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Advances in Social Sciences Research Journal – Vol. 10, No. 2
Publication Date: February 25, 2023
DOI:10.14738/assrj.102.13998. Suhardiman, D., & Pramono, N. (2023). Amendment of Company Law: Resolving Demission State of Directors and Board of
Commissioners Issue. Advances in Social Sciences Research Journal, 10(2). 230-240.
Services for Science and Education – United Kingdom
Amendment of Company Law: Resolving Demission
State of Directors and Board of Commissioners Issue
Daniel Suhardiman
Universitas Pelita Harapan, MH Thamrin Boulevard 1100, Tangerang
Nindyo Pramono
Universitas Gadjah Mada, Bulaksumur, Daerah Istimewa Yogyakarta
ABSTRACT
Law No. 40 of 2007 concerning Limited Liability Companies ("Law No. 40/2007")
has become the main regulation with regard to corporate law for 15 consecutive
years. During the enactment of Law No. 40/2007, there are several unsolvable
issues that requires an amendment to the company law. One of the issues relate to
Directors and Board of Commissioners term of office. In practice, the term of office
for the Board of Directors and Board of Commissioners varies according to the
articles of association of each company. Obstacles that may occur in the practice of
running a company are obstacles in reappointing or replacing Directors and
Commissioners whose term of office has ended. This is due to the absence of
preventive arrangements in terms of the reappointment or replacement of the
Directors and the Board of Commissioners whose term of office has ended due to a
deadlock in holding the General Meeting of Shareholders ("GMS"). The Directors
and Board of Commissioners will be in a state of demission and will no longer be
able to act for and on behalf of the Company. Law No. 40/2007 has yet regulated
such matters and leave the issues unsolvable. This study aims to discuss and analyze
the amendment of Law No. 40/2007 to overcome the demission state of Directors
and Board of Commissioners.
Keywords: Company Law Amendment, Commissioners Issue, Demission State,
INTRODUCTION
Law No. 40 of 2007 on Limited Liability Companies (“Law No 40/2007”) mentions that when
the term of office of the Directors and the Board of Commissioners has ended, the Directors and
Board of Commissioners are no longer entitled to act for and on behalf of a Limited Liability
Company. In such case, then all actions taken outside of their position will become personal
responsibility. A demission state happens when the Directors and Board of Commissioners
whose term of office has ended continue to act in order to maintain the stability of the company.
The demission state of all members of the Directors and Board of Commissioners may occur
mainly due to the failure to convene the GMS. The GMS may fail to be held due to the negligence
of the shareholders or disharmony between the shareholders which results in deadlocks in
every decision-making.
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Suhardiman, D., & Pramono, N. (2023). Amendment of Company Law: Resolving Demission State of Directors and Board of Commissioners Issue.
Advances in Social Sciences Research Journal, 10(2). 230-240.
URL: http://dx.doi.org/10.14738/assrj.102.13998
Technically, the aforementioned issue can be resolved if the company law set forth provisions
to prevent the possibility of demission state. However, such conditions have not been
anticipated by the legislators of Law No. 40/2007 and thus creates uncertainty in the
management of the Company. Several provisions need to be added to prevent the demission
state of Directors and Board of Commissioners issue. Therefore, Law No. 40/2007 is considered
inefficient against the issue and need to be amended.
METHODS
This research is normative legal research supported by interviews with informants. The nature
of this research is descriptive. The approach used in this research is descriptive analysis and
statutory approach. The primary data in this study were obtained through interviews with
informants, while the secondary data from this study were obtained through a literature study
which was analyzed using qualitative methods.
RESULTS AND DISCUSSION
Regulation Concept to Uphold Legal Certainty and Resolving Company’s Management
Vacancy Due to Directors and Board of Commissioners Demission State
Regulating Demission State of Directors and Board of Commissioners in Company Law:
The Directors and the Board of Commissioners issues arise due to the uncertainty of Law No.
40/2007 in regulating provisions regarding the management of the board’s term of office. The
existing company law sets forth that directors and a Board of Commissioners are elected for a
certain period of time. The term of office of board members may be determined freely in
AoAandtheendofthatperiodindicatesexpirationoftheauthorityoftheboard members. However,
it should be noted that there is no further provision with respect to legal issues that may occur
when the board members still hold the company’s management. In practice, the position of
board members may vacant due to the expiration of the term of office without any re- appointment of the incumbent board members or election of the new board members due to
unexpected issues.
The situation may become worsened due to several actions that are possibly taken by the
shareholder to delay the GMS.1Under such conditions, the board members are in “demission
state”. Demission state is a condition where the term of office of the board members have
expired but the board members still hold the company’s management and act on behalf the
company without any re-appointment through the GMS.2Notwithstanding that the term of
office has expired, board members such as Directors still run the management function to
maintain the company’s operation. However, such action may harm the board members and
the opposing parties may question their legitimation if the board members continue to act on
behalf the company while still in a demission state.
Law No. 40/2007 has yet to regulate provision with respect to the authorities and
responsibilities if any of board members following the expiration of their terms of office.The
explanation of Article 94 paragraph (3) Law No. 40/2007 said that since the expiration of the
1SeeSouth Jakarta Court Order No. 1291/Pdt.P/2019/PN.Jkt.Sel. 2KBBI daring, loc.cit., “demisioner”, accessed through https://kbbi.kemdikbud.go.id/entri/ demisioneron 7 June
2021. A situationwithoutpower (for example a cabinet and soon that has returned the man date to the head of
state, but is still carrying out daily tasks while waiting for a new cabinet to be appointed).
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 10, Issue 2, February-2023
Services for Science and Education – United Kingdom
term(s) of office, “ex member(s) of Director” is no longer entitled to act on behalf the
company.3Whereas the usage of word “ex-member(s) of Director” is inappropriate since in fact
the board members still hold the company’s management even though the terms of office have
ended.4Therefore, the company law should regulate provisions with respect to demission state
of the company’s board members in order to provide legal protection to the board members
and there will be no vacancy in company’s management board. Several matters that should be
regulated is stipulating specific provision such as definition of demission state and stipulate the
authorities and responsibilities of the board members whose terms of office have expired.
Enforcement of Hold-Over Director Concept to Run the Company Until Management
Board has been Replaced
A company’s Director holds the authorities and full responsibilities of the company’s
management as set forth in company’s purposes and objectives both inside or outside the court
in the AoA.5Pursuant to Article 94 paragraph (3) Law No. 40/2007, the terms of office of
Directors are not strictly stipulated. The company law does not require specific period for the
term of office. However, it is mentioned that the Directors shall be appointed for a “certain”
period.6
The explanation of Article 94 paragraph (3) further sets forth that since the expiration of the
term(s) of office, “ex member(s) of Director” is no longer entitled to act on behalf the company.
In essence, the article’s explanation ascertains that in the event where the terms of office have
ended, the Directors are not entitled to act on behalf the company unless re-appointed through
GMS resolution.
The main weak point of Article 94 paragraph (3) construction is that there is no
preventiveprovision with respect to conditions that may lead to demission state of the
company’s board members. In running business, there are various unexpected variables that
may cause the company to suffer such condition. One of key factors is the company’s share
ownership composition choice. In practice, it is common for a company to have 50-50 share
ownership and it may inhibit any decision making in GMS including replacement of the board
members.7
The company law sets forth that re-appointment or replacement of members of Board of
Director is an absolute authority hold by the GMS. If any disharmony happens within the
company, especially in 50-50 shareholder company, it may lead to deadlocks in every attempt
to re-appoint or replace the company’s management board and the deadlocks may last until the
expiration of the terms of office. If such condition happens, the GMS cannot be held since the
Director is no longer hold the authority to call for the GMS.
On the other hand, one of the company law’s drafting team members said it was previously
recommended that Directors whose terms of office have expired are only prohibited to act on
3Explanation ofArticle 94 paragraph (3) LawNo 40/2007.
4KBBI Daring, loc.cit., “mantan”, accessed throughhttps://kbbi.kemdikbud.go.id/entri/mantan on 7 June 2021.
Former has the meaning of the former (officer, position, and so on).
5Article 1 Number 5 andArticle 92 paragraph (1) and (2) Law No. 40/2007. 6Ibid, Article 94 paragraph (3). 7Article 94 paragraph (1) Law No. 40/2007.