The General Meeting of Shareholders (“GMS”) is a corporate body that has the authority to make decisions on behalf of shareholders that cannot be delegated or transferred to the Board of Directors and Board of Commissioners. Thus, the GMS is an important forum for shareholders to make decisions regarding the Company, which are generally carried out through a conventional GMS held at the Company’s domicile, either in person or electronically as stipulated in Law Number 40 of 2007 concerning Limited Liability Companies (“Law No. 40/2007”) in Articles 76 and 77. Apart from the GMS, there is an alternative mechanism for decision-making by shareholders, namely circular resolution. Circular resolution is known as a decision-making process by shareholders outside the GMS.
Article 91 of the Law No. 40/2007 stipulates that shareholders may make binding decisions outside the GMS provided that all shareholders with voting rights approve the proposal in writing. Decisions made through circular resolutions have the same legal force as decisions made through conventional GMS. Thus, circular resolutions can be considered an alternative mechanism to GMS, both Annual GMS and Extraordinary GMS, as long as the absolute validity requirements are met, namely obtaining the approval of all shareholders.
A circular resolution is essentially an alternative decision-making mechanism outside of a GMS that has the same validity and legal force as a GMS decision. The mechanism for decision-making through a circular resolution based on the Explanation of Article 91 of the Law No. 40/2007 is as follows:
1. Send a written proposal to be decided upon to all shareholders; and
2. The proposal must be approved in writing by all shareholders.
As explained above, a circular resolution can be used as an alternative decision-making mechanism for all items on the GMS agenda. In essence, a circular resolution is unidirectional or unilateral from the proposer, even though the decision is still based on the approval of all shareholders. On this basis, special attention needs to be paid to items on the GMS agenda that are two-way in nature, such as the dismissal of Directors or Commissioners. Based on the above description, the question arises as to whether the dismissal of Directors or Commissioners can be carried out through the circular resolution mechanism?.
It should be understood that the Board of Directors and Board of Commissioners in this case act not only as organs of the company, but also as legal subjects. In addition to having the obligation to run the Company and be fully responsible for the Company, the Board of Directors and Board of Commissioners also have rights mandated by the Limited Liability Company Law when faced with the risk of dismissal. Based on Article 105 paragraph (3) of the Law No. 40/2007, the Board of Directors has the right to receive proper notice and to defend themselves or express their opinions on the planned dismissal (right to be heard) before a decision is made. Regarding the provisions and mechanisms for dismissing the Board of Directors, based on Article 119 of the Law No. 40/2007, this applies mutatis mutandis to the dismissal of Commissioners. The implementation of the mandate of the Law No. 40/2007 regarding the procedure for dismissing Directors or Commissioners is not merely an administrative formality, but rather the implementation of the principles of transparency and fairness as principles of Good Corporate Governance.
Article 91 of the Law No. 40/2007 does not normatively impose restrictions on the types of decisions that can be made through the circular resolution mechanism. Therefore, as long as the decision falls within the authority of the GMS and obtains the written approval of all shareholders with voting rights, the decision is valid and legally binding. Thus, circular resolutions can be used in the dismissal of Directors or Commissioners. However, it should be noted that in its implementation, mandatory procedures as mandated by the Law No. 40/2007 must not be ignored, namely by notifying the Directors or Commissioners concerned and providing them with the opportunity to defend themselves or express their opinions on the planned dismissal before the decision is made.
A circular resolution that is implemented without regard to the specific provisions relating to the agenda of the GMS may result in a decision that is procedurally flawed. Such procedural flaws may invalidate the circular resolution and give rise to legal disputes in the future. In this case, Directors or Commissioners who feel aggrieved by the failure to implement the procedures as stipulated in Article 105 paragraph (3) of Law No. 40/2007 regarding dismissal through a circular resolution may take legal action against the Company or the controlling shareholders. To avoid the risk of litigation arising from a circular resolution decision regarding the dismissal of Directors or Commissioners, it is important to pay attention to the implementation procedures as stipulated in Article 105 paragraph (3) of the Law No. 40/2007.
Conclusion
Circular resolutions offer convenience and flexibility for shareholders to make decisions without having to hold a physical GMS, as they have the same power as a GMS. Normatively, circular resolutions can be used to determine the dismissal of Directors or Commissioners, as the Law No. 40/2007 does not regulate the prohibition or restrictions on the use of circular resolutions. However, it is necessary to pay attention to the rights of the Board of Directors or Board of Commissioners as legal subjects, whereby the Board of Directors or Board of Commissioners who are to be dismissed must be notified and given the opportunity to submit objections so that the decision of the circular resolution avoids procedural flaws and has the same legal force as the dismissal of the Board of Directors or Board of Commissioners through a GMS. Taking these matters into consideration, the use of circular resolutions to dismiss Directors or Commissioners can be a valid and efficient instrument, provided that the implementation procedures are followed to minimize the potential for disputes.
References
Law Number 40 of 2007 concerning Limited Liability Companies
Komite Nasional Kebijakan Governance, Pedoman Umum Good Corporate Governance Indonesia, Jakarta: Komite Nasional Kebijakan Governance, 2006.
Yahya Harahap, Hukum Perseroan Terbatas, Jakarta: Sinar Grafika, 2009.
Author: Muhamat Yanuar Abidin, S.H.
Editor: Yohana Maranatha, S.H., M.Kn.