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
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.