Foreign shareholders can face significant risks when an Indonesian director uses company money without authorization or diverts funds for personal purposes. The situation can be more difficult when the director controls the company’s bank accounts, financial records, or day-to-day management.
Indonesian law provides shareholders with mechanisms to respond to suspected director misconduct, including where the shareholder does not control the company’s management. The appropriate course of action will depend on the company’s ownership structure and the conduct involved.
How Can Foreign Shareholders Investigate Suspected Misuse of Company Funds?
Unauthorized transfers to personal accounts, fictitious invoices, and payments to businesses associated with a director may indicate financial misconduct.
Foreign shareholders can request financial statements, transaction records, and supporting documentation through the company’s governance procedures. However, share ownership does not automatically provide unrestricted access to internal financial records.
Shareholders representing at least 10% of voting shares may seek a court-ordered company examination. Before applying to the district court, they must generally have requested relevant information or an examination through a General Meeting of Shareholders (GMS) and have been refused without reasonable grounds.
The court application must be supported by reasonable grounds and submitted in good faith. If granted, the examination can investigate suspected unlawful conduct by directors or commissioners that has caused losses to the company, shareholders, or third parties.
Foreign shareholders holding less than 10% may need support from other shareholders to meet the statutory threshold. Their shareholders’ agreement may also provide additional contractual rights to obtain financial information.
Can Foreign Shareholders Remove an Indonesian Director?
Foreign shareholders can seek a director’s removal through a GMS, subject to the applicable voting requirements and the company’s articles of association. The resolution must state the reasons for dismissal, and the director must generally have an opportunity to defend themselves.
Shareholders representing at least 10% of voting shares, or a lower percentage permitted by the articles of association, can formally request a GMS. If the directors fail to convene it, shareholders can approach the board of commissioners. Should the commissioners also fail to act, eligible shareholders may seek court authorization to convene the meeting.
However, the right to request a GMS does not necessarily provide sufficient voting power to dismiss the director.
The board of commissioners may temporarily suspend a director, subject to the required notification procedures and a subsequent GMS within the statutory period.
Following dismissal, the company must notify the Ministry of Law of the management changes.
How Can Foreign Shareholders Recover Misappropriated Company Funds?
Under Indonesia’s Company Law, directors may be personally liable for company losses caused by their fault or negligence. A director seeking exemption must satisfy the applicable statutory conditions, including demonstrating good faith, due care, the absence of a relevant conflict of interest, and appropriate measures to prevent losses.
A director’s resignation or dismissal does not automatically eliminate potential liability for misconduct committed while in office.
Filing a Lawsuit Against the Director
The company may pursue a civil lawsuit against the director. A director generally cannot represent the company in litigation against themselves or where they have a conflict of interest. Depending on the company’s management structure, representation may instead fall to another director, the board of commissioners, or an appropriately appointed representative.
Taking Legal Action as a Minority Shareholder
Shareholders representing at least 10% of voting shares can bring a lawsuit against a director on the company’s behalf where the director’s fault or negligence has caused company losses.
Any compensation awarded through this action belongs to the company rather than the shareholders who initiated proceedings.
Individual shareholders who suffer direct losses resulting from unfair and unreasonable corporate actions may also have grounds to bring separate proceedings against the company.
Where there is a risk that the director will dispose of assets before proceedings conclude, shareholders may seek provisional asset attachment, subject to the court’s assessment.
Can Foreign Shareholders Pursue Criminal Proceedings Against the Director?
A director who deliberately transfers company money into a personal account without authorization may face allegations of embezzlement under Indonesia’s Criminal Code, provided the relevant elements of the offence are established. Fictitious transactions or falsified documentation may raise additional criminal issues.
Shareholders can report suspected criminal conduct to the Indonesian police, supported by bank statements, accounting records, transaction documentation, and relevant communications.
If the director under investigation remains in control of the company, the authority to submit a complaint on the company’s behalf may need to be established.
Criminal proceedings do not automatically result in financial recovery. Civil litigation may be necessary to obtain compensation.
Contact Jarji Zaidan & Partners for Shareholder Disputes in Indonesia
Contact Jarji Zaidan & Partners at info@jarjizaidan-partners.com  or on WhatsApp +62 821-9000-3273 / +62 813-1403-8907 for legal assistance.
