Directors’ Duties in Singapore

Contrary to popular belief, the management of a company is not entirely vested in the Chief Executive Officer. Under section 157A of the Companies Act (CA), the management of a company is vested in the board of directors (which the CEO is usually part of).

Although day-to-day management may be delegated to executives, there are still business decisions that directors have to make in accordance with their duties under the law. Otherwise, they may face civil liability in a lawsuit, criminal penalties and/or be subject to removal from the company.

There are 2 types of director’s duties, namely statutory duties and common law duties. Statutory duties come from legislation while common law duties come from the “body of law” based on past court decisions.

This article will cover:

• Statutory Duties
• Common Law Duties
• Other Duties

Statutory Duties

Director’s duties found in legislation like the Companies Act are called statutory duties. These duties are imposed by written laws and clearly outlined, hence they must be followed as written. Below are some statutory duties for directors, please note that this is not an exhaustive list as there are numerous of such duties. Do refer to relevant statutes like the Companies Act for more director’s duties that are not mentioned in this article.

Duty to disclose interests in transactions

Under section 156 of the CA, a director is generally required to make a disclosure at a directors’ meeting if he is interested in a transaction or proposed transaction with the company. This disclosure is not required where “the interest of the director consists only of being a member or creditor of a corporation which is interested in a transaction” and “if the interest of the director may properly be regarded as not being a material interest.”

There are also exceptions as to when a director will be found to be interested. These can be found under section 156(4) of the CA.

Besides disclosing the nature and extent of his interest in an entity that is transacting with the company, the director must also disclose the nature, character and extent of any conflicts with his directors’ duties that may arise due to his holding any office or possessing any property.

Failure to disclose can lead to a fine not exceeding $5000 or to imprisonment of a term not exceeding 12 months.

Duty to act honestly and use reasonable diligence

Under section 157 of the CA, directors have the “duty to act honestly and use reasonable diligence in the discharge of the duties of his office”.

Specifically, a director “shall not make improper use of any information acquired by virtue of his position as officer or agent of the company to gain…an advantage for himself or for any other person or to cause detriment to the company”.

If found guilty of breaching the provisions, a director is liable to the company for any profits made by him and any damages suffered by the company. He is also liable for a fine of up to $5,000 or a jail term of up to 1 year.

Duty to maintain accounting records

To demonstrate the company’s financial health, a director is obligated, under section 199 of the Companies Act, to ensure that appropriate accounting records are maintained for at least 5 years from the end of the financial year. It is also required for the records’ to be easily accessible by all company directors. 

Failing to comply with this section will result in a fine not exceeding $5,000 or a jail-term of up to 12 months and also a default penalty.

Duty to present financial statements at the annual general meeting

Section 201 of the Companies Act stipulates that at least once a year, at the company’s annual general meeting (AGM), the directors must present financial statements to the shareholders. The financial statements must: 

1. Comply with Accounting Standards issued by the Accounting Standards Council; and
2. Give a true and fair view of the financial position and performance of the company.

The financial statements must be duly audited before being presented at the company’s AGM, and the auditor’s report required by section 207 of the Companies Act must be attached upon those financial statements. Directors must ensure that the financial statements are audited at least 14 days before the AGM, unless agreed otherwise by the persons entitled to receive notice of general meetings.

Failure to comply with the provisions will result in a fine or an imprisonment term.

Duty to hold meetings

The following meetings are mandatory for the directors to hold, but others may be added or removed depending on the company’s size and organisational structure:

• Each company must hold an AGM at least once a year.
• Directors of publicly traded companies are required by law to hold a statutory meeting no later than three months after the company’s inception.
• When requested by shareholders holding at least 10% of the company’s shares, the board of directors must convene an extraordinary general meeting (EGM).

If the company fails to hold an annual general meeting, the company and every officer of the company who is in default, shall be guilty of an offence and liable to a fine up to $5,000 and also a default penalty

If the company fails to hold a statutory meeting, every officer of the company who is in default and every director of the company who fails to take all reasonable steps to secure compliance, shall be guilty of an offence and liable to a fine up to $1,000 and also a default penalty.

Common Law Duties

Director’s duties found in common law (or case law) – where judges’ decisions in past cases become a guideline for future disputes – are called common law duties. Common law addresses areas where the written law may be silent or unclear. Inevitably, the common law duties will overlap with the statutory duties as the statutes are a form of codification of the common law duties. This codification does not exclude the common law duties.

Duty to exercise power in good faith for the company’s interests

Directors owe a fiduciary duty towards the company, and so they must act in the interests of the company. For example, when the company faces financial difficulties and considers winding up, the director should not be making desperate decisions or be led by his personal relationships with creditors. Instead, the director should carefully review the company’s situation and make a thorough recommendation for the company’s viability. 

Duty to avoid conflicts of interest

Directors, as mentioned earlier, have the duty to act in the best interests of the company. They must not engage in any act that can result in a loss for the company (be it financial or reputational harm etc.) for their own benefit.  For example, a director cannot hijack a business opportunity that he comes across through his role as director without the informed consent of the company.

Case Study: Sim Poh Ping v Winsta Holding Pte Ltd 

Winsta Holding Pte Ltd is the holding company of a group of companies which are in the hostel and serviced apartments business. Sim Poh Ping and his 2 daughters, Lynn Sim and Joyce Sim, were directors of Winsta Holding Pte. Ltd.. The Sim sisters were found to have breached their duty to avoid conflict of interest by diverting business opportunities from Winsta Holding and its related companies, to companies in which they had personal interests. 

One such instance was when the Sims took an opportunity meant for Global Residence (a wholly owned subsidiary of Winsta Holding Pte Ltd) to manage serviced apartments at a property called Illuminaire in 2012, and instead gave it to their own company, OSPC.

Sim Poh Ping, although not involved with the transactions, had turned a blind eye to his daughters’ breaches of fiduciary duty and failed to disclose the matter or take any action to stop them. It was held that he had preferred the interests of third parties over the company’s and hence, breached the no-conflict rule.

Duties of skill, care and diligence

Failure in these duties can result in directors being sued for negligence.

The above are some of the main duties associated with directors. Further analysis will involve examining cases to determine what exactly can constitute the company’s interests etc.

Case Study: BIT Baltic Investment & Trading Pte Ltd v Wee See Boon

BIT Baltic’s director, Wee See Boon, approved of significant transactions of US$1,472,500 to related companies (HARPA and HPS) without making necessary enquiries nor corrective actions, even after becoming aware of the company’s insolvency. 

He had a duty to alert the other directors and try to recover the payments as the payments had been constituted as unfair preferences against other creditors, but he had failed to do so. Hence, the court held that Wee breached the duties of care, skill and diligence owed to the company.

Other Duties

Aside from such general definitions of duties, there are more specific restrictions or “negative duties” on what directors cannot do.

For example, section 162 of the CA deals with loans to directors. The default stand, subject to exceptions, is that a company cannot make a loan to a director. If a loan is made in contravention of the provisions, then the directors authorising the transaction will be liable to indemnify the company against any loss. They will also be guilty of an offence which carries a fine of up to $20,000 or a jail term of up to 2 years.

These “negative duties” are usually specific to the type of transaction (e.g. registering of charges) and are too numerous to be listed here. They can be found by looking for the relevant transaction in the statute, which is usually the Companies Act.

This article is an extremely condensed explanation of directors’ duties in Singapore. Further legal advice should be sought before action is taken.