Commissioners of Indonesian limited liability companies actually have a lot of potential liability pursuant to the provisions of Law No. 40 of 2007 concerning Limited Liability Companies (“Company Law”).
II. Commissioner Liability
Good Faith Management
Article 114(2) of the Company Law provides that every member of the Board of Commissioners is required to perform his/her supervisory duties and provision of advice to the board of directors in good faith, with care and accountability for the interests of the company in accordance with intentions and purposes of company. (Id. at Art. 114[2]).
Personal Liability
Articles 108(1) and 114(1) of the Company Law provides that the Board of Commissioners is accountable/liable for supervision of the management policies of the company, performance of management in general, both concerning the company as well as the business of the company, and providing advice to the Board of Directors.
Article 114(3) of the Company Law and its elucidation provides that every member of the Board of Commissioners is personally liability for the losses of the company if the member is at fault or negligent in the performance of his/her duties. This provision emphasizes that if the related member is at fault or negligent in the performance of his/her duties and that fault or negligence causes loss to the company due to management acts undertaken by the board of directors, the relevant member of the Board of Commissioners is liable to the extent of his fault or negligence.
Article 114(4) of the Company law provides that in the event the Board of Commissioners consists of two or more members, the aforementioned liability/responsibility is joint and several for all members of Board of Commissioners. (Id. at Art. 114[4]).
Exculpation
Article 114(5) of the Company Law provides that a member of the Board of Commissioners cannot be held liable for losses of the company if he/she can be proven that:
- he/she already conducted supervision in good faith and with care for the interests of the company and in accordance with the intentions and purposes of the company;
- he/she does not have a direct or indirect personal interest in the relevant management acts of the Board of Directors that caused the loss (kerugian); and
- he/she has already provided advice to the Board of Directors to mitigate/prevent the emergence of or continuation of the loss.
Proving the aforementioned defense requirements to avoid liability may be difficult in practice as the law requires proof of the non-existence of fault and conflicts of interest; matters which are inherently difficult to prove.
Bankruptcy Liability
Article 115(1) of the Company Law provides that in the event the company becomes bankrupt as a result of the fault or negligence of the Board of Commissioners in the supervision of the management activities of the Board of Directors, every member of the Board of Commissioners serving at the time of the bankruptcy is jointly and severally liable along with the members of the Board of Directors for the entirety of the obligations that cannot be paid from the bankruptcy estate.
Article 115(2) of the Company Law provides that Commissioners at fault or negligent who served at any time within the 5 (five) years prior to the bankruptcy are also liable.
Article 115(3) of the Company Law provides that members of the Board of Commissioners cannot be held liable for losses arising out of a bankruptcy if they are able to prove all of the following:
- the bankruptcy was not due to the Commissioner’s fault or negligence;
- the Commissioner has already conducted his/her supervisory duties in good faith and with care for the interests and in accordance with the intentions and purposes of the company;
- the Commissioner does not have a direct or indirect conflict of interest in the management acts conducted by the Director that have resulted in the loss; and
- the Commissioner has already provided his/her advice to the board of directors to prevent the bankruptcy.
Proving the aforementioned defense requirements to avoid liability may be difficult in practice as the law requires proof of the non-existence of fault and conflicts of interest; matters which are inherently difficult to prove.
Losses Arising Prior to a Commissioner’s Appointment
A Commissioner would not be liable for losses arising prior to the date of appointment of the Commissioner, provided that the Commissioner was not in a position to mitigate losses after his/her appointment.
Shareholder Standing to Bring a Lawsuit on Behalf of the Company
Article 114(6) of the Company Law provides that shareholders who represent at least 1/10 of the number of shares with voting rights may bring a civil lawsuit in the name of the company in the District Court against members of the Board of Commissioners who due to their fault or negligence cause loss to the company.
Third Party Lawsuits against Commissioners
In the event a third party (not a shareholder of the company or a Director or Commissioner of the company) alleges to have suffered injury as a result of a Commissioner’s fault or negligence in the supervision (or management if the Commissioner engages in management activities) of a company, the third party would be required to prove the actual fault or negligence of the Commissioner and would in most circumstances be required to join the company and all other Commissioners and directors in the lawsuit as necessary parties. Generally, the third-party claimant would not enjoy the benefits of the burden of proof shift to the director arising out of Article 114(5) of the Company Law. Instead, the third party would be required to prove, with admissible evidence, that the Commissioner actually committed and act of fault or negligence that caused actual damages to the third-party claimant.
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