Business Judgment Rules in Bankruptcy Cases and the Never-Ending Cycle of Judgment

Abstract

The Business Judgment Rule (BJR) serves as a legal doctrine that protects corporate directors from personal liability for business decisions made in good faith, with due care, and in the best interests of the company. Nevertheless, the scope of such protection remains uncertain, particularly when a company enters bankruptcy proceedings and management decisions are alleged to have contributed to the company’s financial failure. Although Indonesian law recognizes both directors’ liability and the BJR under the Limited Liability Company Law, its application in bankruptcy-related disputes remains limited and inconsistent, resulting in legal uncertainty regarding the circumstances under which directors may still invoke BJR protection. This study aims to examine the limitations of the BJR in bankruptcy contexts and to identify the conditions under which the doctrine ceases to protect corporate management. The research employs a normative legal method through doctrinal analysis of statutory regulations, court decisions, and legal commentaries from Indonesia and selected comparative jurisdictions. The findings indicate that the principal limitation of the BJR lies in the legality of the management decision itself. Courts generally uphold BJR protection when directors act in good faith, exercise due care, and pursue the company’s interests within the boundaries of the law. However, where a decision involves a violation of legal norms, BJR protection is no longer available, even if the decision was intended to benefit the company. Accordingly, the legality requirement functions as a fundamental threshold for the application of the BJR, including in bankruptcy proceedings. This study contributes to the development of a more coherent doctrinal framework for determining directors’ liability in bankruptcy cases and clarifying the legal boundaries of BJR protection in Indonesia.