Directors’ Duties in Singapore
Contrary to popular belief, the management of a company is not entirely vested in the Chief Executive Officer. By law, the management of a company is vested in the board of directors (which the CEO is usually part of), under section 157A of the Companies Act (CA).
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.
These consist of duties found in the legislation, such as the Companies Act.
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(3) 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. There is also a possibility of criminal sanctions.
Common Law Duties
Common law duties consist of duties that have been recognised in past cases. 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.
Duty to avoid conflicts of interest
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.
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.
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 liable for criminal sanctions.
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.
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