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.