Shadow Directors: Who are They and What Duties Do They Owe to the Company?

Last updated on December 20, 2018

Featured image for the "Shadow Directors - Who are They and What Duties Do They Owe to the Company?" article. It features a man in a business suit with his hands on his tie, with a wooden puppet in front of him.

Are you an investor in a private company, or perhaps are you a director or senior manager of such a company? If so, knowing about the law on shadow directors in Singapore may help you protect your financial interests, or avoid exposure to unnecessary liability respectively.

Who is a Shadow Director?

A de jure director of a company is a director who has been formally appointed to sit on the board of directors (such as through an ordinary resolution of the members). This person’s appointment as director is also disclosed to the Accounting and Corporate Regulatory Authority (ACRA).

In another scenario, a de facto director refers to a person who openly acts as if they were a director without being formally appointed as one. For example, a senior employee (who does not have a seat on the board of directors) given free rein to make major decisions for the company, without any oversight by the (de jure) directors, will likely be a de facto director of the company.

A shadow director, however, does not openly claim to be a director. Neither does he openly exercise the powers associated with directorship. Rather, a shadow director instructs or directs de jure directors on matters which they should be deciding on their own, such as the overall growth strategy of the company.

The Singapore Companies Act makes it clear that shadow directors are directors of the company, as it defines “director” as including:

“a person in accordance with whose directions or instructions the directors or the majority of the directors of a corporation are accustomed to act“.

Ultimately, whether someone counts as a shadow director depends on factors such as:

  • The nature of the decisions made by the alleged shadow director;
  • How often he/she is actually involved in the management of the company; and
  • To what extent his/her instructions are automatically implemented.

What are the Duties of a Shadow Director?

Shadow directors are regarded as fiduciaries of their companies and owe the same extensive duties to the company as their de jure counterparts.

For example, section 157 of the Companies Act provides that directors are under duties to act honestly and reasonably, and to not misuse their position for personal gain. Shadow directors may therefore may be sued if they are in breach of such duties to their companies.

De jure directors who blindly follow a shadow director’s directions on what to do without considering whether such directions are in the company’s best interests may themselves also be in breach of their duties to the company.

Read our other article for more information on directors’ duties in Singapore.

Case Study: Sakae Holdings Pte Ltd v Gryphon Real Estate Investment Corp Pte Ltd

The 2017 High Court judgment of Sakae Holdings Pte Ltd v Gryphon Real Estate Investment Corp Pte Ltd is a useful case study to illustrate the kind of facts which may lead one to being regarded as a shadow director, and therefore owing directors’ duties to the company.

In that case, Mr Douglas Foo (“DF”) and Mr Andy Ong (“AO”) entered into a joint venture using a company named Gryphon Real Estate Investment Holdings Pte Ltd (“GREIH”). GREIH was owned by two companies owned by AO and DF separately, with AO’s company holding the majority stake.

DF subsequently accused AO of improperly causing loss to GREIH for his own benefit. It was alleged that AO caused GREIH to pay him $8 million for his appointment as Project Manager, even though this payment did not comply with the terms of the joint venture agreement.

At the time of the payment, AO was not a director of GREIH. Rather, his associate Ho Yew Kong (“HYK”) was the one formally appointed as director of GREIH then.

However, the court held that AO was still a shadow director of GREIH. This was because SH continued to deal with AO whenever it had enquiries about GREIH. AO was also the one who directed GREIH to pass board minutes to SH when SH requested to see them. Furthermore, AO caused SH’s representative to be added as joint signatory for cheques drawn on GREIH’s bank account. Such powers ought to have been exercised by a director of the company. At the same time, SH had not been able to obtain HYK’s contact details when HYK was appointed director of GREIH.

HYK also testified in court that AO had recruited him to act as GREIH’s director, and was told by AO that it was a “small role” because the management of GREIH had been largely delegated to a management company controlled by AO and his assistant, Mr Ong Han Boon (“OHB”). Even after his appointment as director, HYK never knew much about GREIH’s affairs. Rather, AO was the one making the strategic and investment management decisions for GREIH and HYK would only consider matters directly brought to his attention.

Therefore as HYK, the de jure director of GREIH, was accustomed to acting on AO’s instructions, the court held that AO was a shadow director of GREIH.

The court also held that OHB was not a shadow director of GREIH. This was because he merely played a supporting role to AO and took AO’s instructions, rather than making management decisions for GREIH himself.

Learning Points for SMEs

If you are a shareholder of a company of which you are not a director

If you suspect that the directors of the company are being unduly influenced by the directions of a third-party, such that the decisions they make do not appear to be in the company’s interests, you should first see if you have any self-help remedies available.

Such remedies may depend on the company constitution and/or any shareholders’ agreements which you have entered into. If you are a minority shareholder, it may be possible to have the errant director(s) dismissed using an ordinary resolution if you have support from other shareholders.

If this fails, you may want to seek legal advice on bringing a claim for minority oppression.

If you are a de jure director of a company

As a director of a company, the law places heavy responsibilities on your shoulders. You have a duty to the company to decide whether any proposed course of action is likely to benefit the company, even if you have been instructed by someone else to carry out such a course of action.

If you are a major client of a company

Occasionally, parties who are neither shareholders nor directors may ask to attend board meetings. While this is more common for creditors, it is possible that a major client may want to sit in for some key meetings to see that their interests are being protected.

In such a situation, you may speak freely and state your concerns with any proposed transaction. However, you may be accused of being a shadow director and be subject to liability as a director if you regularly dictate how things in the company are to be done. This is undesirable and should be avoided.

Good corporate governance is everyone’s interests. If you are a director who would like advice on fulfilling your duties to the company, or are potentially facing a lawsuit for a breach of these duties, it would be best to seek legal advice.

You can get in touch with a corporate lawyer here.

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