I would like to raise an issue regarding the authority and rights of foreign directors in relation to a matter within a foreign-owned company. The issue is the interference of foreign directors to the government and the application for credit of an asset in the Republic of Indonesia. Is this allowed? To what extent are the authorities and rights of foreign directors in a foreign-owned company?
DAFTAR ISI
INTISARI JAWABAN
Indonesian laws and regulations recognize two types of investment activities, namely Domestic Investment and Foreign Investment. For Foreign Investment, business activities must be carried out in the form of a Limited Liability Company ("LLC") run by the company's organs, one of which is the board of directors.
Due to Foreign Investment, there is a possibility that the directors in the LLC are foreign directors. So, are there any limitations on the authority and rights of foreign directors in a Foreign Investment company?
Please read the review below for a further explanation.
This article below is an update of the article with the same title, written by Diana Kusumasari, S.H., M.H. and was published on Wednesday, 22 June 2011.
All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.
Legal Basis of Foreign Investment
Before answering your question, let's first understand the definition and types of investment in Indonesia.
According to Article 1 number 1 Investment Law, penanaman modalor investment is any form of investing activity, either by domestic investors or foreign investors to conduct business within the territory of the Republic of Indonesia.
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Furthermore, Article 1 number 4 Investment Law explains that investment activities, both PMDN and PMA, are carried out by individuals or business entities.
Based on the question, your problem occurs in a Foreign Investment company/ Foreign-Owned company. Therefore, we will focus on the activity of foreign investment or PMA. According to Article 1 number 3 Investment Law, foreign investment is an investing activity to do business within the territory of the Republic of Indonesia which is undertaken by foreign investors, either by fully using foreign capital or in the form of
joint venture with domestic investors.
The Authorities of Directors
Moreover, according to Article 5 section (1) Investment Law, foreign investment must be in the form of a Limited Liability Company (“LLC”) under Indonesian law and domiciled within the territory of the Republic of Indonesia, unless stipulated otherwise by the law.
For information, the regulation of LLCs in Indonesia is regulated by the LLC Law and the Job Creation Law. Based on Article 109 number 1 Perppu Job Creationwhich amends Article 1 number 1 LLC Law, a Limited Liability Company is a legal entity which is a capital partnership, established based upon an agreement, carrying out business activities with an authorized capital wholly divided into shares or Individual Legal Entities that meet the criteria of Micro- and Small-Scale Businesses as regulated under laws and regulations on Micro- and Small-Scale Businesses.
Furthermore, an LLC is run by a Company Organ (organ perseroan), namely the General Meeting of Shareholders ("GMS"), the Board of Directors (“Directors/ “BoD”), and the Board of Commissioners.[1]
Referring to your question, which is about the authority and rights of foreign directors in a Foreign Investment company, we will discuss the authority of directors in an LLC in Indonesia in general. The Board of Directors is the company organ that is authorized and fully responsible for the management of the company in the interests of the company, in accordance with the purposes and objectives of the company, and represents the company both in and out of the court in accordance with provisions of the articles of association.[2]
The authorities of directors is stipulated in Article 92 section (2) LLC Law which states that BoD is authorized to carry out the management of the company in accordance with the policies deemed appropriate within the limits set out under this law and/or the articles of association. The management of the company is in the form of day-to-day management of the company.[3] Then, ‘the policies that are considered appropriate’ means policies, which among other things are based on expertise, opportunities, and what is customary in similar businesses.[4]
As we have mentioned, the board of directors represents the company both in and out of the court.[5] The authority of the board of directors to represent the company is unlimited and unconditional unless otherwise specified in the law, articles of association, or GMS resolutions.[6]
However, Article 99 section (1) LLW Law regulates that BoD shall not be authorized to represent the company if:
there is an ongoing court case between the company and the relevant member of the Board of Directors;
the relevant member of the Board of Directors has a conflict of interest with the company.
In the event of the circumstances as referred to in Article 99 section (1) LLC Law arises, then the ones entitled to represent the company shall be:[7]
other members of the Board of Directors who have no conflict of interest with the company;
the Board of Commissioners, in the event that all members of the Board of Directors have a conflict of interest with the company; or
another party appointed by the GMS in the event that all members of the Board of Directors or Board of Commissioner have a conflict of interest with the company.
Basically, in the LLC Law and the Job Creation Law, there are no differences or restrictions on the authority of foreign directors at Domestic Investment or Foreign Investment companies. This implies that foreign directors have the same authority as Indonesian directors, especially as the bearer of authority and responsibility for the company's activities.
Positions Prohibited to be Occupied by Foreign Workers
On the other hand, there are restrictions on the placement of foreign workers in Indonesia. The Job Creation Law stipulates that Tenaga Kerja Asingor foreign workers are prohibited from occupying personnel positions (based on the law is known as ‘human resources positions’).[8] Based on the Appendix to the Ministerial Decree of Manpower 349/2019, the positions that foreign workers are prohibited from occupying are:
Personnel Director;
Industrial Relation Manager;
Human Resource Manager;
Personnel Development Supervisor;
Personnel Recruitment Supervisor;
Personnel Placement Supervisor);
Employee Career Development Supervisor;
Personnel Declare Administrator;
Personnel and Careers Specialist;
Personnel Specialist;
Career Advisor;
Job Advisor;
Job Advisor and Counseling;
Employee Mediator;
Job Training Administrator;
Job Interviewer;
Job Analyst;
Occupational Safety Specialist.
According to the Official Dictionary of the Indonesian Language, the word "personalia" or personnel, has the following meanings:
relating to people or people's names (about affairs, announcements, and so on);
the part of an agency (office) that takes care of personnel matters, the personnel section, or the personnel section.
Therefore, it can be concluded that in terms of placement as directors, foreign workers are not allowed to be placed in the personnel management section. In addition, in our opinion, the authority and rights of foreign directors in Foreign Investment companies according to the LLC Law and the Job Creation Law are not differentiated from directors who are Indonesian citizens. Thus, as long as foreign directors carry out their obligations and duties in their capacity as directors of a Foreign Investment company, it is legally valid.
Credit Application by Foreign Directors of PT PMA
Answering your question regarding the application for credit, according to Article 17 section (1) Regulation of BI 24/7/2022, banks are prohibited from conducting transactions:
transfers of rupiah abroad;
non-deliverable forward transactions of foreign currencies against rupiah abroad;
provide overdrafts as well as credit and/or financing for foreign exchange transactions against the rupiah;
provide overdrafts as well as credit and/or financing in rupiah or foreign currencies to Non-Residents;
purchase securities in rupiahs issued by Non-Residents;
invest in rupiah to Non-Residents; and
other transactions as determined by Bank Indonesia.
Non-resident means a person, legal entity, or other entity, who is not domiciled in Indonesia or domiciled in Indonesia for less than one year, including representatives and diplomatic staff of other countries in Indonesia.[9] Based on this explanation, credit applications by foreign parties in their capacity as directors of a Foreign Investment company are allowed because they are not included in the definition of "non-resident" which is prohibited by Bank Indonesia.
Thus, foreign directors in a Foreign Investment company are allowed to apply for credit at banks in Indonesia, as long as the requirements as a legal entity are met and the foreign directors apply for credit in accordance with their capacity as directors of the Foreign Investment company.
The Official Dictionary of the Indonesian Language, personalia (personnel), accessed on Tuesday, 3 October 2023, at 10.12 Western Indonesian Time (zone).
