Directors of Private Limited Companies by Shares in Singapore are subject to specific du-ties and responsibilities set forth either by common law principles and/or statutory provi-sions. This blogpost outlines the role and duties of a director within the company and re-flects what liabilities may arise in the event of a breach of these duties.
The most common legal form of business organisation used by foreigners in Singapore to conduct their business activities is the Private Company Limited by Shares ("Pte Ltd"), which from a functional point of view is comparable to the German Limited Liability Company (“GmbH”). A Pte Ltd can only be established if at least one “ordinarily resident” director is appointed at the time of filing for the registration of the company with the commercial register in Singapore. If more than one director is appointed, all directors together form the Board of Directors, which acts as the governing body of the Pte Ltd.
With the exception of matters requiring a resolution of the shareholders under either the Companies Act or the articles of association and matters relating to the day-to-day management of the company, the Board of Directors generally takes all decisions relating to the management of the company as a collective. Generally, this is done by resolutions passed by majority vote. The implementation of such decisions is done by the Managing Director of the Board of Directors. Although the Managing Director is responsible for the day-to-day management of the company, he, contrary to the managing director of a German GmbH, does not have sole power of representation in other matters unless specifically given. The exact scope of his power of representation can be regulated individually in the articles of association or by corresponding authorisation through a board resolution. Since such an authorisation cannot be publicly accessed in the commercial register, third parties may request a resolution by the Board of Directors with regard to the specific activity to be performed. In order to protect legal transactions, principles such as apparent authority and authority by estoppel may result in authorisation (and liability) by means of an apparent existence of a legal situation if the Managing Director acts unauthorised on behalf of the Company.
Although the Board of Directors is collectively responsible for the management of Pte Ltd, it is the responsibility of each Director, whether executive or non-executive, to comply with its directors’ duties as mandated under the law, including the fiduciary duties and other obligations associated with the office of a Director.
A Director is subject to certain fiduciary duties resulting from a combination of general principles of common law and statutory provisions of the Companies Act. These duties can only be fulfilled by the Director himself and cannot be delegated. They must be distinguished from the obligations of the company, for which he may be held liable for failure to comply, even though these do not need to be performed by himself, but may be delegated or are supposed to be performed by a third person.
1. A Director shall at all times act honestly and use reasonable diligence in the discharge of his duties of his office.
A Director who acts in good faith in the interest of the company would be considered to have acted honestly. Acting in the interest of the Company means primarily observing the interest of the company as a separate legal entity and not the interests of shareholders and employees, even though such interests should be considered as much as possible. In the event of insolvency, the interests of the creditors have the highest priority. The personal interests of the Director are naturally not among the protected interests of the company.
As a consequence, it is the duty of a Director to avoid situations in which his duties and interests conflict with each other. A conflict of interest may arise, for example, if a director acquires land or other property of the company, establishes a competing company or holds management positions in other companies and is unable to provide his undivided loyalty to each company. Furthermore, the Companies Act even obliges a Director to disclose and record any interests in shares, rights or other interests in the Company he may hold in a statutory register.
2. For the proper performance of his duties, it is also necessary that a director has sufficient personal and professional skills to run a business. Specific requirements for this depend entirely on the nature of the business.
Furthermore, a Director has general duties of care and diligence, such as informing himself sufficiently about his rights and duties and carefully selecting his subordinates. The standard of due diligence is an objective one, which means that it is to be asked what a reasonable, average person with the same job description would do in his place. However, the scope also depends on the specific role of the Director within the company, so that higher demands are placed on the Managing Director than on a Director who is only marginally involved in the management of the company.
3. A Director may also only use the power and information given to him by virtue of his position solely for the proper purposes of the company and not for his own benefit or that of others. This is particularly relevant in view of the fact that he is also obliged to protect the company's assets.
4. In addition to the aforementioned personal duties of a Director, he is also personally responsible if the company or its internal administrator, the Company Secretary, fails to meet in a timely manner certain statutory filing obligations of the company. These are mainly obligations relating to corporate compliance provisions of the Companies Act. Below are some of the most important provisions:
The consequence of a Director's breach of the statutory fiduciary duties may be both a civil and a criminal liability. From a civil law point of view, the company can charge him for damages or alternatively demand the unlawfully gained personal profit. If the company's assets were misapplied, the property that was unlawfully removed can also be reclaimed. The Director may as well be personally liable to third parties. From a criminal law point of view, it should be noted that the Director may be subject to an offence in the event of a breach of duty and may be sanctioned with a penalty of up to 5,000 SGD or imprisonment for up to 12 months.
The same applies to the duties of the director, which he oversees as supervisor guarantor, and to acts which are not necessarily specific duties of a Director, but which can in principle be performed by any person within a corporate structure. Here, too, he may be personally liable and in some cases may commit a criminal offence. Fault is only necessary if expressly required by law. Frequently, a fine is also imposed on the company itself. For example, the belated assembly of the Annual General Meeting can lead to a penalty of 5,000 SGD and an additional fine against the company. Knowingly providing misleading information to the commercial register may even result in a fine of up to 50,000 SGD or imprisonment for 2 years or both.
In addition, a breach of fiduciary duty and repeated late filing of documents such as the Annual Return, may result in the Director being prohibited from continuing to perform his duties and from serving as a Director for other companies in the future.
Especially in the first years after the establishment of a company, compliance with the duties of a director is often less the focus of the respective director than day-to-day business. In view of the fact that some breaches of duty are sanctioned by imprisonment, these duties should not be neglected. We therefore recommend that a newly appointed director, whether executive or non-executive, becomes aware of his responsibilities and performs his duties carefully. The effort and knowledge required for this should not be easily underestimated and, if necessary, one's own competencies and capacities must be supplemented with external support from experts. The cost of such services in relation to the possible sanctions is appropriate in any case.
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