Bill on companies passed

Bill on companies passed

The bill on limited-liability companies was first drafted in 1974. In the meantime it was revised several times to accommodate rapid changes in the business world before being submitted to the House of Representatives last September and finally being approved last week. The new law will replace the Company Law of 1939 which was enacted by the then Dutch colonial rulers.

The new legislation is one of several new laws in the commercial sector which are expected to be enacted this year. Bills on the capital market, on small business development, fair business competition and consumer protection are in the pipeline. They reflect the government's concerted efforts to implement the 1993 State Policy Guidelines, which include the development of the legal system in priority programs.

Among the most important provisions of the new law is the stipulation which will lay down legal requirements for more open accountability of limited liability companies -- known under the local acronym PT, which stands for Perseroan Terbatas. Most companies are required to have their books audited by public accountants according to the generally accepted principles of accounting. The law now goes as far as stipulating the broad outlines of what should be stipulated in the annual report or financial statement. Even the salaries and other compensation for the management and supervisors (commissioners) are required to be disclosed in the report.

The legislation also pays a great deal of attention to minority shareholders. For example, a shareholder or shareholders with at least 10 percent of the total shares are entitled to call for a shareholders meeting. A shareholder also is allowed to sue the management or board of supervisors for wrongdoing detrimental to the company. The protection of minority shareholders is quite essential, especially because almost all companies already listed on the local stock exchanges remain controlled by the founding shareholders.

The law also stipulates clear-cut procedures for mergers and acquisition. Such deals, for example, can be made only with prior approval from the shareholders meeting which must be attended by shareholders who represent at least 75 percent of the total number of shares.

It also stipulates provisions that allows companies to repurchase their issued shares. That will in turn open up opportunities for the development of mutual funds, which are much needed to diversify the securities traded on the capital market.

Many of the technical details of the new law have yet to be elaborated in government regulations and ministerial decrees, which will be issued to implement the legislation.

Enacting a commercial law is one thing and enforcing the law is quite another thing. The law will have to be supported by a reliable court system manned by judges with adequate technical competence to handle complex commercial cases. That, we think, is now the heaviest challenge to the government as it will require a series of training programs and a strong political will on the part of the government to enhance an independent judicial system.

The government can legitimately claim that the independence of the country's judicial system is guaranteed by Law No.14/1970 on the judiciary. But common sense based on practices tells us quite a different fact. The basic question is how the court system which is administered by the Ministry of Justice -- an executive branch institution -- could ever be truly independent. Again common sense guides the judges as to where they should place their loyalty because they fully realize that their budget, assignments, transfers and promotions are all controlled by the government through the Ministry of Justice.