“Lita, I was terminated from my position as Director last week without any prior notice or explanation. Given my long-standing commitment to the Company and the absence of any wrongdoing on my part, I find this action unacceptable. I would like to know whether it is possible to challenge the shareholders’ resolution that resulted in my termination—particularly considering my status as a foreign Director”
Under Indonesia’s Law No. 40 of 2007 on Limited Liability Companies (“Company Law”), the authority to appoint and remove members of the Board of Directors (BoD) lies with the General Meeting of Shareholders (GMS) and must be carried out in accordance with the Company’s Articles of Association.
A Director’s term may end due to several reasons:
a. Death
b. Expiration of service term
c. Resignation
d. Termination through GMS resolution (ass stated under Article 105 of the Company Law)
While the GMS holds the legal authority to terminate a Director, such a decision must be based on valid legal grounds. These grounds may include a Director’s failure to meet statutory qualifications or proven misconduct that causes harm to the Company.
More importantly, the law requires that the Director be informed of the reasons for their proposed dismissal and be given an opportunity to respond or defend themselves before the termination is finalized. This procedural safeguard ensures fairness and allows for transparency and accountability in the decision-making process.
If a Director is terminated without prior notice or the chance to defend themselves, the resulting GMS resolution may be deemed procedurally flawed or legally defective. In such cases, the Director, regardless of nationality, has the right to challenge the termination. This may involve requesting the cancellation of the GMS resolution or filing a lawsuit before the District Court. This legal principle is supported by Case No. 39/Pdt.G/2011/PN.JMB, where a Director successfully contested their termination.
The court ruled that the dismissal was invalid due to the company’s failure to follow due process. The court annulled the termination and ordered the company to pay IDR 850 million in damages.
In conclusion, yes, a shareholders’ resolution terminating a Director can be challenged and potentially cancelled if the process was procedurally or substantively flawed. This protection applies to both Indonesian and foreign Directors, reinforcing the importance of due process in corporate governance under Indonesian law.
