Optimizing The Role Of BUMN In The National Economy Through Improvement Of BUMN Management

The Government of Indonesia recently issued Government Regulation No. 23 of 2022, which amended Government Regulation No. 45 of 2005 on Establishment, Management, Supervision, and Dissolution of State-Owned Business Entity (“GR 23/2022”). GR 23/2022, signed by President Joko Widodo, was entered into force on 8 June 2022.

The main objective of GR 23/2022 is to optimize the role of State-Owned Enterprises (Badan Usaha Milik Negara or “BUMN”) as “agents” of national development, particularly in supporting government-run programs and accommodating the necessary improvement in the management of BUMNs. Given such purposes, GR 23/2022 introduces amendments and stricter rules for BUMN's Board of Directors (“BoD”), Board of Commissioners (“BoC”), and Supervisory Board (together, the “Organs of BUMN”), in order to improve and increase the productivity of BUMN.

In this legal insight, we provide several key points of GR 23/2022, such as new requirements in the (i) Appointment of Organs of BUMN; (ii) Dismissal of Organs of BUMN; and (iii) Responsibilities of Organs of BUMN.

1. Appointment of Organs of BUMN

With regard to the appointment of members of Organs of BUMN, GR 23/2022 introduces new requirements and restrictions not stipulated under the previous Government Regulation No. 45 of 2005 (“GR 45/2005”). Please refer to our points below:

List of Track Records: Based on the new paragraphs (1a), (1b), and (1c) of Article I point 1 of GR 23/2022 on the amendment of Article 14 of GR 45/2005, the Minister of BUMN stipulates the list of track records of the nominated members of BoD (“List of Track Records”). In stipulating the list, the minister may request inputs or considerations from other governmental institutions.

The track records shall be taken into account by the General Meeting of Shareholders (“GMS”) and Minister of BUMN in assessing the appropriateness of the relevant nominated members of BoD for the positions.

Compliance with the Constitution: GR 23/2022 also asserts the requirement for members of BOD, BOC, and Supervisory Board to comply with Pancasila, UUD 1945 Constitution, the Republic of Indonesia, and the Government of Indonesia as elaborated in the newly added Articles 17A and 50A.

Prohibited Positions: One of the additional key provisions in the appointment of members of Organs of BUMN under GR 23/2022 is, that these appointed persons are prohibited from holding political positions that include:

  1. Chairpersons of political organizations; and/or
  2. All levels of legislative candidates and/or members of the house of representatives (including DPR House of Representatives, DPD Regional Representative Councils, and DPRD Regional House of Representatives);
  3. Heads and/or Deputies of Regional Heads of the government; and/or
  4. Candidates for Heads and/or Deputies of Regional Heads of the government.

(the “Prohibited Positions”)

Please note that further stipulations on the Prohibited Positions will be addressed under a Minister of BUMN regulation.

2. Dismissal of Organs of BUMN

GR 23/2022 also stipulates changes on the reasons for dismissal of members of Organs of BUMN:

Reasons for Dismissal of a member of BoD (Article I Point 5 of GR 23/2022 on re-amendment of Article 23 of GR 45/2005):

  1. not meeting his/her obligations as agreed in the management contract;
  2. not able to conduct his/her duty appropriately;
  3. not implementing the provisions of the laws and regulations, and/or articles of association;
  4. involving in an activity, which harms the interests of BUMN and/or national reserves;
  5. conducting an activity, which contravenes the ethics and/or norms;
  6. being declared guilty under a court decision that has a binding legal force; or
  7. already tendering his/her resignation.

Under the newly included paragraph (2a) of Article 23, a GMS and the Minister of BUMN may dismiss a member of BoD on the basis of other reasons deemed appropriate for the interests and purposes of the BUMN.

Reasons for Dismissal of a member of BoC and/or Supervisory Board (Article I Point 10 of GR 23/2022 re-amendment to Article 56 of GR 45/2005)

  1. not able to conduct his/her duty appropriately;
  2. not implementing the provisions of the laws and regulations, and/or articles of association;
  3. involving in an activity, which harms the interests of BUMN and/or national reserves;
  4. conducting an activity, which contravenes the ethics and/or norms;
  5. being declared guilty under a court decision that has a binding legal force; or
  6. already tendering his/her resignation

Similarly, the new paragraph (2a) of Article 56 stipulates that a GMS and the Minister of BUMN may dismiss a member of BoC and/or Supervisory Board on the basis of other reasons deemed appropriate for the interests and purposes of the BUMN.

 

3. Responsibilities of Organs of BUMN

The breakthrough and most interesting new provision of GR 23/2022 would be the one on the responsibilities and liabilities of members of the Organs of BUMN. The key changes are as follows:

Responsibilities and Liabilities of Members of BoD of BUMN

Article 27 of the previous GR 45/2005 stipulated that “every member of the BoD is personally liable in the event that the respective person is deemed guilty or negligent in carrying out his/her duties in the interests and activities of BUMN”. GR 23/2022 has amended the article to “every member of the BoD is personally liable for the losses of the BUMN in the event that the respective person is deemed negligent in carrying out his/her duties in the interests and activities of BUMN”.

Whilst GR 45/2005 provides no standards with regard to the burden of proof if such an allegation arises, GR 23/2021 provides several cumulative criteria for countering such allegations.

Under the new Article 27 (2a), a BoD member cannot be held liable for the losses if the person can provide the following proof:

  1. The losses are not due to his/her individual fault or negligence;
  2. The person has performed his/her respective office in good faith and precautions for the interests and in accordance with the purposes and objectives of the BUMN;
  3. He/she does not have any direct or indirect conflict of interest in performing his/her duties resulting in the losses; and
  4. The person has conducted the necessary actions to prevent the rise or continuation of such losses.

The above provisions actually mimic the provisions under Article 97 of Paragraph (5) of Law No. 40 of 2007 on Limited Liability Company (“Company Law”).

Responsibilities and Liabilities of BUMN’s BoC and Supervisory Board

Similarly, members of the BoC and Supervisory Board are also personally liable for the losses of the BUMN in the event that the respective persons are deemed negligent in carrying out their duties in the interests and activities of the BUMN, based on the amended Article 59 paragraph (2) of GR 23/2022.

With regard to the BoC and Supervisory Board, Article 59 (2a) also stipulate a similar rule whereby members of the BoC and Supervisory Board of a BUMN cannot be held liable for the losses if they can provide the proof that:

  1. they have performed their respective duties in good faith and precautions for the interests, and in accordance with the purposes and objectives of the BUMN;
  2. they do not have any direct or indirect conflict of interest in performing the actions as members of the BoD of the BUMN resulting in such losses; and
  3. they have given suggestions to the BoD to prevent the rise or continuity of such losses.

The above provisions also mimic the ones under Article 144 paragraph (5) of the Company Law.

The new provisions applicable to members of BoD, BoC, and Supervisory Board of BUMNs provide complementing rules in the prevailing laws on eradication of corruption, in which the persons performing the actions that cause losses in national reserves can be held liable for a criminal offence.

4. NLP General Commentary on GR 23/2022

Based on our reading, the spirit of GR 23/2022 is positive for the development and improvement of BUMN management. Although the private sectors in Indonesia have played a prominent role, BUMN companies generally have a long-standing control over the economy, especially in the core sectors such as energy, infrastructure, and finance. An improved standard of management of BUMNs, if implemented correctly, would provide a stronger backbone to support the country's economy.

It is interesting to see the implementation of the new provisions on the appointment of members of Organs of BUMN, particularly on the review of the track records of the nominated persons, and prohibition for members of the Organs of a BUMN to hold political positions. In theory, this would ensure that more professionals with correct capabilities would be appointed for the appropriate positions in BUMNs rather than political appointees.

In conclusion, the spirit of GR 23/2022 is generally positive. Assuming it will be correctly implemented, it will improve the corporate governance of BUMN companies.


The article above was prepared by Marshall S. Situmorang (Partner) and Audria Putri (Senior Associate).

Disclaimer: The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances. For more information, please contact us at mail@nusantaralegal.com.