How to Remove a Director from a Company in Singapore
Directors hold a key position in the management of companies.
However, there are several ways a person may cease to become a director:
1. Removal of Director
Why might a company remove a director?
A company may wish to remove a director before the expiration of his office for several reasons such as:
- Poor personal conduct;
- Breach of director’s duties;
- Poor management leading to subpar corporate performance; or
- Personal involvement in a corporate scandal.
Who can remove a director?
Directors can only be removed by shareholders. Note that directors in public companies are not allowed to remove other directors according to section 152(8) of the Companies Act (CA).
How to remove a director in a private limited company
It is important to keep in mind that any removal of director must be in accordance with the company’s constitution.
Section 152(9) of the CA states that a company’s shareholders may remove the director by ordinary resolution (i.e. more than 50% of votes in favour of removal), provided that there is no contrary provision in the constitution.
The shareholders must give 14 days’ written notice, although this requirement may be waived if agreed by more than 95% of the votes.
If your company has adopted the Model Constitution in full, a director may be removed by ordinary resolution with at least 14 days of notice.
The company’s constitution can always set out other requirements or conditions. For example, requiring a special resolution to remove the director (i.e. more than 75% of votes in favour of removal).
To commence the process of removing a director, the company’s shareholders must call for a general meeting to vote on whether or not to remove the director and pass a resolution.
Alternatively, the company’s constitution may also include a clause governing the removal of directors in certain situations. For example, in the event of terminal illness or immoral conduct.
Where this is the case, a vote to remove the director will not be required by the shareholders unless this requirement is set out by the company’s constitution.
How to remove a director in a public company
In the case of removal of director in a public company, section 152 of the CA sets out the following requirements:
- Unless varied by the company’s constitution or an agreement between the director and the company, shareholders of a public company may remove a director by ordinary resolution (i.e. more than 50% of votes in favour of removal);
- When the shareholders call a general meeting to initiate the process of removing the director, special notice must also be given of the resolution to remove the director, to shareholders and also the director concerned. This notice must be given at least 28 days before the meeting. If this is not practicable, the notice may be given at least 14 days before the meeting.
When is a director removed?
According to section 152(1) of the CA, the removal of a director shall not take effect until his successor has been appointed.
A director is officially removed once the company updates the particulars of the new director in Accounting and Corporate Regulatory Authority (ACRA) via BizFile+.
2. Disqualification of Director
When a director is disqualified, he is not allowed to be a director or take part in the management of any local or foreign company.
This is unless he seeks permission from the General Division of the High Court or Official Assignee.
When can a director be disqualified?
A director can be disqualified in the following circumstances:
- When the director becomes bankrupt;
- When a court makes a disqualification order. For example, in the case of an unfit director of insolvent companies, where a company is wound up for reasons of national security or interest, or where the director has been convicted in Singapore of offences related to the management or formation of companies;
- When the director is convicted of an offence involving fraud or dishonesty that is punishable with an imprisonment term for 3 months or more;
- When the director has been convicted for 3 or more document filing-related offences under the CA within a period of 5 years;
- When the director has 3 or more orders from the General Division of the High Court made against him compelling the immediate inspection of the company’s registers, minute books or documents under section 399 of the CA, or the requirement to make returns under section 13 of the CA, within a period of 5 years; or
- When the director has 3 or more of his companies struck off the register by ACRA within a period of 5 years (starting from after the date on which the third company is struck off).
Notice of disqualification
The director must provide a written notice of disqualification to the company.
The company then has to report the director’s disqualification to ACRA within 14 days of the director becoming disqualified.
What if a director liable for disqualification continues to act as a director of a company?
When there is reason to believe that the director is still acting as a director in spite of falling within one of the above circumstances for disqualification, a complaint can be lodged with ACRA.
Anyone can lodge a complaint, provided that he or she has sufficient details of the company the director sits in.
This complaint can be sent by post to ACRA with the relevant supporting documents such as the court order or bankruptcy statement where applicable.
Upon further investigation, if the complaint is successful, the director will be removed.
How long is the disqualification period?
The length of the disqualification period will depend on the reason for the director’s disqualification, but is generally 5 years.
For example, a director who has been disqualified for being director of at least 3 companies that were struck off within a 5-year period, will be disqualified for 5 years from the date on which the latest company was struck off.
On the other hand, directors of companies which have been wound up on reasons of national security or interest will be disqualified for 3 years from the date that the winding up order is made.
For directors who have been disqualified after being convicted of offences that make them liable for disqualification, the start date of the disqualification period varies depending on whether the director has been sentenced to imprisonment for that offence:
- If the director is imprisoned, the disqualification period will begin when he is convicted. The disqualification period will continue for another 5 years after he is released from prison.
- If the director is not imprisoned, he will be disqualified for 5 years (or for a shorter period as the court may order). The disqualification period begins from the date of conviction.
What can a former director do at the end of the disqualification period?
After the end of his disqualification period, a person may be appointed as a director of his previous company or even incorporate a new company.
Upon re-appointment or incorporation, the company must notify ACRA via the BizFile+ website of the director’s appointment within 14 days of the date of appointment.
3. Resignation of Director
A director may also choose to resign voluntarily from directorship. In Singapore, a director’s resignation is valid provided that:
- The resignation procedure is in accordance with the company’s constitution; and
- The company must have at least 1 remaining director residing in Singapore.
Notifying ACRA of cessation of appointment of director
Upon the resignation or disqualification of a director, the company is required to file a notification of cessation.
This must be within 14 days from the date of change, i.e. the date of disqualification, or the date of service of resignation, where applicable.
When lodging the notification with ACRA, be prepared to submit relevant documents such as:
- In the case of disqualification, the bankruptcy statement or court order where applicable;
- In the case of resignation, the director’s resignation notice and acknowledgment from the board of directors.
There are situations where the ex-director himself is to notify ACRA of the resignation or disqualification:
- When the ex-director has reason to believe that the company will not do so; or
- When the ex-director is aware that there are no other officers in the company to notify ACRA. This could occur where the company secretary has resigned and the other remaining directors are disqualified.
Failure to notify ACRA
If notification of cessation is not given to ACRA, this could amount to an offence of non-disclosure under section 165 of the CA.
Under this section, directors or chief executive officers may incur personal liability and be fined up to $15,000 or imprisoned up to 3 years.
Until the notification is lodged, the cessation will not take effect. This means that the director will still be responsible for managing the company.
Where the offence is one that is continuing (i.e. notification of cessation has still not been given to ACRA), the director or chief executive officer may be fined $1,000 for every day which the offence continues after conviction.
What Happens to Any Shares the Director Owns?
In the case where the director is also a shareholder of the company, an issue arises as to what happens to the shares.
If the company’s constitution contains a clause which requires the director to sell his shares upon the cessation of his directorship, the director will be required to do so.
A typical clause will require the director to sell his shares to the remaining shareholders of the company.
In the event that there is no clause imposing such a requirement on the director, the director is free to hold on to the shares.
Alternatively, the director may wish to sell or transfer his shares.
For those who may have to initiate the procedure of removing a director, knowing the requirements to do so will ensure that the removal is valid and effective.
For those who are thinking of incorporating a company, having knowledge of the potential issues that may arise from the removal of a director can help you to craft your company’s constitution to avoid such issues.
You may engage a professional corporate secretarial firm if you wish to seek assistance in any of such matters.
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