A Director Inflated Contractor Prices: How We Legally Removed Him from the Company
A property developer managing several construction projects in Bali approached our firm. The company had appointed a director who was effectively responsible for overseeing the construction process. He worked directly with contractors and foremen, supervised procurement, approved budgets, and coordinated different stages of the construction work.
After about three years, the owners began to notice that some construction expenses appeared unusually high.
Signals like this are one of the most common reasons developers initiate a legal review. In practice, contractors and construction budgets are among the most frequent channels through which company funds are improperly withdrawn.
In this case, the scheme turned out to be relatively simple.
The director would agree with a contractor on the real cost of the work — for example, IDR 100 million for a particular stage.
However, the budget presented to the shareholders would indicate IDR 130 million.
The 30% difference effectively became the director’s “commission,” which had never been approved by the owners and was not reflected in any official documents.
The scheme came to light by accident when one of the contractors directly disclosed the actual cost of the work and provided copies of correspondence and invoices.
At that point, the client faced several key objectives:
stop the financial losses and regain control over the construction process
remove the director from his position
address the fact that the director also owned a 10% share in the company
if possible, recover part of the financial losses
Why These Situations Are Particularly Complex in Indonesia
Foreign investors often assume that a director can simply be dismissed like a regular employee.
However, under Indonesian corporate law, a director is not just an employee but part of the company’s governing body — the Board of Directors.
According to Law No. 40 of 2007 on Limited Liability Companies, a director’s authority can only be terminated by a resolution of the General Meeting of Shareholders (GMS / RUPS).
This means that the owners cannot simply issue a dismissal order. Corporate procedures play a critical role in Indonesian law, and failure to follow them can lead to company decisions being legally challenged.
In our case, the situation was further complicated by the fact that the director owned 10% of the company. Even after being removed from his position, he would still remain a shareholder.
His ownership stake does not disappear automatically. A separate share transfer procedure is required to transfer or sell the shares.
In practice, the combination of director and shareholder status is one of the most common sources of complex corporate disputes.
What We Did
In situations like this, it is essential to act in the right sequence.
1. First, stop the financial losses
Corporate procedures can take time. Therefore, the first priority was to stop the scheme from continuing.
We helped the client implement a new control system:
contractor payments could only be made after approval from the foreign director
every construction estimate had to be supported by documents obtained directly from contractors
communication with key contractors was no longer handled through a single intermediary
These measures immediately stopped further misappropriation of funds.
2. Secure the evidence
The next step was to build a proper evidentiary record.
This included:
comparing the actual contractor prices with the amounts presented to the shareholders
collecting correspondence, invoices, and construction estimates
obtaining confirmations from contractors regarding the real cost of the work
Without properly documented evidence, allegations of abuse of authority are extremely difficult to prove.
3. Properly terminate the director’s authority
We prepared the required documentation and carried out the procedure through a shareholders’ resolution (RUPS).
For the client, it was critical that the process be conducted in full compliance with corporate law so that the decision could not later be challenged.
4. Resolve the issue of the director’s shares
After the director was removed from his position, the issue of his shareholding remained.
Legally, those shares do not disappear automatically.
We therefore adopted a negotiation strategy and drafted an agreement that included:
termination of the director’s authority
transfer of his shares and exit from the shareholder structure
transfer of project documentation and responsibilities
The share transfer was completed through a formal share transfer procedure in accordance with corporate requirements.
Situations like this are rarely resolved through legal tools alone. In our experience, they almost always require a combination of corporate procedures, negotiations, and properly documented evidence. This approach allows businesses to protect their interests without entering into lengthy court disputes.
Result
As a result:
the financial leakage was stopped
control over contractors and payments was restored
the director’s authority was terminated in full compliance with the law
the director exited the shareholder structure
However, it was not possible to recover compensation for the past losses.
In our practice, this is quite common. Even when price inflation is clearly established, pursuing damages through litigation can often be lengthy and economically inefficient.
The client therefore chose a strategy that allowed the business to be protected quickly and the construction projects to continue without a prolonged conflict.
Our Recommendations for Construction Companies and Employers in Bali
Based on our experience, several key principles can help reduce similar risks:
do not leave approval of contractor costs and payments in the hands of a single employee
regularly verify prices directly with contractors
document all commercial terms formally
if a director also holds shares in the company, plan in advance how a potential exit from the shareholder structure would be handled
In construction projects, corporate conflicts can cost companies millions. In most cases, the issue does not begin with fraud itself but with the absence of a transparent control system.
If you are facing a conflict with a manager or employee who influences finances, project timelines, or key decisions, it is important to resolve such situations in a legally structured way.
In cases like this, we help clients develop a legal strategy, conduct corporate procedures correctly, and protect the business.
Sari Desty S. Sianturi, S.Psi., MM
HR Expert
Legal Indonesia
