In Indonesian corporate practice, disputes involving directors or commissioners rarely begin as legal problems. They usually start as governance breakdowns—misaligned interests, loss of trust, or strategic disagreements between shareholders and management.
When these conflicts escalate, shareholders often assume that replacing a director or commissioner is a straightforward administrative decision.
In reality, removing a director or commissioner in Indonesia is a legally sensitive corporate action. Improper removal frequently leads to shareholder litigation, challenges to the validity of corporate resolutions, regulatory complications, and in some cases, operational paralysis of the company. For foreign investors and joint venture partners, these risks are often underestimated.
Unlike employees, directors and commissioners are corporate organs governed by statutory company law.
Their appointment and removal are subject to strict procedural requirements, including shareholders’ resolutions, notice obligations, voting thresholds, and mandatory registrations.
Failure to comply with these requirements can render the removal ineffective or expose the company and its shareholders to legal claims.
From an investor’s perspective, the issue is not merely how to remove a director or commissioner, but how to do so without triggering further disputes, reputational damage, or regulatory exposure.
This is particularly critical in joint ventures, foreign-owned companies, and minority investment structures, where control dynamics are often complex.
Legal Position of Directors and Commissioners Under Indonesian Law
Under Indonesian company law, directors (Direksi) and commissioners (Dewan Komisaris) occupy distinct and legally defined positions as corporate organs, rather than employees of the company.
Their authority, duties, and liability arise directly from statutory law and the company’s constitutional documents, not from employment contracts.
The Board of Directors is responsible for the day-to-day management and representation of the company, both internally and externally. Directors act on behalf of the company and are entrusted with managing its affairs in good faith and in the best interest of the company.
The Board of Commissioners, by contrast, exercises a supervisory and advisory function, overseeing management policies and providing guidance to directors.
Because directors and commissioners are not treated as ordinary employees, their appointment and removal cannot be handled through unilateral management decisions or human resources procedures.
Instead, these actions fall within the exclusive authority of the shareholders, typically exercised through a General Meeting of Shareholders (GMS), unless otherwise regulated in the Articles of Association.
This legal distinction is critical in removal scenarios. Attempting to dismiss a director or commissioner without observing the statutory framework—such as bypassing shareholder approval or failing to follow proper corporate procedures—can invalidate the removal and expose the company and its shareholders to legal challenges.
Who Has the Authority to Remove a Director or Commissioner?
Under Indonesian law, the authority to remove a director or commissioner rests primarily with the shareholders, and is exercised through a resolution of the General Meeting of Shareholders (GMS).
As a general rule, neither the Board of Directors nor the Board of Commissioners may unilaterally dismiss one another, except in limited circumstances expressly permitted by law.
The GMS must be convened in accordance with statutory and constitutional requirements, including proper notice, quorum, and voting thresholds. The specific procedures and approval percentages may vary depending on the company’s Articles of Association and any shareholder arrangements in place.
In companies with multiple shareholders—particularly joint ventures and foreign-owned entities—the authority to remove directors or commissioners may also be influenced by contractual rights contained in a shareholder agreement.
For example, certain investors may hold special rights to appoint or remove specific board members. However, such rights are effective only if they are properly reflected in the company’s corporate governance framework and do not conflict with mandatory provisions of Indonesian company law.
Failure to establish clear authority before initiating a removal process is a common source of disputes.
Actions taken without proper shareholder approval or outside the scope of granted authority may be challenged, resulting in the invalidation of the removal and potential claims against the company and its shareholders.
Grounds for Removal: With or Without Cause
Removal Without Cause
Indonesian law allows shareholders to remove a director or commissioner without stating a specific cause, provided that:
- the decision is made through a valid GMS, and
- procedural requirements are satisfied.
However, removal without cause may still give rise to compensation claims, depending on contractual arrangements and circumstances.
Removal With Cause
Removal with cause is typically based on:
- breach of fiduciary duties,
- conflict of interest,
- misconduct or negligence,
- violation of law or company policies.
In such cases, evidence and proper documentation are critical. Unsupported allegations often escalate disputes rather than resolve them.
Mandatory Procedure for Removal
Calling a General Meeting of Shareholders
The GMS must be convened in accordance with:
- statutory notice periods,
- proper agenda disclosure, and
- procedural requirements set out in the Articles of Association.
Importantly, the director or commissioner concerned must be given an opportunity to defend themselves before a decision is taken.
Voting and Quorum Requirements
Removal resolutions must satisfy quorum and voting thresholds. Failure to meet these requirements renders the resolution vulnerable to challenge.
Registration with the Authorities
Once a removal decision is passed, changes must be registered with the relevant authorities. Until registration is completed, the removal may not be effective against third parties.
Suspension vs Removal: Understanding the Difference
In certain circumstances, commissioners may suspend directors temporarily. However:
- suspension is not equivalent to removal,
- it is subject to strict time limits, and
- a GMS must ultimately decide on permanent removal.
Misuse of suspension powers is a common source of governance disputes.
Common Legal Mistakes in Director and Commissioner Removal
Frequent mistakes include:
- bypassing the GMS,
- failing to provide a defense opportunity,
- ignoring shareholder agreement provisions,
- inconsistencies between shareholder agreements and Articles of Association,
- delays in regulatory registration.
These errors often result in litigation, injunctions, or operational paralysis.
Special Issues in Joint Ventures and Foreign-Owned Companies
Joint ventures and foreign-owned companies face heightened risk due to:
- nominee director arrangements,
- veto rights and reserved matters,
- deadlock situations, and
- differing expectations between local and foreign shareholders.
In such structures, improper removal may breach shareholder agreements even if corporate procedures appear compliant.
Employment and Compensation Considerations
Directors may also have separate employment or service agreements. Removal from office does not automatically terminate contractual entitlements.
Failure to address compensation and severance exposure can lead to additional claims.
Dispute Scenarios Following Improper Removal
Improper removal often leads to:
- lawsuits challenging the validity of the GMS,
- claims for damages,
- arbitration under shareholder agreements, or
- criminal complaints as leverage in shareholder disputes.
Such disputes can severely disrupt operations and investor confidence.
Practical Case Illustration
Consider a joint venture company where one shareholder unilaterally removes a director through an improperly convened GMS. The removed director challenges the decision, obtains an injunction, and operations are halted pending resolution.
What began as a governance decision becomes a prolonged legal dispute with commercial consequences far exceeding the original issue.
How Legal Counsel Assists in Removal Scenarios
Legal counsel typically assists by:
- reviewing the Articles of Association and shareholder agreements,
- advising on proper procedure and risk exposure,
- structuring compliant GMS processes,
- mitigating dispute risk through documentation and strategy.
Early legal involvement often prevents escalation.
Conclusion
Removing a director or commissioner in Indonesia is a strategic legal action, not a routine administrative matter. Authority, procedure, documentation, and timing all determine whether the action stabilizes or destabilizes the company.
“In Indonesia, governance decisions succeed not by speed, but by compliance.”
Board-level and shareholder decisions involving management changes are often most effective when assessed before formal steps are taken. Early legal review typically allows risks to be managed proactively rather than defensively.
Disclaimer
This publication is for general informational purposes only and does not constitute legal advice. Director and commissioner removal must be evaluated based on specific corporate structures and applicable Indonesian laws.
