04 Jul 2022
New Regulation Reaffirms Liability of Key Officers for State Enterprise Losses

A. Introduction

On 8 June 2022, the Government issued Regulation No. 23 of 2022 (“GR 23/2022”)[1], which amends Government Regulation No. 45 of 2005 on the Establishment, Management, Supervision, and Dissolution of State-Owned Enterprises (“GR 45/2005”)[2].

GR 23/2022 incorporates a number of amendments, including: (i) a further fine-tuning as regards the liability of a state-owned enterprise (“SOE”)’s directors and commissioners or supervisory board members (collectively, “Key SOE Officers”) for losses incurred by their SOE, and (ii) a prohibition on Key SOE Officers from holding executive roles in political parties, and from running for or filling certain elected positions/offices.

B. Accountability of Key SOE Officers for Losses

Previously under GR 45/2005, Key SOE Officers were fully and personally liable for errors or negligence in the performance of their duties. While this continues to be the case, GR 23/2022 has amended the default rule so as to provide the following exceptions:

1. For a director

1. The loss was not due to the director’s error or negligence;
2. The director conducted his/her management duties in good faith and exercised prudence in the interests of, and in accordance with, the objectives and purposes of the SOE;
3. There was no direct or indirect conflict of interest as between the director and the management decision that resulted in the losses; and
4. Measures were taken by the director to prevent the occurrence or continuation of the losses.

2. For a commissioner or supervisory board member (“SBM”)

1. The commissioner/SBM conducted his/her supervisory duties in good faith and exercised prudence in the interests of, and in accordance with, the objectives and purposes of the SOE;
2. There was no direct or indirect conflict of interest as between the commissioner/SBM and the management decision that resulted in the losses; and
3. The commissioner/SBM advised the Board of Directors to take action to prevent the occurrence or continuation of the losses.

The Minister responsible for SOEs may sue a Key SOE Officer to recover SOE losses that are deemed attributable to their error or negligence, provided this does not fall within one of the above exceptions.

C. Prohibition on Certain Political Activities

To avoid conflicts of interests, GR 45/2005 imposed a ban on Key SOE Officers holding administrative positions in political parties and from standing for election to, or being a member of, a legislature at the national or provincial/local level. Inexplicably, the ban failed to cover the holding of executive office at the provincial/local level, such as the offices of provincial governor, city mayor or chief executive of a county (bupati). To address this rather obvious omission, GR 23/2022 has extended the prohibition to cover all of these senior positions in regional government, as well as the offices of deputy governor, deputy mayor and deputy county chief executive.

Further details of the prohibition are to be provided by way of ministerial regulation.

D. ABNR Commentary

While GR 23/2022 does not make many substantial changes to the overall regime established by GR 45/2005, it does place heightened emphasis on preventing financial losses at SOEs by encouraging greater financial prudence and accountability in SOE decision-making. Consequently, it is to be welcomed as it has the potential to strengthen good corporate governance in the public sector, which in turn should ultimately help public-sector companies to successfully discharge their roles as agents of national development.

By partnerMr. Ayik Candrawulan Gunadi(agunadi@abnrlaw.com) and associateMs. Nindi Saskia (nsaskia@abnrlaw.com).

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.