Directors’ Personal Liability in Corporate Bankruptcy: An Analytical Study on the Application of the Business Judgment Rule and the Doctrine of Gross Negligence

Donny Ferdiansyah; Agustine Susi  Mulyati; Majuri; Toyib Zainal; Edi Mulyadi

doi:10.63922/ijevss.v5i01.2796

Donny Ferdiansyah Islamic University of Syekh-Yusuf, Tangerang – Banten, Indonesia
Agustine Susi Mulyati Islamic University of Syekh-Yusuf, Tangerang – Banten, Indonesia
Majuri Islamic University of Syekh-Yusuf, Tangerang – Banten, Indonesia
Toyib Zainal Islamic University of Syekh-Yusuf, Tangerang – Banten, Indonesia
Edi Mulyadi Islamic University of Syekh-Yusuf, Tangerang – Banten, Indonesia

DOI: https://doi.org/10.63922/ijevss.v5i01.2796

Keywords: Directors’ liability, bankruptcy, Business Judgment Rule, gross negligence, Limited Liability Company, corporate law.

Abstract

This study aims to examine in depth the concept of directors’ personal liability in the bankruptcy of Limited Liability Companies (PT), focusing on the application of the Business Judgment Rule principle and the doctrine of gross negligence within the framework of Indonesian corporate law. The issue of directors’ liability in bankruptcy situations is crucial, as the boundary between managerial error and acceptable business risk is often difficult to define. This research employs a normative juridical method using statutory, conceptual, and case approaches by analyzing relevant legislation, commercial court decisions, and corporate law literature. The results of this study indicate that the Business Judgment Rule serves as a legal safeguard for directors who act in good faith, with due care, and in the best interests of the company. However, this principle cannot be used as a defense when gross negligence is proven — that is, the failure of directors to perform their managerial duties reasonably, resulting in losses or the company’s bankruptcy. In such circumstances, directors may be held personally liable under Article 97 paragraphs (3) and (5) of Law Number 40 of 2007 concerning Limited Liability Companies. Therefore, this study emphasizes the importance of prudence, professional conduct, and accountability among directors in business decision-making to prevent abuse of authority and minimize the risk of personal liability in bankruptcy situations.

References

Indonesia. (2007). Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas [Law Number 40 of 2007 concerning Limited Liability Companies]. Lembaran Negara Republik Indonesia Tahun 2007 Nomor 106, Tambahan Lembaran Negara Republik Indonesia Nomor 4756.
Indonesia. (2004). Undang-Undang Nomor 37 Tahun 2004 tentang Kepailitan dan Penundaan Kewajiban Pembayaran Utang [Law Number 37 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations]. Lembaran Negara Republik Indonesia Tahun 2004 Nomor 131, Tambahan Lembaran Negara Republik Indonesia Nomor 4443.
Indonesia. (n.d.). Kitab Undang-Undang Hukum Perdata (KUHPerdata) [Indonesian Civil Code].
B. Books
Fuady, M. (2005). Hukum Pailit 2004 Dalam Teori dan Praktik [Bankruptcy law 2004 in theory and practice]. Bandung, Indonesia: Citra Aditya Bakti.
Fuady, M. (2014). Doktrin-doktrin modern dalam hukum korporasi & eksistensinya dalam hukum Indonesia [Modern doctrines in corporate law & their existence in Indonesian law]. Bandung, Indonesia: Citra Aditya Bakti.
Nasarudin, M. U., & Tjager, I. N. (2008). Hukum kepailitan dan penundaan kewajiban pembayaran utang [Bankruptcy law and suspension of debt payment obligations]. Jakarta, Indonesia: Pustaka Utama Grafiti.
Prodjodikoro, W. (2003). Hukum perdata tentang hak-hak atas benda [Civil law regarding property rights]. Jakarta, Indonesia: Dian Rakyat.
Soekanto, S., & Mamudji, S. (2001). Penelitian hukum normatif: Suatu tinjauan singkat [Normative legal research: A brief overview]. Jakarta, Indonesia: Raja Grafindo Persada.