How does the Company Law (and its closely related regulations) regulate the silent director(s)?

Is there any specific regulation, and if there so, any potential legal concern upon the condition of silent director in BoD meeting under the relevant Indonesian law (?)

Sources:

-         Law 40 of 2007 (Company Law), and its implementing regulations consisting in such Company Law, e.g. Government Regulation for the procedure in naming the company, the authorized capital & asset value regulation, CSR, merger-consolidation-acquisition, separation, and the fee to obtain government’s archives of certain company), vide Law 01 of 1995;

-         

      Indonesian Business Code / KUHD (Wetboek van Koophandel) of Stb. 1847;

-         

        Supreme Court verdicts

There is no specific regulation under Company Law to regulate the condition of silent director in BoD meeting, but we should put concerns about the related potential conditions as follows:

-       

       Its (BoD) resolutions / minute of meeting (Article 100 of Company Law) & its attendance list’s signatory or any significant-relatable documentation, whether he / she sign them or not, which potentially reflects the conditions of silent director;

-      The annual report which is reflecting BoD’s resolutions / corporate actions (Article 67 of Company Law), whether he / she sign or not, or give the written reasoning or not, which is considered to have approved its content/substance/considerations (of corporate actions);

-        The event of buy back of shares by the company held in contrary to the regulation, and then the responsibility upon the losses suffered by the good-faith-shareholder(s) reflected to be borne on the BoD jointly/collectively  (Article 37 of Company Law)

-          In the event of interim dividend payment, which cannot be returned upon the losses suffered by the company at the end of financial year reflected to be borne on the BoD jointly/collectively (Article 72 of Company Law),

While the abovementioned events are not (specifically) regulated the condition of silent directors, but it potentially reflects the BoD’s joint liability, otherwise, the (silent) director should prove that he / she is not be responsible for the losses from any mistakes and negligent within any related process in taking corporate actions causing such losses (Article 97 of Company Law).

-          (if any) differentiation of assignments, functions & authorities (scope of works) of each BoD member (which is in this matter attributable to the silent director in a corporate action) would be based on / referring to the GMS’ resolutions, or if it is not so, upon BoD’s resolutions. (Article 92 of Company Law), which potentially reflect the scope of silent director’s tasks to figure further potential relation to such corporate action (which damaged the company);

Generally, upon the BoD member(s) (including such silent director, in this matter), the principle of fiduciary duties is exist that BoD member(s) must always be deemed trustworthy / bona fide and honest in performing their/his duties (Book of Hukum Perseroan Terbatas by M. Yahya Harahap), such duties and authorities should be limited and subject to the AoA and Company Law ‘s provisions (Article 92(2) of Company Law), e.g. whether any certain action requires shareholders’ approval), besides, the discretion or authority of BoD member(s) should respect the ultra vires doctrine in limitating any unauthorized acts (Jurnal Hukum Bisnis’ article “Tanggung Jawab Pribadi Direksi & Komisaris” by Sutan Remi Sjahdeni), at last, the Company Law provides the verification instrument for BoD member(s)’ responsibility related to such duties, discretions or authorities, when BoD member(s) make mistakes and negligent, they / he shall be responsible for losses suffered to the company, except they / he can prove otherwise.

There are Supreme Court verdict containing substances in relation to BoD / silent director situation as follows.

Supreme Court Verdict Reg. No. 367/K/Sip/1972 à the director of the bank (in this matter the bank issued the empty-cheque on behalf of the bank under internal procedure), can not be found guilty merely for his own actions, but partially to the bank’s responsibility, because then was proved that such action’s exercised with no duress or any deceit/fraud.

Supreme Court Verdict Reg. No. 01/PK/N/2004 à the responsibility of the company’s default in bankruptcy lawsuit cannot be burden personally to the director as a private person under the argument of his representation duty to the company (~business judgment rules)