When Indonesian courts may hold a company director personally liable for their actions under criminal and civil law

In its forthcoming newsletter, CONSULEGIS International Litigation & Arbitration Specialist Group presents a series of short overviews of various jurisdictions legal views on when, based on company law, is a director personally liable for their actions.

Among the contributors on the topic are five legal advisors from Horizons, addressing Indonesia, Mongolia, Korea (DPRK), Russia and China. In this post, we offer the entry on Indonesia.

By Chika Rananda Astari Putri

Indonesian corporate law recognizes the doctrine of “Piercing the corporate veil”, which Black’s Law Dictionary defines as the judicial act of imposing personal liability on otherwise immune corporate officers, directors and shareholders for the corporation’s wrongful act (Black’s Law Dictionary, page 1264, 9th Edition, 2009). As such, Article 3, paragraph 2, Article 104 and Article 105 of Indonesian Company Law regulate on the exemption of immunity for shareholders, directors and commissioners, respectively, in the event of bankruptcy resulting from fault or negligence in carrying out their duties.

Under Indonesian Civil Law, directors are directed to undertake management of the company with due care, in the interests of and in accordance with the company’s purpose and objectives, and in regard to the prevailing laws and the company’s articles of association. Should they fail to do so, and the company suffers loss, then the directors may be subject to legal action in a civil court. Judgment awarded against the directors in such case would see them held jointly and severally responsible for the settlement of the claim.

Such cases are notoriously hard to prove, however, and Article 104, Paragraph (4) of Company Law provides that the directors may not be held personally liable for the company’s losses providing they can substantiate that such losses were not a result of negligence and that management was carried out in good faith in the interests of the company without any conflict of interest, plus that preventative measures have been adopted to ameliorate the loss position.

The above notwithstanding, Articles 398 and 399 of the Indonesian Penal Code provide that directors may be punished by imprisonment for actions or the granting of permission for actions to be undertaken that resulted in company bankruptcy. This includes failure to maintain and provide all documentary evidence of the company’s financial position as required under the Indonesian Commercial Code, while lack of cooperation or fraudulent acts during the bankruptcy investigation will likely lead to criminal charges.

Issuance of Supreme Court Regulation No. 13 of 2016 on Corporate Crime Case Handling provides rather clear provisions on the handling of corporate crime cases, making it possible to press criminal charges against either the company or the directors, or the company and the directors.

Given the latter, the question still remains as to when directors, either individually or as a board, will be held personally responsible for their actions under criminal law. As the management organ of the company, the directors may be subject to criminal charges if either jointly or severally, they have assisted, abetted, suggested, or caused a violation by the company, or were aware when granting permission and were thus tacitly involved with the commission of such action.

While the personal responsibility of directors must be examined on a case-by-case basis, this should include consideration of the effects on the community at large, as well as whether the actions were deliberate or merely committed in ignorance. Whatever the outcome, it is wise to remember that the immunity of directors of a limited liability company can never be regarded as being inviolate.

If you would like more information on corporate liability or other related corporate issues, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.  

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