Directors’ Duties in Indonesia

>> Liabilities and Penalties in Indonesia

If a director negligently or intentionally violates his duties he is liable to the company for damages, jointly and severally with any other director who is also in breach of their duties.

In the event of bankruptcy which occurs due to a fault or negligence of the BOD and the company’s assets are inadequate to settle all of the company’s liabilities caused by the bankruptcy, each member of the BOD (unless the member can evidenced that he/she is not at fault) shall be held jointly and severally liable for all the outstanding liabilities of the bankruptcy assets.

A director can be held liable for payments made by the company after over-indebtedness was ascertained or illiquidity arose, particularly where those payments would not have been made by a diligent and prudent businessman. In exceptional cases, the directors can also be liable directly visà-vis the shareholders or third parties.

In several cases, misconduct of a director can lead to criminal liabilities.  In addition to this there are certain specific offences which may apply including: failure to file for insolvency when required by law, reporting false information to the commercial register and failing to inform the shareholders of losses amounting to more than half of the registered capital. A director should not divulge business secrets, fail to comply with bookkeeping and accounting obligations or have preferential treatment towards certain creditors and/or debtors.

The Members of BOD may be temporarily suspended by the BOC with the reason being stated. The temporary suspension must be conveyed in writing to the relevant member of the BOD. The member of BOD suspended cannot carry out the management of the company and represent the company in or outside the court. The shareholders may grant full discharge to release a director from his liability.

Limitation of liability

A member of the BOD cannot be held liable for the damages for the company if he can prove that:

  • the damages were not incurred because of their fault or negligence
  • they has managed in good faith and with due care in the company’s best interest and in accordance with the company’s purposes and objectives
  • they have no conflict of interest, either directly or indirectly, in the company that caused the damages
  • they took measures to prevent the damages from occurring or continuing

Delegation of Authorities

The authority of a director can be delegated to holders of a special proxy or authorized representatives. Nevertheless, the directors remain responsible for observing their obligations and can, hence, be liable for the actions of their delegates.

Directors and Officers Insurance

D&O insurance can be obtained against the liabilities of the director.  Under Indonesian law, third parties generally do not have a direct claim against the director, only the company.  The cases where a third party may have a direct claim against the company are not generally covered by D&O insurance.

Please note that the D&O insurance does not protect the director against his criminal liabilities.

Latest version updated 23rd March 2018

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