Singapore Company Law

COMPANY LAW: CONFLICT OF DUTY AND INTEREST– CONTRACT WITH COMPANY

This question involves the breach of the director’s Fiduciary Duties under the Conflict of Duty and Interest heading, and more specifically the Contract with Company heading and also, a director’s Statutory Duties.

Section 156 of the Companies Act provides that a director must disclose his interest in any contract made by the company. Non-disclosure will render the contract liable to be avoided by the company. In the case of Aberdeen Railway Co. v Blaikie Bros. (1854) the court held that the company could avoid the contract because there was a conflict of duty and interest. In this scenario one of the directors, Keith, owns a large portion of X Pte Ltd’s shares. Hence, Keith can be sued by the company and it is most likely that the court will allow RacKeith Pte Ltd to set aside and avoid the contract.

Section 156(1) of the Companies Act states that when a company enters into a contract and a director has directly or indirectly an interest in that contract, he must declare the nature of his interest at the meeting of directors.

Section 156(2) states that interest shall be taken to mean material interest
Section 156(3) states that there will be no interest deemed only
(a) In a case where the contract in question relates to a loan to the company and he has guaranteed repayment of that loan; or
(b) Where the contract is made for the benefit or on behalf of a related company and he is a director of that related company
However, subsection 3 will not affect the operation of any provision in the articles of the company.

Section 156(4) provides that a general notice given to the directors of a company shall be deemed to be a sufficient declaration of interest in relation to any transaction so made if
(a) The notice states the nature and extent of the interest of the director in the corporation of firm
(b) His interest in that corporation or firm is no greater than that stated in his notice at the time of the contract
(c) The notice is given at a meeting of the directors or the director takes reasonable steps to ensure that it is brought up and read at the next board meeting after it is given.

Section 156(5) provides that if a director holds any office or possesses any property which might conflict with his duties and interest as a director, he must declare at a meeting of the directors of the company of the fact, nature, character, and extent of the conflict.
Section 156(6) states that the declaration must be made at the first meeting of directors held
(a) After he becomes a director; or
(b) If already a director, after he commenced to hold the office or to possess the property.

Section 156(7) states that the company secretary is obliged to record every such declaration in the minutes of the meeting at which it was given.

Section 156(8) states that an interest of a member of a director’s family shall be treated as an interest of the director and the words “member of a director’s family” shall include his spouse, son, adopted son, step-son, daughter, adopted daughter and step-daughter.

Section 156(9) states that the section shall be in addition to and not in derogation of the operation of any rule of law or any provision in the articles

Section 156(10) states that any director of a company who fails to comply with any of the provisions of section 156 shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding 12 months. Thus, it is likely that Keith will be guilty of this criminal offence due to his position as a director and his contravening of the Companies Act.

COMPANY LAW: CONFLICT OF DUTY AND INTEREST – ABUSE OF CONFIDENCE

This question involves the breach of the director’s Fiduciary Duties under the heading of Abuse of Confidence and also, a director’s Statutory Duties.

Directors cannot use for their own purposes anything entrusted to them for use on behalf of the company. This principle applies to property, trade secrets, and confidential information (e.g. lists of customers). Thus, Jane had breached this duty by making use of the company’s list of customers for her own personal use and can be sued by X Pte Ltd. The fact that the company suffers no damage is irrelevant.

Section 157(1) of the Companies Act states that A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office

Section 157(2) of the Companies Act also states that an officer or agent of a company shall not make improper use of any information acquired by virtue of his position as an officer or agent of the company to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the company.

Section 157(3) provides that an officer or agent who commits a breach of any of the provisions of Section 157 shall be
(a) Liable to the company for any profit made by him or for any damage suffered by the company as a result of the breach
(b) Guilty of an offence and shall be liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding 12 months.
In the scenario, Jane had contravened Section 157 of the Companies Act and will thus be guilty of a criminal offence.

CONFLICT OF DUTY AND INTEREST – SECRET PROFITS

This question involves a director’s Fiduciary Duties under the heading of Secret Profits.

Directors, being fiduciaries, cannot use their position to make a personal gain without the assent of the company. In the cases of Regal Hastings Ltd v Gulliver (1942), Canadian Aero Service Ltd v O’Malley (1973) and Industrial Development Consultants Ltd v Cooley (1972), the court held that the directors had used and acted upon their exclusive knowledge acquired as such directors and by reason of their position and actions they were liable to account their profits to the company. In the scenario, Tien had used a business plan developed for the company that was rejected by the board for his own benefit. Thus, it is likely that Tien will be liable for such a breach in his Fiduciary Duties and will have to pay damages to the company.

However, it should also be noted that in the case of Peso Silver Mines v Cropper (1966), the court held that since the information used by the director was not confidential and was freely available, there was no breach of the director’s duties. Thus, in the less likely case that Tien could prove that the business development plan did not arise out of his position as a director, i.e. if it was an existing public idea, it would be possible that he would not be liable for a breach in duty.

In either case, it would have been a better action to confirm the permission of the company for the director to use information for his own at a general meeting as that would not have breached any director’s duty.

CONFLICT OF DUTY AND INTEREST – COMPETITION

Additionally, a director of one company is at liberty to become a director of a rival company so long as he does not divulge confidential information. (PAGE 37)

COMPANY LAW – CARE AND SKILL

This question involves a director’s duties of Care and Skill and director’s disqualifications under company law.

Robert has been busy playing golf in the law few months and had presumably failed to attend board meetings during this period.

In Article 72(g) of Table A under the Companies Act, a person may be disqualified from acting as a director if he is absent without permission from the director’s meetings for more than 6 months. Thus, it would need to be known whether Robert had missed the director’s meetings for more than 6 months when he was busy playing golf. If that was the case and Robert did not have permission to miss the meetings, he would likely be disqualified as a director.

However, it must also be noted that under the Care and Skill heading of a director’s duties, a director is not bound to attend all board meetings but should attend whenever in the circumstances he is reasonably able to do so subject to the company’s own articles of association.

In the case of Re Cardiff Savings Bank (1982), often called the Marquess of Bute’s case, the court held that the director who attended only one board meeting in thirty eight years escaped liability for irregularities which occurred in the lending operations of the bank.

In the case of Re Denham & Co. (1883), the court held that the director who had not attended a board meeting in four years was not liable in negligence for losses suffered by the company as a result of other directors’ fraud.

In the case of Re City Equitable Fire Insurance Co. (1925), the court held that “a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.”

Thus, for Robert, it would be necessary to evaluate the circumstance under which he had been absent from the board meetings. If there was a good excuse like it was part of a director’s job in the company to play golf and it was reasonable for Robert to have missed the meetings, the court might find Robert to have still discharged properly his duties to the company.

COMPANY LAW – DIRECTOR’S DISQUALIFICATION

This question involves director’s disqualifications under company law.

PERSISTENT DEFAULTER
Section 155 of the Companies Act provides that a person is disqualified from acting as a director without the leave of court if he is guilty of persistent default in the filing of returns.
Section 155(3) states that a person is ‘persistently in default’ if he is convicted of 3 or more offences for failing to file the returns with the Registrar of Companies or if there are 3 or more orders made against him under Sections 13 and 399 of the Companies Act. The disqualification runs for a period of 5 years.
Thus Rachel and Keith, having failed to file their annual returns for the past 3 years which amounts to 3 offences, would be disqualified from acting as directors of RacKeith Pte Ltd.

Section 155(8) states that a criminal offence is created for persistent defaulters who act as directors of a company. On conviction, the disqualified person is liable to imprisonment for a term not exceeding 2 years or to a fine not exceeding $10,000 or to both.
Being directors of the company, Rachel and Keith would both be liable of this criminal offence.

However, Section 155(9) provides that it is possible for the disqualified person to apply for leave of court to lift the disqualification under reasonable circumstances.
Rachel and Keith would be able to apply to lift the disqualification if they are able to supply a valid reason.

OVER 70 YEARS OLD
For private companies there is no limit to the age of a director. Thus, for the case of Kami Pte Ltd, George will be able to carry on acting as a director subject to the approval of the shareholders at the next general meeting.

Section 153 of the Companies Act states that a person who is 70 years and above cannot be appointed director of a public company or a subsidiary of a public company.
Due to this, George will not be able to continue acting as a director if it was a public company.

However, Section 153(6) states that such persons may be appointed or re-appointed as director if certain statutory requirements as to his appointment are complied with, for example, the resolution approving such an appointment must be passed by a three-fourths majority.
Therefore, if George is able to get the approval of the majority by an ordinary resolution passed at an annual general meeting, he could be re-appointed as a director of a public company for one more year regardless of his age.

BANKRUPTCY
Section 148 of the Companies Act states that an undischarged bankrupt (whether he was adjudged bankrupt by a Singapore Court or a foreign court having jurisdiction in bankruptcy), cannot act as a director or take part in the management of any corporation except with the leave of the Court. The maximum penalty is 2 years imprisonment or a fine not exceeding $10,000.

DIRECTOR OF INSOLVENT COMPANY
Section 149 of the Companies Act states that the court will make a disqualification order if the person is or has been a director of a company which had gone into liquidation and was insolvent while he was a director or within 3 years of his ceasing to be a director AND that his conduct as director of that company makes him unfit to be a director or take part in the management of a company.
A disqualification order can extend up to 5 years.
Any person who contravenes a disqualification order made under Section 149 will be guilty of an offence and liable on conviction to a fine not exceeding $10,000 or to imprisonment not exceeding 2 years or both.

COMPANY LAW – DIVISION OF POWERS BETWEEN THE BOARD AND THE GENERAL MEETING

This question involves the division of powers between the board of directors and the general meeting.

In Article 73, Table A, Fourth Schedule of the Companies Act reads as follows:
“The business of a company shall be managed by the directors who… may exercise all such powers of the company as are not, by the Act or by these Regulations, required to be exercised by the company in general meeting…”

Where powers have been vested in the board, the general meeting cannot interfere with their exercise. The Shareholders in general meeting cannot give directions on how the company’s affairs are to be managed nor can they overrule any decision made by the directors in the conduct of its business unless there is an exception in the company’s articles.

However, the general meeting retains ultimate control through its power to amend the articles and to remove the directors and substitute others more to its liking.
Thus the shareholders would be able to appoint Eddie to be the financial controller by amending the articles of association of X Pte Ltd.