Singapore Company Directors’ Fiduciary Duties and Responsibilities

July 20, 2024

Co-authored by Seah Choon Hong Henry and Mok Heng Wah

Introduction

The role of a director in a company, particularly in Singapore, comes laden with significant legal and ethical responsibilities. These responsibilities, rooted in the fiduciary duties outlined under the Companies Act 1967 (the “Act”), are pivotal for the governance and health of a company. Over recent years, specifically in 2023 and 2024, there have been numerous cases where directors faced severe penalties, including criminal charges and imprisonment, for failing to uphold these duties. To be more precise, many of these directors charged are directors on non-listed companies and they are often, acting as “Nominee Directors” for the companies they served as board members.

This article delves into the intricacies of these fiduciary duties, explores recent legal cases that underscore the importance of adherence, and elaborates on the unique responsibilities of nominee directors. The additional requirements for listed company board and directors specified under SGX Listing Rules and Securities and Future Act are not discussed here.

 

A. Fiduciary Duties of Directors under the Companies Act 1967

The Section 157 of the Companies Act 1967 sets forth several fiduciary duties that directors must adhere to, ensuring the directors act in the best interests of the company and its shareholders. These duties include:

  1. Duty to Act in Good Faith:  Directors must always act honestly and prioritize the interests of the company over their personal gains. 
  2. Duty to Act with Due Care and Diligence: Directors are expected to exercise a level of care and diligence that a reasonable person would exercise stay informed about the company’s operations and financial status.
  3. Duty to Avoid Conflicts of Interest: Directors should manage and disclose any potential conflicts between their personal interests and those of the company. 
  4. Duty Not to Gain Personal Advantage from Position: Directors should not exploit their position for personal gain. 
  5. Duty to Not Engage in Insider Trading: Directors should avoid using confidential information garnered through their position to gain an unfair advantage in trading shares or other securities.
  6. Duty of Loyalty and Obedience: Directors must act within the scope of their authority as defined by the company’s constitution and should follow legal and regulatory mandates.

By complying with these duties, directors not only ensure the company’s interests are safeguarded but also uphold the integrity and trust in corporate governance.

In 2023 and 2024 we have seen several high-profile cases where directors faced severe consequences for breaching their fiduciary duties. These cases serve as stern reminders of the critical importance of these responsibilities.

Case Study 1: Misuse of Company Funds (2023)

In one significant case in 2023, a director was charged with misuse of company funds for personal investments. The individual diverted substantial sums of money without proper authorization and failed to disclose these transactions to the board and shareholders. The court found the director guilty of breaching their duty to act in good faith and for proper purposes. Consequently, the director faced heavy fines and a prison sentence, serving as a stringent example of the repercussions of such breaches.

Case Study 2: Neglect of Oversight Responsibilities (2024)

Early in 2024, another landmark case involved a group of directors who were prosecuted for failing to exercise due care and diligence in their oversight responsibilities. These directors inadequately supervised the company’s management, leading to substantial financial mismanagement and losses. The court emphasized their neglect and failure to act diligently, holding them accountable for the damage caused. The verdict included significant fines and, in some instances, imprisonment, reiterating the importance of due diligence.

Case Study 3: Conflict of Interest (2024)

Later in 2024, a director was found guilty of failing to disclose a conflict of interest where they had an undisclosed financial stake in a business that entered a lucrative contract with their company. This breach highlighted the duty to avoid and disclose conflicts of interest. The director faced both reputational damage and legal penalties, underscoring the importance of transparency and disclosure in maintaining fiduciary duties.

B. Responsibilities of Nominee Directors

In addition to the general fiduciary duties, nominee directors – those appointed to represent the interests of a specific stakeholder, such as a major shareholder or another company – have specific responsibilities that are equally critical.

  1. Balancing Duties: Nominee directors must balance their fiduciary duties to the company and cannot act solely for the benefit of their appointer.  
  2. Duty of Disclosure: Nominee directors have a duty to disclose their status as nominees to the board of directors and ensure that decisions are not unduly influenced by their appointers. .
  3. Maintaining Independence: Even though nominee directors represent specific interests, they must maintain a level of independence in their judgment. 
  4. Legal Compliance and Due Diligence: Nominee directors, like all directors, must ensure compliance with legal standards and regulations. 

    Case 1 – Money Laundering Involvement

    In April 2024, Mister A that acted as director for 380 companies in Singapore was charged to pay a fine of S$8,500 after two companies he has assisted to incorporate in Singapore were found to be involved in money laundering.  He also was charged for abetting Mr B to act as director and resulting in Mr B’s failure to exercise due diligence in the discharge of director’s duties under the Act.  Mr B was paid by A to act as director of 186 companies where some entities had transacted money from scam victims.  Mr B was charged in 2023 with a S$4,000 fine.

    Case 2 – Scam Proceeds Involvement

    Madam C was fined S$3,000 in January 2024 for failure to discharge reasonable due diligence as a director and did not exercise supervision over the company affairs where she was a director. Madam C was asked by an acquittance to act as nominee director for a new company to be incorporated. During her tenure as nominee director, Madam C did not actively engage the company and its management and perform oversight checks on the company’s financial affairs. The company had received more than S$620,000 of scams proceeds during the same period.

    C. Strategies for Complying with Fiduciary Duties

    Given the severe consequences of breaching fiduciary duties, nominee directors must adopt strategies to ensure compliance and uphold their responsibilities.

    1. Regular Training and Education – Directors should engage in ongoing training and education to stay updated on regulatory changes, corporate governance best practices, and industry developments. 
    2. Establishing Robust Governance Frameworks – Implementing comprehensive governance frameworks can help directors monitor and manage risks effectively. 
    3. Seeking Professional Advice – Directors should not hesitate to seek professional advice when faced with complex legal, financial, or ethical decisions. 
    4. Clear Conflict of Interest Policies – Developing and enforcing clear conflict of interest policies can help directors navigate potential conflicts. 
    5. Board Evaluations and Self-Assessments – Regular board evaluations and self-assessments can provide directors with feedback on their performance and highlight areas for improvement. 

     

    Conclusion

    Fiduciary duties under the Singapore Companies Act 1967 are fundamental principles that all directors (including nominee directors) must comply with. 

    Directors can consider for ongoing education, review governance frameworks, obtain professional advice, and regular evaluations, to ensure they comply with their fiduciary duties and avoid legal repercussions.

    Ultimately, adhering to these duties is not only a legal obligation but also a cornerstone of ethical business practice. Through vigilant compliance and a commitment to good governance, directors can safeguard their companies’ success and their professional reputations.

     

    #incorporate #incorporation #incorporationsingapore #nomineedirectors #directors #companysecretary #CSPs

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