When a company is declared bankrupt, one of the first questions that arises is: can the company's directors be held personally liable?
Legal Basis for Director Liability
Law No. 40 of 2007 on Limited Liability Companies (UU PT) stipulates that the board of directors is fully responsible for the management of the company for the benefit and purposes of the company. Article 97 of UU PT affirms that each member of the board of directors is personally responsible for losses suffered by the company if the member is guilty or negligent in carrying out their duties.
When Can Directors Be Personally Sued?
In the context of bankruptcy, directors can be held personally liable if:
- Proven to have committed fraud or deception in managing the company
- Transferred assets that harmed creditors (fraudulent conveyance)
- Did not exercise the business judgment rule in good faith
- Continued to run business after knowing the company was insolvent (wrongful trading)
Protection for Directors: Business Judgment Rule
Not all business decisions that result in losses can be charged to directors. The business judgment rule doctrine provides protection for directors who have acted in good faith, based on adequate information, and in the best interests of the company.
Preventive Steps Directors Should Take
- Document every strategic decision well in meeting minutes
- Immediately consult the company's financial condition with legal experts when facing financial pressure
- Avoid preferential payments to certain creditors when the company is insolvent
- Consider PKPU options before financial conditions deteriorate further
If your company is facing financial pressure, do not delay consulting with us. The earlier action is taken, the greater the possibility of protection being provided.