Legal News Update
Contributors: Almaida Askandar, S.H., MBA, and Rania Adhara Safira, S.H.
Published on 17 July 2026 by IABF Law Firm, Jakarta, Indonesia.
SOE Corporate Governance Webinar: Understanding the Business Judgment Rule, Corruption Risks, and Investment Governance
On 15 July 2026, IABF Law Firm’s partner participated in a webinar titled “Business Judgment Rule vs. Corruption Offences: Protecting Business Decisions or Exposing State-Owned Enterprise Directors to Criminal Liability”, organized by Ikatan Alumni Fakultas Hukum Universitas Indonesia (ILUNI FHUI). The webinar featured Prof. Yetty Komalasari Dewi, S.H., M.L.I., Professor of Economic and Technology Law at the Faculty of Law, Universitas Indonesia; Mohamad Kadri, S.H., CACP, Senior Partner at Corra Legal; and Raushan Aljufri, S.H., a corporate governance observer. The session was moderated by Almaida Askandar, S.H., MBA, Partner of IABF Law Firm.
The discussion examined the legal and governance challenges faced by directors of state-owned enterprises (“SOEs”), particularly when business and investment decisions may intersect with allegations of corruption, abuse of authority, or state financial losses. Under Articles 603 and 604 of Law No. 1 of 2023 concerning the Indonesian Criminal Code, corruption offences may involve unlawful enrichment or an abuse of authority resulting in losses to state finances. The discussion noted that, pursuant to Supreme Court Circular Letter No. 4 of 2016 and Supreme Court Circular Letter No. 2 of 2024, the Audit Board of Indonesia (Badan Pemeriksa Keuangan or “BPK”) is the institution with the constitutional authority to determine the existence of state financial losses. The webinar also discussed criminal participation under Articles 20 and 21 of the Indonesian Criminal Code. A distinction was drawn between joint participation, which involves conscious cooperation and a common objective, and assistance, where a person merely facilitates the principal offender’s conduct without sharing the same personal objective.
Following Constitutional Court Decision No. 25/PUU-XIV/2016, such losses must constitute actual rather than merely potential losses and must be established through an examination conducted by an authorized state financial audit institution. Another important issue concerned whether losses incurred by an SOE should automatically be classified as state financial losses. Article 4B of Law No. 16 of 2025 provides that the profits and losses of an SOE belong to the SOE itself. Nevertheless, SOE losses may still give rise to corruption concerns if they result from unlawful conduct, abuse of authority, fraud, bribery, conflicts of interest, negligence, or conduct falling outside the protection of the Business Judgment Rule (“BJR”).
The BJR provides legal protection for directors who make legitimate business decisions. Under Article 97(5) of the Indonesian Company Law, directors will not be personally liable for company losses if they can prove that the losses were not caused by their fault or negligence, that they acted in good faith and with due care, that they had no conflict of interest, and that appropriate measures were taken to prevent or mitigate the losses. The discussion nevertheless highlighted that the Indonesian Company Law does not provide detailed parameters for determining what constitutes “good faith” and “due care”. This may create uncertainty regarding the extent of measures directors must take to avoid a finding of negligence.
Directors should therefore properly perform their fiduciary duties, including the duties of care and loyalty, as well as the obligations to act with due skill and diligence and in compliance with applicable law. They must make informed decisions, act in the interests of the company, implement effective internal controls, appropriately manage risks, and obtain the required corporate approvals.
The webinar emphasized that good corporate governance (“GCG”) is essential to the effective application of the BJR. Relevant governance instruments include a code of corporate governance, board manual, code of conduct, conflict-of-interest and gratification-control guidelines, asset declaration requirements, an anti-bribery management system aligned with ISO 37001:2016, a whistleblowing system, and periodic governance assessments. These instruments should be integrated into a comprehensive governance, risk, and compliance (“GRC”) framework. The discussion also introduced a risk-triage approach to prioritize material issues:
- Red (Deal-Breakers): investment exposure affected by US sanctions, unsupportive or unsustainable industry conditions, issues involving key business licenses, unreliable financial statements, requests for guarantees from the holding company, and material litigation;
- Yellow (Negotiable Risks): transaction price and the scope of representations and warranties, warranty period, industry-specific standards, and liability cap, and
- Green (Acceptable Risks): notice provisions, assignment provisions, and administrative requirements.
The discussion also covered strategic planning and investment procedures within SOEs. Every SOE must prepare a five-year Long-Term Corporate Plan (Rencana Jangka Panjang Perusahaan or “RJPP”) and an annual Corporate Work Plan and Budget (Rencana Kerja dan Anggaran Perusahaan or “RKAP”), which serve as the basis for material operational and investment decisions. Under Law No. 16 of 2025, the SOE Regulatory Agency (Badan Pengaturan Badan Usaha Milik Negara or “BP BUMN”) performs a regulatory role, while BPI Danantara establishes strategic policies and investment guidelines.
In relation to acquisitions and other investments, SOEs must ensure that both the decision-making process and the commercial rationale comply with applicable investment guidelines, corporate constitutional documents, internal policies, and approval requirements. Investment decisions should follow a structured gate-review mechanism, progressing from an initial review and decision gate to the final investment decision. This process is intended to ensure that pricing, due diligence, valuation, risk assessment, and other material considerations have been properly evaluated before approval is granted.
A properly governed acquisition process should include comprehensive financial, tax, commercial, technical, and legal due diligence conducted with the support of qualified professional advisers. It should also involve an independent valuation, financial projections, and appropriate risk-mitigation measures. Material risks may be mitigated through price adjustments, conditions precedent, representations and warranties, indemnities, conditions subsequent, escrow arrangements, and post-transaction business plans. Transaction documents should clearly set out completion conditions, price-adjustment mechanisms, material adverse change provisions, governance arrangements, and post-closing obligations.
The webinar concluded that the BJR is not merely a formal legal defense. Its effective application requires the consistent implementation of GCG principles and a sound GRC framework, the proper performance of fiduciary duties, and strict adherence to investment and approval procedures. When these elements are properly implemented and documented, SOE directors are better positioned to demonstrate that their decisions were made prudently, independently, in good faith, and in the best interests of the company.
***
Disclaimer
This news update is prepared for general informational purposes only. The content does not constitute legal advice, a legal opinion, or counsel from IABF Law Firm. The information contained herein may not reflect the most current developments. Any quotation, distribution, or use of this information for any purpose is solely at the user’s own risk.
