Legal Liability of a Director in Singapore

Legal Liability of a Director in Singapore

Legal Liability of a Director in Singapore

Under section 157A of the Companies Act (CA), the board of directors is to be deemed responsible for the management of a company and is to act in accordance with the duties assigned to a director as per the law. Failure to comply may result in a lawsuit, criminal penalties and/or be subject to removal from the company.

 

Statutory Duties

Statutory duties are duties set out in statutes. These may be found in legislations like the Companies Act (“CA”).

 

Duty to disclose interests in transactions

Under section 156 of the CA, it is generally required for a director to make a disclosure at a director’s meeting if he has interest in a transaction or proposed transaction with the company. The 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”.

In accordance with section 156(3), there are exceptions as to when a director may be found to be interested.

Apart from the duty of a director to disclose the nature and extent of his interest in an entity that engages in a transaction with the company, the director must disclose the nature, character and extent of any conflicts with his directors’ duties that could arise due to them holding any office or possessing any property.

Failure to disclose may result in a fine not exceeding $5000 or 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”.

In particular, 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 aforementioned provisions, a director will be liable to the company for any profits they have made and any damages the company may suffer from as a result of the breach. A possibility of criminal sanctions may also exist.

 

Common Law Duties

Duties recognised by the common law are duties that have been established by previous cases from Court (binding precedent) that must be followed in subsequent similar cases. Common law duties often overlap with statutory duties for the simple reason that statutes are a form of codification of the common law duties which does not exclude the common law duties.

 

Duty to exercise power in good faith for the company’s interests

Directors owe a fiduciary duty to the company they are a director of, and are therefore required to act in the interests of the company.

 

Duty to avoid conflicts of interest

An example of a duty to avoid conflicts of interest may include that a director is not allowed to hijack a business opportunity that he comes across through his role as a director in the absence of the informed consent of the company.

 

Duties of skill, care and diligence

Failure to act dutifully in such regard may result in suing the for negligence.

The said duties are some of the main duties associated with directors. A further analysis would require an examination of the case to determine what specifically can constitute the interest of the company etc.

 

Other duties

Besides the general outline of duties that a director must act in adherence to, more specific restrictions or otherwise known as “negative duties” exist to disallow directors from engaging in certain types of acts or behaviours.

For example, under section 162 of the CA which deals with loans to directors, the ordinary stand, subject to exceptions, is that a company cannot make a loan to a director. If a loan is made in breach of the provisions, the directors responsible for authorising the transaction will be held liable for indemnifying the company against any loss and may also be liable for criminal sanctions.

Such “negative duties” tend to be specific to the type of transaction and are too numerous to be listed. They may, however, be found by looking at the relevant transaction in the statute, which in most cases would be the Companies Act.

 

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact me at walter@silvesterlegal.com.

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