When Civil Liability Is Not Enough: The Criminal Dimension of Director’s Fiduciary Breach in Indonesia

“Can a Company Director Be Imprisoned Simply for Making the Wrong Decision?”

In business, a wrong decision does not necessarily mean breaking the law. Every decision carries risk, and not all risks can be avoided. That is why the law does not judge whether the outcome was profitable or not, it looks at how the decision was made. Did the director act carefully, honestly, and with the company’s best interests in mind?

The issue becomes more complicated when a director does not merely make a poor business decision but deliberately abuses the trust placed in them. This is where the concept of fiduciary duty becomes critical. Many people assume that a breach of fiduciary duty only leads to a civil lawsuit. In reality, under certain circumstances, the consequences can be far more serious, extending into the realm of criminal liability.

More Than a Moral Obligation

Every company director in Indonesia is bound by what the law calls fiduciary duty, the obligation to act in good faith, with due care, and always in the best interests of the company. This is not merely a moral expectation. It is a legal obligation explicitly governed by Articles 97 and 104 of Law Number 40 of 2007 on Limited Liability Companies.

This duty consists of two core components. The first is the duty of care, which is an obligation to act with reasonable caution, skill, and diligence in every business decision. The second is the duty of loyalty, which is the obligation to always prioritize the interests of the company above personal interests. Both operate together and serve as the primary legal standard for evaluating whether a director has properly fulfilled their responsibilities.

Protected, But Not Without Limits

In practice, breaches of fiduciary duty are generally resolved through civil mechanisms. If a director’s actions cause losses to the company due to negligence or a failure to meet their obligations, the company or its shareholders may, under certain conditions, file a civil claim for damages against that director.

However, company law also acknowledges that running a business inherently involves risk. Not every decision that ends in failure can be used as grounds to hold a director liable. This is the foundation of the business judgment rule, a legal protection for directors who make decisions in good faith, based on adequate information, without conflicts of interest, and with a genuine belief that the decision serves the company’s best interests.

This principle gives directors room to make business decisions without constantly fearing lawsuits whenever things do not go as planned. However, this protection is not unlimited. When a director acts with bad faith or with the intention of benefiting themselves at the company’s expense, that protection no longer applies.

And that is where criminal law begins to speak.

A Mistake or Deliberate Deception?

Not every breach of fiduciary duty automatically constitutes a criminal act. In a business context, a director may make the wrong call and cause financial harm to the company. As long as that decision was made in good faith, based on sufficient information, and in the interest of the company, the resulting liability is generally civil in nature.

However, a breach may enter criminal territory when certain elements present bad faith, intent, and actual harm suffered by the company, investors, creditors, or other parties who depend on the company. In such situations, what the law evaluates is no longer the outcome of a business decision, but rather the abuse of trust and authority by the director.

When these elements are met, a director may face criminal liability under the Indonesian Criminal Code. Depending on the nature of the conduct, applicable provisions include fraud (Article 378), embezzlement (Article 372), or document forgery (Article 263). Where the breach occurs within a specific regulated sector, criminal provisions under relevant special legislation may also apply.

The distinction comes down to intent. A director who makes a genuine business misjudgment is generally liable only in a civil sense. But a director who deliberately falsifies documents, conceals material facts, or provides misleading information for personal gain that is no longer a business mistake. That is an abuse of trust, and criminal law exists precisely to address it.

Why Startups Are More Vulnerable

The discussion surrounding fiduciary duty has become increasingly relevant as Indonesia’s startup ecosystem continues to grow. Unlike publicly traded companies, which are subject to various disclosure requirements, most startups still operate as private companies. Under these circumstances, the relationship between founders, the board of directors, and investors relies heavily on trust.

Investors don’t just invest because they see the potential in a startup’s product or technology. They also trust that the board of directors will manage the company honestly, transparently, and in the best interests of the corporation. When that trust is abused, the impact isn’t felt only by investors. Employees, business partners, customers, and even Indonesia’s startup investment climate can also be affected.

Ultimately, the law is not designed to punish every business failure. But when a position of authority is used to deceive or harm others intentionally, the line between a business mistake and an abuse of trust has been crossed, and understanding that distinction matters not just to legal practitioners but to anyone involved in corporate governance.

This is where the distinction between a business mistake and an abuse of trust becomes crucial. Understanding this difference is relevant not only to legal practitioners but also to startup founders, investors, and anyone involved in corporate governance.

How The Legal Theory Works in Practice

So what happens when these legal principles are put to the test in a real case? Can alleged manipulation of financial reports and the misleading of investors be classified as a breach of fiduciary duty that gives rise to criminal liability? The eFishery case one of the most controversial corporate cases in Indonesia will answer that question in the next article.

Written by Aura Shmily K, Annisa Novia R, Najwa Amelia P.S, Tathiya Mustikaning P & Edited by Najwa Amelia P.S