential legal claims from creditors. From a capital

market perspective, these events can severely affect the value of stocks and bonds tied to the

subsidiaries, creating a ripple effect that impacts both parent and subsidiary companies. Legal

frameworks, such as Indonesia’s Bankruptcy Law and regulations enforced by Otoritas Jasa Keuangan

(OJK), aim to provide some protection. However, challenges remain in terms of balancing the interests

of creditors, investors, and the companies involved. The rights and interests of capital market

investors, especially those in subsidiaries, must be carefully considered to avoid unfair treatment or

the marginalization of minority investors during bankruptcy proceedings.

In the case of holding company bankruptcy, legal protection for capital market investors is

crucial. Investors have rights to information, fair treatment, and participation in bankruptcy

processes, ensuring they are not excluded or misled during financial turmoil. Indonesian law offers

mechanisms to protect investors, including requirements for transparent financial disclosures,

protection from unfair practices, and the possibility of seeking legal recourse if their rights are

violated. However, the complex nature of cross-border bankruptcy, the varying treatment of different

classes of investors, and the potential for conflicts of interest between major shareholders and

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minority investors pose ongoing challenges. Ensuring the equitable treatment of all stakeholders,

particularly minority investors, is key to maintaining investor confidence and the integrity of the

capital market. As such, improving legal frameworks and enforcement mechanisms for investor

protection in bankruptcy situations remains a priority for regulators in Indonesia.

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