Corporate Governance (Singapore)

Enacted in 1967, the Companies Act (Cap. 50) (the “Act”) was created to ensure the vibrant and safe continuation of business and administration. The Act provides the formation and termination of companies, regulates the relationships between participants in companies, and amongst other things also facilitates dealings between companies and outsiders.

With the evolution of business models, there are now a whole host of different legal entities conducting business, including registered businesses, sole proprietorships, limited liability partnerships/corporations, private limited companies, private exempt companies, registered branches of foreign companies and others.

In this section we provide primarily a summary of obligations on directors and officers of companies.

What falls under the purview of the Act and what are some of the offences?

  1. The Act prescribes a general obligation on a director to at all times act honestly and use reasonable diligence in the discharge of the duties of his office. A breach of this obligation is an offence which attracts a penalty of a fine not exceeding S$5,000 or imprisonment for a term of up to 12 months and the director may be liable to the company for any profit made by him or damage suffered by the company as a result of his breach.
  2. The Act also requires any officer or agent of the company not to make improper use of his position or any information acquired by virtue of his position to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the company. A breach of this obligation is an offence that attracts the same penalty as the above.
  3. Directors do not have unbridled discretion to dispose of the company’s property. If the proposed disposal is of the whole or substantially the whole of the company’s property, the directors must obtain the approval of the company’s shareholders through a general meeting.
  4. Under the Act, every director or chief executive officer of a company who is in any way, whether directly or indirectly, interested in a transaction or proposed transaction with the company, shall as soon as is practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a directors’ meeting or send a written notice to the company with details of the nature, character and extent of his interest in the transaction or proposed transaction.
    1. This provision of the Act is expressly in addition to and not in derogation of the company’s own articles of association / constitution which may contain further restrictions on a director or chief executive officer having any interest in such transactions.
    2. A failure to make the declaration(s) as prescribed under the Act is an offence which attracts a penalty of a fine up to S$5,000 or imprisonment for a term of up to 12 months.
  5. Under the Act, directors are responsible for properly representing the solvency of the company.
    1. A director of a company who makes a solvency statement without having reasonable grounds for the opinions expressed in it is guilty of an offence.
    2. A director of a company who authorises the purchase of the company’s own shares or the release of obligations, knowing that the company is not solvent is guilty of an offence.
    3. Both of the above offences attract a penalty of a fine of up to S$100,000 and/or imprisonment for up to three years.
  6. In addition to transactions made in the ordinary course of business, the solvency of the company, the use of company information and the disposal of company property, the Act also governs the types of loans or quasi-loans which a company may make.
    1. Certain types of loans, for instance loans made to a director of the company or giving a guarantee or security in connection with a loan to be made to a director, are restricted transactions under the Act. Restricted transactions may only be entered into under certain exceptions prescribed in the Act and/or with the requisite approval of the shareholders of the company.
    2. Under the Act, it is also not lawful for a company to make a loan or quasi-loan to another company if 20% or more of the voting power in the latter company is held by one or more directors of the first-mentioned company, unless it is made with the requisite approval of the shareholders of the company.
    3. A breach of any of the above obligations / provisions is an offence. Any director who authorised the making of the restricted transaction / unlawful loan shall be liable to face the penalty of a fine not exceeding S$20,000 or imprisonment for a term of up to 2 years.
  7. To ensure proper policing of the Act, the Act also prohibits the destruction, mutilation or falsification of company documents by any officer.
    1. Any officer who has been asked to produce any books relating to the affairs of the company and either destroys, mutilates or falsifies the document(s), or is privy to its destruction, mutilation or falsification, shall be guilty of an offence unless he proves that he had no intention to conceal the affairs of the company or to defeat the law.
    2. Such an offence attracts a penalty of a fine of up to S$10,000 and/or imprisonment for up to two years.
  8. Companies are required to lodge annual returns with the Registrar. If a company fails to do so, not only is the company guilty of an offence but so is every officer of the company and each shall be liable to a fine not exceeding S$5,000 and also a default penalty.
  9. In a liquidation situation, transactions that pre-date the date of the winding up is deemed to have commenced under the Act, will be reviewed by the liquidator. Transactions such as any transfer, delivery, payment, execution relating to property by or against the company in liquidation, with undue preference amongst creditors, may be void or voidable as the case may be.
    1. Even if a floating charge had been created on the property of the company, if the charge was created within 6 months of the commencement of the winding up, then unless it is proven that the company was solvent immediately after the creation of the charge, the charge is invalid.
    2. Any officer who has been asked to produce any books relating to the affairs of the company and either destroys, mutilates or falsifies the document(s), or is privy to its destruction, mutilation or falsification, shall be guilty of an offence unless he proves that he had no intention to conceal the affairs of the company or to defeat the law.
  10. If, in the course of winding up the company, it appears that any business of the company was carried out with intent to defraud creditors of the company or for any other fraudulent purpose, the court may on the application of the liquidator or any creditor or contributory of the company declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible for all or any of the debts or liabilities of the company as the case may be. Also, every such person shall be guilty of an offence and liable to a fine not exceeding S$15,000 and/or imprisonment for a term of up to 7 years.
  11. In relation to some of the above obligations, it shall be a good defence if the accused proves that he had no intent to defraud and/or no intent to conceal the state of affairs of the company or to defeat the law. However, some of the offences are strict-liability offences from which there is no defence.

Please contact any of the members of the team for further information.

 

 

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