Legal Article: Director Liability in Cambodia – What Every Corporate Leader Should Know

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1. Introduction

The personal liability of directors arising from a company’s non-compliance depends on specific circumstances in which their conduct or oversight may breach legal obligations. Although companies are recognized as separate legal entities under Cambodia’s legal framework, directors can still be held personally accountable if they fail to fulfill certain duties outlined in specific legislation. This issue underscores the importance of responsible corporate management and adherence to legal compliance to minimize personal liability exposure.

2. What are Directors’ Duties Under Cambodian Corporate Laws? 

Under Cambodian law, the duties of directors are primarily governed by the Law on Commercial Enterprises (“LCE”). They are designed to ensure that directors manage the company with integrity, competence, and compliance with legal obligations. These duties serve to protect the interests of the company, its shareholders, and other stakeholders. Directors of a company in Cambodia are subject to the following key responsibilities:

General Duties	Explanation
Duty of Care and Skill	According to Article 289 of LCE, every director of a company shall exercise their duties as below: act honestly and in good faith with a view to the best interests of the company; and exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.
Duty to Disclose Conflict	According to Article 134 of LCE, if a director is involved–directly or indirectly–in a contract or proposed contract with the company, they are legally obligated to disclose such involvement as follows: direct involvement: if the director is a party to the contract or proposed contract with the company; indirect interest: if the director has a significant interest in another person or entity that is a party to the contract or proposed contract with the company.
Duty to Ensure Legal Compliance	In managing the company as provided under Article 119 of the LCE and to serve the best interests of the company as well as exercising due care, a director must also ensure that the company complies with applicable legal obligations under Cambodian law which, amongst others, include the key following compliance requirements: corporate compliance: requirements to file annual declaration of commercial enterprise (ADCE) under Article 1 of MOC-Prakas No. 107, maintain corporate records under Article 109, LCE, and register corporate changes under Article 239 of LCE. operational compliance: registration of local domain name under MPTC Joint Notif. No. 0837 and signboard compliance requirements under MEF-Joint Prakas No. 6744. tax & accounting compliance: monthly and annual tax filing and payments under Articles 29, 30, 31 and 206 of Law on Taxation (“LOT”), and submission of financial statements under Chapter 7 of Law on Accounting and Auditing. labour compliance: comply with various labour obligations under Cambodian labour laws and regulations, which may vary depending on the number of employees being hired. These obligations primarily include enterprise registration with the Ministry of Labour and Vocational Training (MLVT), registration with the National Social Security Fund (NSSF), employee declarations, and the adoption of internal work rules. For businesses employing foreign staff, additional requirements apply, such as obtaining a foreign employee quota, securing work permits, and completing annual renewals.

3. When Can Directors Be Held Personally Liable?

Although it is generally accepted that directors enjoy limited liability in relation to their company, this protection is not absolute. Specific legislation, such as provisions under tax law, labour law, corporate law, the Civil Code, and the Criminal Code, may directly impose liability on directors for their actions, omissions, or misconduct. The following outlines the key areas in which directors may be exposed to personal liability:

Specific Liabilities	Explanation
Tax Violation	According to Article 214 and Article 226 of LOT, directors may be personally liable for tax debt owned by the taxpayers as a result of tax evasion identified by the tax administration. Therefore, the tax administration may apply recovery measures against directors as stated in Articles 217, 218, 219 and 220 of LOT. If tax evasion is considered serious, directors may also be criminally liable in accordance with Article 243 of LOT.
Breach of Duty of Care	According to the LCE, directors can face liability under Article 290 for actions such as issuing false or misleading reports, under Article 134 for failing to disclose conflicts of interest, under Article 140 for authorizing unauthorized share issuances, or under Article 146 for improperly determining share prices.
Breach of Labour Obligation	Personal liability may arise from violations of labour obligations under the Labour Law, including failure to ensure workplace safety under Articles 229 and 230, improper wage management under Article 116, or non-compliance with regulations on foreign labour employment under Article 261.
Civil Liabilities	Under Article 743 of the Civil Code, directors may be held liable for intentional or negligent acts that harm others, including failure to fulfill assigned duties.
Criminal Liabilities	Directors can be criminally prosecuted for fraudulent conduct under the Criminal Code, such as breach of trust under Article 391 and 393, fraud under Article 377, or forgery under Article 626 and 628.

4. How Can Directors Mitigate the Risk of Facing Personal Liabilities?

Directors may take practical strategies to reduce their risk of personal liability as below:

Strategies	Explanation
Monitoring Regulatory Compliance and Staying Updated on Legal Changes	regularly track legal and regulatory updates that could impact the company’s obligations; pay special attention to laws that extend liability to directors and shareholders, particularly tax-related liabilities (as the compliance enforcement of the tax authority is one of the strictest in Cambodia); establish an internal compliance team or engage legal counsel to ensure all corporate actions align with regulatory requirements and any legal uncertainties should be consulted to avoid any non-compliance.
Strengthening Tax Compliance to Avoid Personal Liabilities	strictly monitor tax compliance to ensure timely and accurate reporting; engage with a tax expert to clarify obligations and avoid misinterpretation of tax laws; in case of legal uncertainty, apply for tax rulings from the tax authority to obtain official clarification; and before engaging in any M&A transactions involving share purchase, sale, or director appointment, tax due diligence should be conducted to ensure the company has no outstanding tax liabilities (as directors can face personal liability risks, as directors can also be liable for the tax liabilities of the company Article 215 of Law on Taxation).
Risk Protection for Directors (only actions acted in good faith due to the limitation provided under Article 133 of the Law on Commercial Enterprise)	directors may request the company to purchase Director & Officers (D&O) Liability Insurance to cover legal risks related to corporate decision-making; and seek an indemnification agreement from the company to protect against liabilities arising from actions taken in good faith.

5. Conclusion

In conclusion, while Cambodian law generally recognizes the principle of limited liability for company directors, this protection is not absolute. Directors can face personal liability where they breach their statutory duties, engage in misconduct, or fail to ensure the company’s compliance with key legal obligations under tax, labour, corporal, civil, and criminal laws. Understanding the scope of these duties and the legal risks involved is essential for all directors. By proactively monitoring compliance, seeking expert advice, and securing appropriate legal protections, directors can significantly reduce their personal liability exposure and maintain responsible corporate governance.

 

Important Notice: The information contained in this article is provided for general informational purposes only and does not constitute legal advice. It has been prepared based on Cambodian laws and regulations publicly available as of 22 April 2025. For specific legal advice customized to your circumstances, please contact our principal lawyer: Ms Pheng Sovicheany.

This legal update is brought to you by Davies SM Attorneys-at-law.