THE INSPECTION MECHANISM OF THE PARENT COMPANY TO ITS SUBSIDIARY

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A Parent Company may not casually conduct an inspection to its Subsidiary.  Such inspection to a company has its own mechanism under the Limited Liability Company Law year 2007, in which Article 138 Paragraph 1 of the Law Number 40 of 2007 (hereinafter shall be referred to as the “Company Law 2007”) regulates an inspection to the company may only conduct with the purpose of obtaining data  or information in the event of suspicion that:

  1. The  company  has  committed  an act  of violation to  the  law which is detrimental to the shareholders or any third parties, or
  2. Any members of the Board of Directors or the Board of Commissioners has committed an act of violation to the law and it is detrimental to the Company or the shareholders or any third party.

Therefore, the petition to carry out an inspection on the subsidiary by the parent company shall be made on the basis of such reasons.

Furthermore, an inspection to the subsidiary may be carried out due to reasons as stipulated under Article 138 Paragraph 3 of Company Law 2007 which states that a party who can submit a petition of inspection is the company’s shareholder, any specific party which is not a company’s shareholders, and public prosecutors.  Therefore, the Parent Company as the majority shareholders of the subsidiary may also submit an inspection petition on the company (as its subsidiary).

Furthermore, the Parent Company as the petitioner on the inspection must observe the requirements stipulated under the Article 138 Paragraph 4 and Paragraph 5 of the Company Law 2007, i.e:

  1. Before submitting such petition, the petitioner must first make request to the company for the data or information1 in a GMS and if the company does not provide the requested data or information, the petitioner then submit a petition to the District Court;
  2. Note: “Data or information as mentioned herein are related with the suspicion of: (a) The Company  has  committed  an act  of violation to  the  law  which is detrimental to the shareholders or any third parties, or (b) Any members of the Board of Directors or the Board of Commissioners has committed an act of violation to the  law and are detrimental to the company or the shareholders or any third party.”

  3. The petition made by the petitioner must be based on reasonable grounds in good faith.

Based on the provision as mentioned above, in theory, the Parent Company as the controlling party and the majority shareholders of the company, in general, will not be in difficulty to request the data or information to the company in the GMS, hence it may not be required to submit a petition to the District Court.

The purpose of an inspection to a company is “to re-subjugate the principles in implementing the duty within the company, because either the Board of Directors and Commissioner is obligated to firmly hold the good faith and be fully responsible for the company’s interest”.2 Whilst, “the purpose of the inspection is not to seek a court decision that may determine an occurrence of tort, rather it is to obtain a data or information which necessary by the petitioner with interest“.3
Note:2 & 3 “Gatot Supramono, S.H., M.Hum., “Hukum Perseroan Terbatas”, Ed. rev., cet. Ke-5  (Jakarta: Djambatan,2009), page. 263”

The following is the process of inspection to a company by its shareholder:

  1. The shareholder to make a request the data or information first to the company in the GMS, if the company does not provide any requested data or information, then the shareholder may submit a petition of inspection on the company;
  2. The petition is to be submitted in writing altogether with the reasonable grounds in good faith to the district court within the jurisdiction of the company’s domicile;
  3. The petition may be rejected or approved by the Head of the District Court for the further proceeding. The ground of such rejection on a petition is because such petition is not made based on reasonable grounds and/or being made in absence of good faith;
  4. If the petition is being approved, the Head of the District Court will issue a confirmation of examination and appoint a 3 (three) of experts at most to conduct an examination;
  5. The expert(s) will conduct a thorough examination of the Company’s document and assets which considered as necessary;
  6. The expert(s) will request for information to any of member of the board of directors, member of the board of commissioner, and all of the employee;
  7. A report on the examination result is to be delivered by the expert(s) to the Head of the District Court within at least 90 days since the appointment of such expert(s);
  8. The Head of the District Court will provide a copy of the report on the examination result to the petitioner and the company within at least 14 days since the date of receipt of the examination report.

Hence, legally and theoretically, a Parent Company does not require to conduct an inspection to the company.  This is because a Parent Company has a great authority in the management of its subsidiary, where technically, the parent company may acquire an information or data in GMS.  Usually, the request is being submitted by 1 of more of the shareholders representing at least 1/10 of the total number of shares with voting rights.

Thereafter, if the parent company has already acquired the necessary data or information from the GMS, in which the member of the Board of Directors or the Board of Commissioners has been proven guilty of tort that is detrimental to the company’s shareholders or any third party, he/she may be held responsible, whether in a form of termination of its position, claim for damages or criminal liability (if it is related to embezzlement of the company’s money).

How can SMART Legal Consulting help you?

SMART Legal Consulting is a corporate legal services provider with experience and capability to assist Clients on their corporate legal matters. We help our Clients with competency on legal aspect to ensuring that inspection to the subsidiary company carried out in accordance with the applicable law in Indonesia.

Contact SMART for more details about our services, or schedule meeting with us at:
E: info@smartcolaw.com
H: +62821-1234-1235
O: +6221-8067492

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