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Directors’ Duties in Singapore: Law and Perceptions

  • Pearlie KOH (a1) and Hwee Hoon TAN (a2)

Abstract

It is trite that the law on directors’ duties is an important part of corporate governance. It is therefore unsurprising that a large part of extant research in the area is focused on understanding what the law requires, and how it applies or should apply in any particular situation. Such research is however largely reactive. In our research, we set out to look at duties from the perspective of the directors, with a view to appreciating how Singapore directors understand the law as it applies to them. The impetus for this is three-fold: first, to assess the depth of awareness amongst directors of the law on directors’ duties; second, to ascertain if there is any divergence between the law’s conceptualization of what is in the company’s interests, and the director’s own view as to how he or she would act in fact; and third, and flowing from the preceding, to assess the need for providing or improving knowledge enhancement courses targeted specifically at company directors. To collect the necessary data, we reached out to registered company directors of both listed companies and private companies to complete a survey. We released the survey online, and also conducted face-to-face interviews. Our article presents and analyzes the results of the survey.

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Copyright

Footnotes

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*

Advocate and Solicitor (Singapore). Associate Professor, School of Law, Singapore Management University.

**

Associate Professor, Lee Kong Chian School of Business, Singapore Management University.

Footnotes

References

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1. John Armour and others, ‘What is Corporate Law?’ in Reinier Kraakman and others (eds), The Anatomy of Corporate Law – A Comparative and Functional Approach (3rd edn, OUP 2017) 1.

2. ibid.

3. The authors identified five basic legal characteristics – legal personality, limited liability, transferable shares, delegated management, and investor ownership.

4. For an account of the historical origins of the board, see Baum, Harald, ‘The Rise of the Independent Director in the West: Understanding the Origins of Asia’s Legal Transplants’ in Dan W Puchniak, Harald Baum, and Luke Nottage (eds), Independent Directors in Asia – A Historical, Contextual and Comparative Approach (CUP 2017) 21, 2833 .

5. See eg Companies Act (Cap 50, 2006 Rev Ed), s 156 which obliges a director with a conflicting interest or duty to declare this at a board meeting or give written notice of the same to the company.

6. [2002] SGHC 193, [2002] 2 SLR(R) 848 [32].

7. Ho Kang Peng v Scintronix Corp Ltd [2014] SGCA 22, [2014] 3 SLR 329 [35], [42]; Townsing Henry George v Jenton Overseas Investment Pte Ltd (in liquidation) [2007] SGCA 13, [2007] 2 SLR(R) 597 [59].

8. Lim Weng Kee (n 6). In Falmac Limited v Cheng Ji Lai Charlie [2013] SGHC 113 [65], the Court, citing Tan Cheng Han (ed), Walter Woon on Company Law (rev 3rd edn, Sweet & Maxwell 2009) [8.13], accepted that the statutory duty of reasonable diligence also encompasses the common law duty of skill.

9. Lim Weng Kee (n 6) [22].

10. Tan (n 8) [1.50].

11. For a recent study on the prevalence of foreign citations by the Singapore courts, see Kwai Hang Ng and Brynna Jacobson, ‘How Global is the Common Law? A Comparative Study of Asian Common Law Systems – Hong Kong, Malaysia and Singapore’ (2017) 12 Asian Journal of Comparative Law 209.

12. CA, s 157(4).

13. CA, s 157(3)(b).

14. CA, s 154.

15. See eg Keay, Andrew, Directors’ Duties (3rd edn, LexisNexis 2016) ; Watts, Peter, Directors’ Powers and Duties (2nd edn, LexisNexis 2015) ; and Teele Langford, Rosemary, Directors’ Duties: Principles and Application (Federation Press 2014) .

16. See Majid, Abdul, Chee Keong, Low and Arjunan, Krishnan, ‘Company Directors’ Perceptions of their Responsibilities and Duties: A Hong Kong Survey’ (1998) 28(1) Hong Kong Law Journal 60 ; Nariman Mohd Sulaiman, Aiman and Jamaliah Wan Jusoh, Wan, ‘Duty of Care, Skill and Diligence: A Survey on Non-executive Directors in Public Listed Companies in Malaysia’ (2005) 1(2) Corporate Governance Law Review 305 ; Marshall, Shelley and Ramsay, Ian, ‘Stakeholders and Directors’ Duties: Law, Theory and Evidence’ (2012) 35(1) University of New South Wales Law Journal 291 .

17. Company Law Review Steering Group, Modern Company Law for a Competitive Economy: Developing the Framework (London, HMSO, 2000) para 3.37; Law Commission and Scottish Law Commission, Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties (Law Com No 261, Scot Law Com No 173, 1999) paras 4.25–4.26 and Appendix B.

18. Scintronix (n 7).

19. As the court noted in Scintronix (n 7) [32].

20. ibid [34].

21. ibid [37].

22. ibid [40].

23. ibid [39].

24. ibid [38].

25. There was no appeal against the finding that the director had breached his fiduciary duty in failing to obtain board approval for the remuneration paid to certain contracted advisers: ibid [4].

26. It may well be that it was the legal advisers who took the view that the director had not acted in breach, and hence advised the appeal on that basis, a point that was insightfully made by Professor Dan W Puchniak, Faculty of Law, National University of Singapore (15th Asian Law Institute Conference, ‘Law into the Future: Perspectives from Asia’, Seoul, 10–11 May 2018). An earlier version of this article was presented at the conference.

27. Re Smith and Fawcett, Limited [1942] 1 Ch 304 (CA) 306 cited by the Singapore Court of Appeal in, inter alia, Cheong Kim Hock v Lin Securities (Pte) (in liquidation) [1992] SGCA 17, [1992] 1 SLR(R) 497 [26]; Goh Chan Peng v Beyonics Technology Ltd [2017] SGCA 40, [2017] 2 SLR 592 [35].

28. [2011] FCA 717, (2011) 278 ALR 618.

29. Domini Stuart, ‘Centro: A Year On’ (Company Director Magazine, 1 August 2012) <www.companydirectors.com.au/director-resource-centre/publications/company-director-magazine/2012-back-editions/august/feature-centro-a-year-on> accessed 14 December 2018.

30. Healey (n 28) [220].

31. Australian Corporations Act 2001 (Cth), s 180.

32. Healey (n 28) [16]–[17].

33. CA, s 201(16). See also Australian Corporations Act 2001 (Cth), s 295(4).

34. The Australian Uniform Companies Act 1961 was in turn largely based on Companies Act 1948 (UK): see generally Harold AJ Ford, ‘Uniform Companies Legislation’ (1962) 4 University of Queensland Law Journal 133.

35. Austin, Robert P and Ramsay, Ian M, Ford, Austin and Ramsay’s Principles of Corporations Law (17th edn, LexisNexis Butterworths 2018) [8.305.3].

36. It has been held that these standards are the same as the standards applied at common law: Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 16 ACSR 607 (New South Wales Court of Appeal). See generally Austin and Ramsay (n 35) [8.305.6].

37. Lim Weng Kee v PP (n 6) [28]. This was recently affirmed by the Court of Appeal in Ho Yew Kong v Sakae Holdings Ltd [2018] SGCA 33, [2018] 2 SLR 333 [137].

38. Adapted from Mayer, Roger C and Gavin, Mark B, ‘Trust in Management and Performance: Who Minds the Shop While the Employees Watch the Boss?’ (2005) 48(5) Academy of Management Journal 874 .

39. [2006] SGHC 38, [2006] 2 SLR(R) 307.

40. See also Kuwait Asia Bank EC v National Mutual Life Nominees Limited [1990] UKPC 23, [1991] AC 187.

41. Mayer and Gavin (n 38).

42. (n 27) 306.

43. Also referred to as ‘shareholder primacy’: D Gordon Smith, ‘The Shareholder Primacy Norm’ (1998) 23(2) Journal of Corporation Law 277, 278.

44. Accordingly, as Sir James Wigram VC noted, the board was ‘always subject to the superior control of the proprietors assembled in general meetings’: Foss v Harbottle (1843) 2 Hare 461, 67 ER 189 (Court of Chancery) 203.

45. In Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 (CA) 291, Evershed MR opined that ‘the phrase, “the company as a whole”, does not … mean the company as a commercial entity distinct from the corporators. It means the corporators as a general body’. See also Parkinson, JE, Corporate Power and Responsibility – Issues in the Theory of Company Law (OUP 1993) 7576 ; Berle, Adolf A Jr and Means, Gardiner C, The Modern Corporation and Private Property (1st edn, Macmillan 1932) 335 .

46. CA, s 26.

47. CA, ss 176 and 183.

48. Raffles Town Club Pte Ltd v Lim Eng Hock Peter [2012] SGCA 62, [2013] 1 SLR 374.

49. As Nourse LJ observed in Brady v Brady [1988] BCLC 20 (CA) 40.

50. Raffles Town Club Pte Ltd v Lim Eng Hock Peter [2010] SGHC 163 [162] (on appeal: Raffles Town Club Pte Ltd v Lim Eng Hock Peter (n 48)).

51. Brady v Brady (n 49) 40; Greenhalgh v Arderne Cinemas Ltd (n 45) 291.

52. Gaiman v National Association for Mental Health [1971] Ch 317 (Ch) 330.

53. We thank Associate Professor Umakanth Varottil, Faculty of Law, National University of Singapore for this observation.

54. Marshall, and Ramsay, (n 16), 291 .

55. ibid.

56. ibid 304.

57. (n 50) [162].

58. Mutual Life Assurance Co of New York v Rank Organisation Ltd [1985] BCLC 11 (Ch) 21; Re BSB Holdings Ltd (No 2) [1996] 1 BCLC 155 (Ch) 249.

59. ibid.

60. (n 50) [163].

61. CA, s 159.

62. See eg Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] SGCA 142, [1994] 3 SLR(R) 1064.

63. [2003] SGHC 298, [2004] 1 SLR(R) 105 [49].

64. [2004] SGHC 158, [2004] 4 SLR(R) 162 [17].

65. [2010] SGCA 31, [2010] 4 SLR 1089.

66. ibid [48].

67. See further Chip Thye Enterprises Pte Ltd (in liquidation) v Phay Gi Mo [2003] SGHC 307, [2004] 1 SLR (R) 434; Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 (New South Wales Court of Appeal) 730; Winkworth v Edward Baron Development Co Ltd [1987] 1 All ER 114 (HL) 118; West Mercia Safetywear Ltd v Dodd [1988] BCLC 250 (CA) 252–53; Brady v Brady (n 49) 40.

68. CA, s 328.

69. Hellard v Carvalho; In the Matter of HLC Environmental Projects Ltd (in liquidation) [2013] EWHC 2876 (Ch) [92].

70. Scintronix (n 7) [40].

71. [1995] 2 NZLR 30 (Auckland High Court) 94–95.

72. [1965] 1 MLJ 60 (SGHC).

73. Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 (CA) 637 (Upjohn LJ).

74. [1959] AC 324 (HL).

75. ibid 366. It should however be noted that the decision in Scottish Co-Operative was not, in fact, concerned with the imposition of liability on the directors. Instead, the finding that the directors had preferred the interests of their appointor supported a conclusion that the affairs of the company had been conducted in a manner oppressive to some of the members of the company, which entitled the minority shareholders to a remedy under Companies Act 1948 (UK), s 210.

76. Defined in the survey as someone ‘appointed to the board of a company to represent the interests of the appointor’.

77. (n 39).

78. CA, s 201(16).

79. [1925] Ch 407 (CA) 428.

80. See CA, s 339(3).

81. [1994] 1 BCLC 561 (Ch) 563.

82. Insolvency Act 1986 (UK), s 214.

83. Australian Securities and Investments Commission (ASIC) v Rich (2009) 75 ACSR 1 (New South Wales Supreme Court) [7205].

84. In Healey (n 28) [124], it was held that the objective duty of skill or competence required the directors to have the ability to read and understand financial statements, and that this included the understanding that financial statements classify assets and liabilities as current and non-current and what those concepts mean. However, in ASIC (n 83), Austin J thought that for non-executive directors, the objective duty of skill may not extend much beyond reading and understanding financial material.

85. Francis v United Jersey Bank 432 A 2d 814 (NJ 1981) 812.

86. Daniels (n 36) 668.

87. This view of the obligations imposed on directors was approved and adopted by the Singapore High Court in Lim Weng Kee (n 6).

88. Lim Weng Kee (n 6) [28].

89. Vita Health Laboratories (n 64) [20].

90. ibid.

91. Healey (n 28).

92. ibid [16].

93. ibid [17], referring specifically to the Australian Corporations Act 2001 (Cth), s 295(4).

94. ibid [124].

95. ibid [175].

96. Abdul Majid, Low Chee Keong and Krishnan Arjunan (n 16) 79.

97. Aiman Nariman Mohd Sulaiman and Wan Jamaliah Wan Jusoh (n 16).

98. The authors of the respective studies noted as much: see Abdul Majid, Low Chee Keong and Krishnan Arjunan (n 16) 88; Aiman Nariman Mohd Sulaiman and Wan Jamaliah Wan Jusoh (n 16) 316–17.

99. ACRA, ‘Preparing Financial Statements: Directors’ Duties in relation to Financial Reporting’ (ACRA) <www.acra.gov.sg/components/wireframes/howToGuidesChapters.aspx?pageid=1645#1807> accessed 14 December 2018.

100. Mayer, Roger C, Davis, James H and David Schoorman, F, ‘An Integrative Model of Organizational Trust’ (1995) 20(3) Academy of Management Review 709 .

101. ibid 712.

102. ibid 717.

103. ibid 718.

104. ibid 719.

105. Colquitt, Jason A, Scott, Brent A and LePine, Jeffrey A, ‘Trust, Trustworthiness, and Trust Propensity: A Meta-Analytic Test of Their Unique Relationships With Risk Taking and Job Performance’ (2007) 92(4) Journal of Applied Psychology 909 .

106. Westphal, James D, ‘Collaboration in the Boardroom: Behavioural and Performance Consequences of CEO-Board Social Ties’ (1999) 42(1) Academy of Management Journal 7 .

107. See eg Boone, Audra L and others, ‘The Determinants of Corporate Board Size and Composition: An Empirical Analysis’ (2007) 85(1) Journal of Financial Economics 66 .

* Advocate and Solicitor (Singapore). Associate Professor, School of Law, Singapore Management University.

** Associate Professor, Lee Kong Chian School of Business, Singapore Management University.

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Asian Journal of Comparative Law
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