Can Directors be Liable for Company Debts in Singapore?

Last updated on June 17, 2020

businessman shocked

If you’re a director of a Singapore-registered company, you may be wondering if there are any circumstances in which you can be personally pursued to pay your company’s debts. Well, the general answer is no.

The whole point of incorporating a company is to limit your liability and the courts in Singapore are very reluctant to allow creditors to pursue directors in their personal capacity for the repayment of their company’s debts.

However, there are exceptions to this general approach.

Situations in which Directors can be Made Personally Liable for Company Debts

1. Where you are the co-borrower or guarantor of the company loan

If you co-sign a loan or credit facility taken out by your company in your personal capacity as a guarantor, then the lender can sue you personally and/or together with your company for the repayment of the debt.

This is because although you and your company are treated as two separate legal persons, when both of you sign a loan agreement or credit facility agreement as a borrower and as guarantor, respectively, then you and your company are both jointly and severally liable for the debt.

2. Where the creditors make a court application to hold the director/shareholder personally liable for the company’s debts

The other main scenario in which you can be held liable for your company’s debts is when a creditor applies to the court to do something called “piercing the corporate veil”. This basically means holding a controlling director or shareholder liable for his/her company’s debts. Doing this however is quite difficult and it only happens in certain limited circumstances.

To pierce the corporate veil, usually, the creditor has to either:

  1. Show that you abused your company’s corporate form and the limited liability protection it provides at the creditor’s expense. To prove this, the court usually requires proof that you had merely used your company as a vehicle to dishonestly or maliciously commit a fraudulent or a sham transaction, thinking that you could get away with it by taking out all the company’s funds (including the fraudulently-obtained funds). This leaves the creditor without legal recourse because the company no longer has any funds that they can claim from.
  2. Show that you treated your company’s assets as your own, withdrawing funds from the company’s bank account for your personal use whenever you like without an authorising board resolution or claiming to be personally entitled to the company’s receivables.

3. Non-compliance with the Companies Act

There are also limited statutory provisions that prescribe specific circumstances in which a director or shareholder can become liable for his/her company’s debts.

For example, section 145(10) of the Companies Act provides that if a company operates for 6 months or more without a Singapore-resident director, any shareholders who are aware of this can become liable for any of the company’s debts that are incurred after that 6-month period.

In addition, under section 144(2) of the Companies Act, any director or shareholder who issues or signs a bill of exchange, promissory note or other negotiable instruments on the company’s behalf, where its name is not mentioned in the document, he/she will become personally liable for the payment obligations of that document if payment is not eventually made by the company.

What to Do If You’ve been Held Personally Liable for Your Company’s Debts

In general, if a creditor sues you personally for your company’s debts, you should immediately engage a lawyer to enter an appearance and defend the suit, even if you think you may be liable for the debt. This is because it can be quite difficult to pierce the corporate veil and it is impossible at the very beginning of a suit to predict the outcome.

Accordingly, a lawyer may be able to help you defeat the claim or at least give you more leverage to negotiate a settlement of the claim for a smaller sum.

If the creditor engages debt collectors who start harassing you at your home, you should speak to your lawyer about applying for a protection order or seeking damages against them for harassment.

What If You Lose the Lawsuit Against the Creditors and have to Pay the Company Debts?

If you lose the suit and have to pay the debt, then you should pay it. If you are unable to pay it and therefore don’t, your creditors can enforce the court judgment against you. This may mean having your personal belongings seized and sold.

Alternatively, you can choose to file for bankruptcy. Once a bankruptcy order has been made, your creditors are barred from commencing legal proceedings against you to recover your debts. You also won’t have to pay the full amount owed but will make small instalments over the course of several years instead.

However, bear in mind that filing for bankruptcy has very serious consequences. For example, you will be unable to travel out of Singapore or hold a directorship in a company until you have been discharged from bankruptcy.

While directors will generally not be held personally liable for the debts of their Singapore-registered companies, there are some situations where they can be.

If you are a company director and a creditor has sued or is threatening to sue, you personally for your company’s debts, the best thing to do is to speak to a lawyer immediately. They will be able to guide you through the complex process ahead.

Get in touch with our civil litigation lawyers here.

Compliance
  1. What are Annual General Meetings (AGMs) in Singapore?
  2. Anti-Money Laundering Regulations and Your Business: What You Need to Know
  3. Price-Fixing, Bid-Rigging and Other Anti-Competitive Practices to Avoid
  4. Dividend Payments Guide for Singapore Business Owners
  5. Company Audits in Singapore: Requirements and Exemptions
  6. Guide to Transferring Shares in a Singapore Private Company
  7. How to Hold Extraordinary General Meetings (EGMs) in Singapore
  8. How to Issue Shares in a Singapore Private Company
  9. How to Reduce the Share Capital of Your Singapore Company
  10. Legally Conducting Lucky Draws for Singapore Businesses
  11. Dormant Companies and Their Filing Obligations in Singapore
  12. How to Hold a Board Meeting in Singapore
  13. Can Directors be Liable for Company Debts in Singapore?
  14. Paid-Up Capital in Singapore: A Complete Guide (Is $1 Enough?)
  15. Restaurant Inspection and Food Safety Rules in Singapore
  16. Preparing a Register of Shareholders for a Singapore Company
  17. Essential Regulatory Compliance Guide for Singapore Companies
  18. Finding a Suitable Corporate Secretarial Firm in Singapore
  19. Oppression of Minority Shareholders
  20. Process Agents in Singapore
Company Management
  1. Shadow Directors: Who are They and What Duties Do They Owe to the Company?
  2. Guide to Directors' Remuneration in Singapore
  3. 3 Types of Insurance Every Singapore Business Needs
  4. How to Change the Name of Your Singapore Company
  5. How to Remove a Director from a Company in Singapore
  6. Appointing Company Directors in Singapore: Eligibility, Process etc.
  7. Company Loans to Directors/Shareholders (& Vice Versa) in Singapore
  8. Share Transmission: What Happens If a Shareholder Dies in Singapore?
  9. Business Will: How to Pass on Your Business to Your Successors in Singapore
  10. Shareholder Rights in Singapore Private Companies
  11. Removal and Resignation of Company Auditor in Singapore
  12. Shareholder Roles and Obligations in Singapore Companies
  13. Creating and Registering Charges in Singapore: Guide for Companies
  14. How to Commence a Derivative Action on Behalf of a Company in Singapore
  15. Managing Director vs CEO in Singapore: Roles and Obligations
  16. Appointing an Authorised Representative for Foreign Companies in Singapore
  17. Business Partnership Disputes in Singapore: How to Resolve
  18. Guide to Effective Business Continuity Planning in Singapore
  19. Buy-Sell Agreements: How to Write & Fund Them in Singapore
  20. Voluntary Suspension of Business in Singapore: How to Handle
  21. Appointing a Company Secretary: Roles and Responsibilities
  22. Directors' Duties in Singapore
Company Documents
  1. Company Constitutions in Singapore and How to Draft One
  2. Company Memorandum and Articles of Association
  3. Minutes of Company Meeting in Singapore: How to Record
  4. Guide to Filing Financial Statements for Singapore Business Owners
  5. Filing Annual Returns For Your Business
  6. Memorandum of Understanding (MOU): Does Your Business Need One?
  7. Company Resolutions: What are They?
  8. Board Resolutions in Singapore
  9. Your Guide to Share Certificates in Singapore: Usage and How to Prepare
  10. How to Set Up a Register of Controllers
  11. How to Set Up a Register of Nominee Directors
Tax and Accounting
  1. What is Withholding Tax and When to Pay It in Singapore
  2. Singapore Influencers: Here's How to Calculate Your Income Tax
  3. Corporate Tax in Singapore: How to Pay, Tax Rate, Exemptions
  4. When to Register for GST, How and Responsibilities after Registration
  5. Start-Up Tax Exemption Guide for New Singapore Companies
  6. Tax Investigation of Tax-Evading Business Owners in Singapore
  7. Small Business Accounting Services in Singapore
Data Protection
  1. Essential PDPA Compliance Guide for Singapore Businesses
  2. Cloud Storage of Personal Data: Your Business’ Data Protection Obligations
  3. How Can Companies Dispose of Documents Containing Personal Data?
  4. Here's a 7-Step Plan for Companies to Prevent Unauthorised Disclosure When Processing and Sending Personal Data
  5. Appointing a Data Protection Officer For Your Business: All You Need to Know
  6. Summary: Your Organisation's 9 Main PDPA Obligations
  7. Check the Do-Not-Call Registry Before Marketing to Singapore Phone Numbers
  8. GDPR Compliance in Singapore: Is it Required and How to Comply
  9. Drafting a Comprehensive Privacy Policy For Your Singapore Website
  10. Is It Legal for Businesses to Ask for Your NRIC in Singapore?
  11. PDPA Consent Requirements: How Can Your Business Comply?
  12. Legal Options If Employees Breach Confidentiality in Singapore
  13. Your Guide to a Media Release Form in Singapore
Marketing
  1. Complying with Singapore Law When Sending Email Newsletters
  2. Outdoor Advertising: How to Legally Display Public Ads in Singapore
  3. A legal guide to drafting a social media policy for your company
  4. Dealing with Defamation of Your Business: Can You Sue?
Franchising
  1. Starting a Franchise in Singapore: What Franchisors Should Look Out For
  2. Running a Franchise in Singapore: What To Look Out for as a Franchisee
Debt Restructuring
  1. Informal Debt Restructuring and Workout in Singapore
  2. Schemes of Arrangement: How They Work and How to Apply
  3. Judicial Management: What is It and How Does it Work?
Ending a Business
  1. Insolvency: Claw-back of Assets from Unfair Preference and Undervalued Transactions
  2. Striking Off a Company
  3. What Should a Creditor Do When a Company Becomes Insolvent?
  4. Dissolution of partnerships in Singapore
  5. Validation of Payments Made by Companies Being Wound Up
  6. Can a Company that Struck Itself Off the Register Later Apply to Restore Itself?
  7. Closing Your Singapore Business: What You Need to Settle
  8. How to File a Proof of Debt against a Company in Liquidation
  9. Winding Up a Company