The (new) Company Law, i.e. Law No.
40 of 2007 regarding Limited Liability Companies came into force on 16 August
2007. This law contains several provisions regarding the duties,
responsibilities and liabilities of the Directors and Commissioners of an Indonesian
Limited Liability Company (a "Company"). Compared to the
previous Company Law, the provisions in this law are more detailed and
introduce some new requirements for the Directors and Commissioners of a
Company.
As general information about the organs
of a Company, a Company is required to have three organs, namely the Board of
Directors, the Board of Commissioners and the General Meeting of Shareholders.
The Board of Directors is the organ responsible for the management of a Company
or for running the day to day operations and business of the Company, while the
Board of Commissioners is the organ responsible for supervising the Board of
Directors in performing its duties and responsibilities in the Company. The
General Meeting of Shareholders consists of the shareholders of the Company who
contributed (shares) capital to the Company and has the right to appoint and
terminate members of the Boards of Directors and Commissioners. There are
actions of the Company that require approval from the General Meeting of
Shareholders of the Company and therefore, the General Meeting of Shareholders
can also be said have responsibility for 'controlling' the Boards of Directors
and Commissioners in performing their duties and responsibilities in the
Company.
The following is brief information
on the general duties, responsibilities and liabilities of the Directors and
Commissioners of the Company that are regulated in the Company Law.
A. Directors
The Board of Directors
is authorized and responsible for the management of the company in the
interests and to achieve the objectives of the company and for representing the
company both inside and outside the courts in compliance with the provisions of
the Articles of Association.
The Board of Directors
can consist of one or more Directors. However, certain Companies, such as
Companies engaged in fund raising (e.g. banks), publicly owned Companies, or
Companies issuing notes or bonds to the public, are required to have at least
two Directors.
To be eligible as a
director, the individual must have capability to perform legal actions and
within a period of 5 years prior to his/her appointment, he/she must have never
been (i) declared bankrupt, (ii) a member of the Board of Directors or Board of
Commissioners of a Company who caused that Company to become bankrupt; or (iii)
sentenced for committing a crime causing a financial loss to the State. A
statement letter from the individual to be appointed as a new Director
confirming that he complies with the requirements must be provided to the
Company.
Directors have duties
and responsibilities or authorities delegated to them by the General Meeting of
Shareholders and other responsibilities under the Law.
1. Duties and Responsibilities
Under the Company Law,
the Board of Directors is under obligation to, among other things:
- deliver an annual report (that
includes the financial statement of the Company) after it has been
examined by the Board of Commissioners to the General Meeting of
Shareholders within 6 months the end of the Company's financial year;
- prepare a business plan (that
includes an annual budget plan) for the next financial year prior to the
commencement of the next financial year and submit the business plan to
the Board of Commissioners or General Meeting of Shareholders of the
Company as regulated in the Articles of Association of the Company;
- prepare and maintain a Register
of Shareholders of the Company and a Special Register containing
information on the share ownership in the company and/or other companies
of members of the Board of Directors and the Board of Commissioners and
their immediate family members;
- archive the resolutions of the
Shareholders and Board of Directors of the Company and all other corporate
documents;
- obtain approval from the
General Meeting of Shareholders for the transfer or the encumbrance of
more than 50% of the total assets of the Company in one or more
transactions, whether related or not, in one or more financial years as
regulated in the Articles of Association of the Company;
- hold a General Meeting of
Shareholders (including to send invitations or summons to the
shareholders) either annually or extraordinary as necessary or requested
by certain Shareholders, Commissioners or Directors of the Company as
regulated in the Articles of Association of the Company;
- notify the Minister of Law and
Human Rights (the "MLHR") of any change to the composition of
the Boards of Directors or Commissioners of the Company within 30 days as
of the date of the resolution of the General Meeting of Shareholders with
regard to the change;
- record any transfer of shares
(or encumbrance of shares) in the Company in the Company Register and
notify the MLHR regarding the change of the shareholders within 30 days as
of the date of the transfer of shares;
- notify the creditors of the
Company if there is a reduction in the capital of the Company in at least
one newspaper within 7 days of the resolution of the General Meeting of
Shareholders regarding the reduction.
Also, in certain
transactions such as the merger, acquisition, consolidation, segregation or
dissolution of the Company, the Board of Directors also has a number of
obligations regarding the transaction, such as to prepare the transaction plan,
announce the proposed transaction in the newspapers, or act as the liquidator
in the dissolution of the Company.
2. Liabilities
Directors must manage
the company in good faith and with full responsibility. Every member of the
Board of Directors is personally liable for any loss suffered by the Company if
he/she acts wrongfully or fails to perform his/her duties in the manner stated
above. If the Board of Directors consists of more than one member, the above
liability applies jointly among each of the members.
However, a Director
will not be personally held liable if he/she can prove that:
- the loss suffered by the
Company is not due to his/her wrongful actions or failure to perform
his/her duties;
- he/she has managed the Company
in good faith and prudently for the benefit of the Company and in
accordance with the purpose and objectives of the Company;
- he/she has no conflict of
interest either directly or indirectly in the management of the Company
that causes a loss; and
- he/she has taken all the
necessary actions to prevent the occurrence or continuance of the loss.
In the case of the
bankruptcy of the Company, a Director will not be held liable for the Company's
bankrupt if he/she can prove that:
- the bankruptcy is not due to
his/her fault of negligence;
- he/she has managed the Company
in good faith, prudently and with full responsibility for the benefit of
the Company and in accordance with the purpose and objectives of the
Company;
- he/she has no conflict of
interest either directly or indirectly in the management of the Company;
and
- he/she has taken all necessary
actions to prevent bankruptcy.
Further, the Board of
Directors may also be held liable in the following transactions/situations:
- Share buyback
The
Directors are jointly and severally liable to shareholders acting in good faith
who suffer a loss from a share buyback transaction conducted by the Company but
voided by law.
- Inaccurate or misleading
financial reports
Unless
the Directors can prove that it was not caused by their fault or negligence,
the members of the Boards of Directors will be held jointly and severally
liable to third parties who suffer a loss due to an inaccurate, untrue or
misleading report being presented.
- Failure to accept returned
interim dividends
The
Directors will be held jointly and severally liable for company losses if the
Shareholders cannot return interim dividends that have been declared.
- Failure to report their share
ownership
Members
of the Board of Directors who fail to report their shareholdings will be held
personally liable if the failure causes the Company to make a loss.
- Liability for bankruptcy losses
In
the event that bankruptcy occurs as a result of the fault or negligence of the
Board of Directors and the assets of the Company are insufficient to cover the
losses incurred in the bankruptcy, the members of the Board of Directors may be
held jointly and severally liable for the balance of the obligations that
cannot be repaid from the assets.
3. Restrictions
Other than the above
Duties, Responsibilities and Liabilities, the Board of Directors must also
observe certain restrictions imposed by the Company Law, such as:
- Directors acting as proxies of
the shareholders in the General Meeting of Shareholders will have no
voting rights in the meeting;
- the Board of Directors may not
perform any legal action on behalf of the Company after the expiration of
the term of the Company;
- the Board of Directors cannot
file for the bankruptcy of the Company without approval from the General
Meeting of Shareholders; and
- for certain corporate actions,
such as amending the Articles of Association of the Company, conducting a
merger or acquisition, placing a security over the Company's assets, and
any other actions regulated in the Articles of Association of the Company,
the Board of Directors must obtain prior approval from the Board of
Commissioners or the General Meeting of Shareholders before conducting the
action.
In addition, a member
of the Board of Directors is not entitled to represent the Company in the event
(i) there is a dispute between the Company and the relevant Director, or (ii)
the relevant Director has a conflict of interest with the Company. In this
case, another member of the Board of Directors will represent the Company, or
the Board of Commissioners will do so if all the Directors have a conflict, or
another party appointed by the General Meeting of Shareholders if all the
members of the Boards of Directors and Commissioners have a conflict of
interest with the Company.
B. Commissioners
The primary duties of
the Board of Commissioners are to carry out general and/or specific supervision
in compliance with the Articles of Association of the Company and to give
advice to the Board of Directors. Please note that the Board of Commissioners
is not involved in the day-to-day operations of the Company, such actions being
the responsibility of the Board of Directors.
The requirements to be
eligible to be a Director provided above also apply to the Commissioners.
1. Duties and Responsibilities
The following are some
of the duties and responsibilities of the Board of Commissioners in the
Company:
- Supervising the Company
The
Board of Commissioners must in good faith, prudently and responsibly carry out
their duties in supervising the Company and give advice to the Board of
Directors for the interests of the Company and according to the purposes and objectives
of the Company.
- Annual report and business plan
The
Board of Commissioners must examine the annual report and approve the budget
plan (as required by the Articles of Association of the Company) submitted by
the Board of Directors.
- Secretarial responsibilities
- to prepare minutes of meetings
of the Board of Commissioners' meetings and keep or maintain a copy;
- to report to the Company their
own and their immediate family member's share ownership in the Company or
other companies;
- to report the performance of
their supervision duties during the past year to the General Meeting of
Shareholders.
In certain
transactions such as a merger, acquisition, consolidation, or segregation, the
Board of Commissioners must also assist or supervise the Board of Directors in
the transactions, including approving the transaction plan.
2. Liabilities
Every member of the
Board of Commissioners will also be held personally liable for every loss
suffered by the Company if he/she acts wrongfully or fails to perform his/her
duties in good faith, prudently and responsibly. If the Board of Commissioners
consists of more than one member, the above liability applies jointly among
each of the members.
However, a
Commissioner will not be personally held liable if he/she can prove that:
- he/she has carried out his/her
supervision duties in good faith and prudently for the benefit of the
Company and according to the purposes and objectives of the Company.
- he/she has no personal interest
either directly or indirectly in the management of the Company that causes
a loss; and
- he/she has advised the Board of
Directors to take all the necessary actions to prevent the occurrence or
continuance of a loss.
In the case of the
bankruptcy of the Company, a Commissioner will not be held liable if he/she can
prove that:
- the bankruptcy was not due to
his/her fault of negligence;
- he/she has carried out his/her
supervision duties in good faith and prudently for the benefit of the
Company and in accordance with the purposes and objectives of the Company;
- he/she has no personal interest
either directly or indirectly in the management of the Company that has
leads to bankruptcy; and
- he/she has advised the Board of
Directors to take all the necessary actions to prevent the occurrence of
the bankruptcy.
Other liabilities
which apply to the Board of Directors also apply to the Board of Commissioners,
such as if they provide inaccurate or misleading financial reports, fail to
return interim dividends, and for bankruptcy losses.
3. Restrictions
Commissioners acting
as proxies of shareholders in the General Meeting of Shareholders will have no
voting rights in the meeting.
Please note that a
member of the Board of Commissioners cannot act alone; all actions taken on
behalf of the Commissioners must be taken through the Board.
The above information
is only intended to be a brief summary of the duties, responsibilities and
liabilities of directors and commissioners and should not be relied upon as
legal advice or as a substitute for legal advice in individual cases. We shall
be pleased to advise further on particular aspects of the above summary.
