Background

As we know in a Limited Liability Companies (“Company”), there are three organs that have its authority and responsibility. These organs consist of General Meeting of Shareholders (“GMS”), Board of Directors and (“BOD”) Board of Commissioners (“BOC”). Article 1 paragraph 4, paragraph 5 and paragraph 6 of Law Number 40 of 2007 on Limited Liability Companies (“Company Law”) regulates the definition of these three organs. GMS constitutes Company organs which possess authorities that are not given to BOD and BOC. Whereas, BOD is the Company organ which is fully reliable upon the Company management for the interests and objectives of the Company, as well as representing the Company, both in and out of court, in accordance with the provisions of the Article of Association (“AOA”). Then, BOC is defined as the Company organ who is assigned in general and/or specific conduct supervision in accordance with the AOA and giving advice to the BOD.

The following are liabilities by each of BOD and BOC in a Company:

1. Liabilities of BOD

According to Article 97 paragraph (3) of Company Law, each member of BOD shall be fully personally liable for the Company’s losses if the Director is wrong or negligent in carrying out his/her duties. If BOD consists of 2 (two) or more members of the BOD, the liability contemplated above shall be apply jointly and severally for each member of BOD.

Based on Article 97 paragraph (3) of Company Law, member of BOD cannot be requested to be accountable for the losses contemplated above, if they are able to prove that:

a. The losses were not due to their fault or negligence;

b. They have carried out the management in good faith and with prudence for the interest and in accordance with the purposes and objectives of the Company;

c. They do not have a direct or indirect conflict of interest over the management acts that cause the losses; and

d. They have already undertaken an action to prevent the losses from arising or continuing.

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In the event of bankruptcy occurring because of the fault or negligence of BOD and the bankruptcy assets is insufficient to pay the whole of the Company’s obligations in the bankruptcy, Article 104 paragraph (2) of Company law regulates that each member of the BOD shall be jointly and severally liable for the whole of the obligations which have not been paid off from the bankrupt assets. The aforementioned liability is also applied for members of BOD that held its position for a period period of 5 (five) years prior to decision of declaration of bankruptcy.

Members of BOD cannot be requested to be accountable for bankruptcy of Company if they are able to prove: (i) bankruptcy is not due to their fault or negligence; (ii) they have already conducted management in good faith, with prudence and fully liable for interests of Company and in accordance with the purposes and objectives of Company; (iii) they do not have a direct or indirect conflict of interest over the actions of management performed; and (iv) they have already undertaken action to prevent the occurrence of bankruptcy.

2. Liabilities of BOC

BOC is liable upon supervisions of the Company as contemplated in Article 108 paragraph (1) of Company law, which is in the matters of conduct of supervision upon management policies, performance of management in general, both concerning Company as well as business of Company, and provides advice to BOD. Each member of BOC shall in good faith, prudence, and liable in conduct of supervision duty and giving advice to the BOD in the Company’s interest and in accordance with the purposes and objectives of the Company. Each member of BOC shall be personally liable for the Company’s losses if the Commissioners concerned are wrong or negligent in conducting its duties. If BOC consists of 2 (two) members BOC or more, the liability as contemplated above, shall be applied jointly and severally to each member of the BOC (Article 114 paragraph (3) of Company law). However, BOC shall not be liable upon the losses as referred in Article 114 paragraph (3) of Company Law if the BOC isable to prove:

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a.  They have carried out their supervision in good faith and prudence in the interest of the Company and in accordance with the Company’s purpose and objectives;

b. They do not have any direct or indirect personal interest in the actions of management of the Board of Directors which cause the losses; and

c. They have given the Board of Directors advice to prevent the losses arising or continuing.

When the bankruptcy is occurred due to error or negligence by the BOC in conducting supervision towards management which is performed by BOD and Company’s assets are insufficient to pay all responsibilities of Company caused by the bankruptcy, Article 114 paragraph (4) of Company Law regulates that every members of BOC shall be jointly and severally liable together with each member of BOD for obligations which have not yet been paid off.

The liability as contemplated above, shall also apply to members of BOC who has not served in 5 (five) years before the judgment declaring the Company bankrupt was issued.

However, the member of BOC cannot be requested to be accountable for bankruptcy of Company as contemplated above, if they are able to prove that: (i) the bankruptcy was not because of their fault or negligence; (ii) they have already conducted supervisory duties in good faith and prudence for the interests of the Company and in accordance with the Company’s purposes and objectives; (iii) they do not have any direct or indirect personal interest in management acts of BOD which cause bankruptcy; (iv) they have already given advice to the BOD to prevent the occurrence of the bankruptcy.

Sofie Widyana P.