• What would Happen if Directors’ Breach their Duty

If director’s breach their duty, the company can decide to sue for damages, claim compensation, face removal or criminal fines and more.

Before we go into that, let’s understand that company directors are personnel elected or appointed to manage a company’s business and affairs. The person that assists a director with their duties are usually a company secretary.

A Director’s Duties will include:

It is required for one director to act honestly, in the best interests of the company, and with reasonable care always. The consequences of a breach of directors’ duties can be detrimental.  A shareholder, creditor or even the company can bring proceedings against a director personally for a breach of any of their duties, provided loss or damage was caused as a result of a breach.

  • Reviewing and implementing policies and decision making of the company
  • Preparing and filing statutory documents with the company secretary
  • Calling for meetings (EGM and AGM)
  • Maintaining and keeping records of companies binding the company to contracts with suppliers, debtors, creditors, etc.
  • Being the middle man when dealing with suppliers, debtors, creditors, etc.
  • Dealing with the company’s constitution

In terms of annual compliance, this article on Annual Compliance with ACRA Singapore elaborates.

Types of a Directors’ Breach

As the saying goes, with great the power comes great responsibilities. The same can be said of directors come certain provisions in the Companies Act, when defining offences and breaches and their corresponding penalties. If breached, companies and authorities are to deal with the via common law.

A breach might include:

  • Failing to act honestly and use reasonable diligence at all time during the discharge of the duties. (Section 157(1) of the Companies Act)
  • Made information given in an improper manner by virtue of his position at the time of offence, to gain, directly or indirectly, an advantage for himself or any other person or cause detriment to the company. This is violating Section 157(2) of the Companies Act as well as common law.
  • Failing to disclose potential conflicts of interest in any transaction, or else arising from his or her position. (Section 156(10) of the Companies Act).

If the above takes place, as such, it is the company, through its board of directors (and/ or shareholders) that decides whether to act against the director. If a director breaches his duties, the company can do any of the following:

  • Sue for damages, or a fine of up to SG$5,000 or to imprisonment for up to one year.
  • Demand the return of a secret profit or specific property
  • Declare the act invalid
  • Removal from office
  • Setting aside transactions
  • Claim damages or compensation for financial losses incurred
  • Criminal fines

Foreign directors face more severe consequences

On top of all the above, a foreign director holding a work visa such as an Employment Pass (EP) or Entrepreneur Pass (EntrePass) would have even more to lose. In the simplest cases, you’re just paying a fine. In the worst, your work visa is cancelled and you might have lower success rates of obtaining a new work visa due to the stained history.

The quiet danger is in the annual compliance of a company like your annual general meeting and filing your annual returns with ACRA. In missing deadlines (usually 6 months after your financial year end), you might be barred entry or exit into or out of Singapore unless you pay the fines.

How to prevent a director’s breach of duty

You can prevent a director’s breach of duty by getting a reliable company secretary. A company secretary in Singapore has very minimal requirements, leading many companies to simply appoint any local. Instead, you should hire someone reliable.

The best things to look out for in a company secretary:

  • Have a local office that can deal with officers
  • Experienced in the field with insight and foresight to solve problems
  • Well versed in Companies Act
  • Qualified company secretary, usually an accountant or lawyer, so that they can certify your documents too

Your company secretary would be able to advise you of regulatory requirements and remind you of deadlines. You can read this article on Requirements of a Company Secretary for more information.

Changes for a Directors’ Breach of Trust

Various rights also exist against directors under the Singapore Companies Act. Other possible offences include criminal and civil violations. In this case, a director would have to be subject to be charged under Singapore Common Law procedures for criminal and/ or civil offences.

The consequences of the charges imposed, if taken to court; upon directors for these breaches are usually claimed in damages representative of the director loss and the prospective loss.

It is not uncommon for a director to be pursued personally, be dismissed from the company and that such proceedings lead to a loss of his property and ultimately, becoming declared bankrupt directly as a result of the mentioned circumstances.

As such, it is extremely important for foreign directors to have a local company secretary advising them of proper regulations.

FAQs

Is the company secretary and corporate secretary the same?2021-01-07T09:55:41+08:00

No, a corporate secretary manages all the administrative tasks of a company while a company secretary serves as a legal advisor for a company.

Is Company Secretary mandatory in Singapore?2021-01-07T09:55:11+08:00

Yes, every company needs to appoint a company secretary in Singapore.

What does ‘company secretary’ mean?2021-01-07T09:54:52+08:00

A company secretary is usually appointed by a director or director of a company. His primary duty is to take on some of the directors’ responsibilities and to reduce their workload. They can prove to be useful in ways such as keeping and filing statutory registers and company records. Aiding the directors when needed is also the job of the Singapore company secretary.

Must the Company Secretary a local resident of Singapore?2021-01-07T09:52:25+08:00

Yes, the company secretary must be a local resident of Singapore.

Is the company secretary and corporate secretary the same?2021-01-04T12:51:13+08:00

No, although they are both secretaries, but they have entirely different responsibility. A corporate secretary manages all the administrative tasks of a company while a company secretary serves as a legal advisor for a company.

Where can I find reliable company secretarial services in Singapore?2021-01-04T12:50:45+08:00

Paul Hype Page is a professional chartered accountant firm. It would be our pleasure for our accountants to serve as your company secretary.

What is the market price if I need to engage with company secretarial services in Singpore?2021-01-04T12:50:06+08:00

The company secretary service provided by Paul Hype Page is super affordable – as low as S$600 per annum

Must the Company Secretary a local resident of Singapore?2021-01-04T12:45:23+08:00

Yes, the company secretary must be a local resident of Singapore, which means he/she must be either a Singaporean or a PR.

How to claim for tax exemption?2020-06-23T13:07:45+08:00

You are required to make a declaration in your income tax returns by giving the nature and amount of the foreign-sourced income that was remitted to Singapore. You are also required to complete the Declaration Form for Foreign-Sourced Income Received in Singapore From 22 Jan 2009 to 21 Jan 2010 (60KB) for submission to IRAS. Although you have to state the use of the foreign income in the declaration form, the usage of such foreign income will not affect the claim for tax exemption.

How to Register a Company in Singapore?2020-06-23T13:07:24+08:00

The Singapore company registration process is fully computerized and executed by ACRA. The process of company incorporation typically takes between one and two days to complete. To register a business, the applicant must log in to BizFile+ using an ID number and SingPass. Those who do not have a SingPass can use the services of a filing agent from an accounting, law, or corporate secretarial firm.

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