Can Directors be Liable for Company Debts in Singapore?

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 companies’ 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, the creditor usually 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’re Being 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 Your Company’s 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.

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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.