Our Corporate & Commercial Lawyers

Trident Law Corporation’s Corporate Team

Our corporate team was placed in the highest band (5-stars) in a survey of Singapore law firms jointly conducted by Statista/The Straits Times. Led by the indomitable and seasoned Tara Heng, we have an active practice serving clients across various industries and sectors including FinTech, MedTech, MAS-regulated entities, private equity firms, startups and conventional businesses.

Year to date, Trident Law has advised and assisted in the incorporation of no less than four (4) Variable Capital Companies, a Capital Market Services Licensee and a Trust Business Licensee.

At Trident Law, we believe in immersing ourselves in our clients’ business to provide our clients with prompt, bespoke and commercially sensible legal advice. Simply put, our clients’ business is OUR business.

In addition to FinTech, capital markets and financial services work, our corporate team also handles general corporate work encompassing corporate regulations as well as commercial agreements, including but not limited to reviewing and drafting of shareholders agreements, debt instruments, employment contracts, distribution/outsourcing agreements, as well as competition law advice.

Team Members

ABOUT OUR CORPORATE LAWYERS

Corporate and Commercial work is not merely a matter of legal expertise – a firm grasp of the realities of the commercial world is often equally important.

Having garnered a wealth of experience from numerous industries and practice areas as a corporate law firm, our corporate lawyers are well placed to work with you to grow and safeguard your commercial businesses. As we are strong proponents of bespoke solutions, we are committed to first understanding your business philosophies and strategies. Our corporate lawyers would then offer customised and practical solutions aligned to your business philosophies and strategies. A testament to this commitment is our roster of long-standing clients who have followed our corporate lawyers for years and, in some cases, even decades.

COMMERCIAL TRANSACTIONAL WORK

We advise on a wide range of commercial transactions from mergers and acquisitions, equity, and debt financing to multi-party regional joint ventures.

Our thorough and thoughtful due diligence exercises have often uncovered concealed landmines which we then manoeuvre through deftly with our clients, remembering always that we are here to facilitate and not frustrate a deal.

Our commercial lawyers have exhaustive experience in negotiating and drafting transactional agreements. These include subscription agreements, joint venture agreements, and sale and purchase agreements relating to goods and services across a wide range of industries from fashion to finance.

Of particular note is our expertise in technology-related goods and services. Our commercial lawyers are able to advise clients on all aspects of the law relating to the provision of technology-related services, the commercial exploitation of technology and technology-related assets, and potentially contentious transactions regarding technology-related issues. We have, among others, been involved in transactions for Industry Machinery, Integrated Circuit Boards, Electronic Devices, and the provision of IT Infrastructure for businesses operating in the financial sector.

REGULATORY COMPLIANCE AND CRISIS MANAGEMENT

Trident Law Corporation’s exposure to regulatory compliance and crisis management is undoubtedly unique among boutique law firms in Singapore.

Given our extensive experience with both white and blue-collar criminal work, Trident Law Corporation is well equipped to advise clients on a broad spectrum of regulatory issues. Our commercial lawyers have dealt with regulators on our client’s behalf on numerous occasions and have been known for our holistic, unconventional, and creative approach to solving regulatory problems.

We also provide advice on regulatory risk management – in particular, we have advised our clients on the creation and maintenance of internal compliance procedures. However, even the most stringent risk management regime can never be fool-proof. In such circumstances, Trident Law Corporation also does crisis management for our clients, be it suspected internal fraud, regulatory breaches, or criminal investigations.

THE FINANCIAL SECTOR

We have significant experience in the Capital Markets and have advised our clients on the requirements regarding the provision of securities, derivatives, and other capital instruments to private investors.

We have also provided comprehensive advice to our clients in relation to the Monetary Authority of Singapore Act 1970, the Securities and Futures Act 2001, the Financial Advisers Act 2001, the Companies Act 1967, the Moneylenders Act 2008, and all related subsidiary legislation.

THE HOSPITALITY AND ENTERTAINMENT INDUSTRY

Trident Law Corporation has significant expertise advising clients in the Hospitality and Entertainment Industry. In this regard, our commercial lawyers have acted and continue to act for landmark hotels and renowned public entertainment establishments in Singapore and overseas. We have assisted our clients across all aspects of their hospitality and entertainment operations including licensing, tenancy, employment, and even internal restructuring.

CORPORATE STRUCTURING

We regularly assist our clients in setting up their businesses and are well placed to advise our clients on the most appropriate corporate structures for their business ventures. We have handled a broad variety of issues in this regard and have advised on shareholder and partnership arrangements, capital and asset management, and related IT and Intellectual Property issues.

CORPORATE INSOLVENCY

Trident Law Corporation also represents clients with respect to corporate insolvencies, debt restructuring, and dealing with issues regarding the enforcement of creditors’ rights. We have acted for both sides of the equation and leverage on our reservoir of expertise to negotiate and fight for favourable outcomes for our clients.

UNDERSTANDING COMPANY LAW

In Singapore, companies are mainly regulated by the Companies Act 1967 (the “Act”). However, certain kinds of Companies might, over and above the Act, also come under the purview of other Acts of Parliament. For instance, banks also come under the purview of the Banking Act 1970. A Limited Liability Partnership is, despite enjoying the benefits of being a partnership, still a “body corporate” that has a distinct legal personality separate from its partners. Limited Liability Partnerships also fall under the purview of the Limited Liability Partnerships Act 2007. Some provisions in other Acts of Parliament e.g. the Securities and Futures Act 2001 may also be applicable to Companies. Along with the Acts of Parliament (Statutes) and/or relevant provisions of the same mentioned above, the case (common) law remains applicable in the regulation of Companies.

The Accounting and Corporate Regulatory Authority is the relevant institution that registers businesses and ensures their compliance with the law. Hence, its website, accessible at www.acra.gov.sg, should be the first step for anyone who wants to do business in Singapore.

MAIN KINDS OF BUSINESSES

Sole Proprietorship
A sole proprietorship can only have a single owner. A sole proprietorship does not have its own distinct corporate personality that is separate from its owner. Hence, the owner is personally responsible for all the liabilities of the business, and profits generated will be included in the calculation of the owner’s personal income tax.

Partnership
A partnership is to have two or more partners. It does not have its own distinct corporate personality. For this reason, every partner is personally responsible for all the liabilities of the partnership, and profits generated will be included in the calculation of every individual partner’s personal income tax.

Limited Liability Partnership
A limited liability partnership is a fused entity. It has its own separate corporate personality and so there would not be any redress against each of the partners individually. However, the proceeds from the partnership would be included in the calculation of every individual partner’s personal income tax.

Company
Generally, a Company has its own separate corporate personality and usually redress is confined to its assets and property. In addition, unlike sole proprietorships and partnerships, its proceeds are taxed as a Company, at company income tax rates. A Company is required to have at least one member (whether an individual or corporate entity) and one Director who ordinarily reside in Singapore, with a registered office address (which can be a home office address).

Private Limited Company
A Private Limited Company is one that is limited by shares and has its own separate corporate personality from its members. It is seen as a taxable entity. Hence, members of a Private Limited Company are not personally responsible for its liabilities beyond the value of their respective share capital outlay.

Public Company
There are mainly two kinds of Public Company. The first kind is one that lists its shares on the stock exchange (SGX) and depends on capital from the public. Any person can purchase the Company’s shares and their price is set by market forces. A Public Limited Company is required to register its prospectus with the Monetary Authority of Singapore before making any public offers. Members’ liability to creditors is confined to the value of their respective capital that had been invested when the Company was formed.

The second kind of public company is one that is limited by guarantee. Such companies are usually used for charitable purposes, or to further national or public interests. No share capital is required. Members’ liability is confined to the amount they had agreed to provide to the Company’s assets in the event of the Company’s winding up. The amount would be set out in the Company’s Constitution.

INCORPORATION AND ITS EFFECTS

Generally, a business which has over 20 members has to be set up and registered as a company. However, this is not a rule for an association or partnership that is set up only or primarily to carry on in a profession which may be taken up by those who have the requisite qualifications under a written law. Accordingly, members of a particular profession that is regulated under a written law can set up a partnership that consists of over 20 partners. Otherwise, the rule mentioned above must be complied with under the Act.

REGISTRATION

Requirement to submit the Constitution of the Company
Generally, a person can register a company when s/he makes the payment of the relevant fee and submits the Constitution of the Company, along with other necessary documents requested by the Registrar. The Company’s Constitution must, among other requirements, set out the Company’s name, and if the liability of its members is limited or unlimited. If the Company is an unlimited one or limited only by guarantee, not limited by shares, the number of its members must be stipulated. In addition, the Company’s Constitution must include its Regulations.

The Minister can and has indeed drafted Model Constitutions for “a private company limited by shares” as well as “companies limited by guarantee”. These Model Constitutions (the Companies (Model Constitutions) Regulations 2015) are accessible here.

Notice of Incorporation
Upon registration of the Company’s Constitution, the Registrar would grant a “notice of incorporation” showing that the Company has been established and the kind of Company it is e.g. whether limited or unlimited (and/or if it is limited, whether it is limited by shares or guarantee). Also, where the Company is a private one, the notice would state that this is the case.

Effects of Incorporation
Once incorporated, a Company has its own corporate legal personality. Incorporation has the following effects:

• The Company is a body corporate with the powers of an incorporated company;
• It may sue and be sued in its own name;
• It may own land (the property of a Company is its own, not that of its members);
• The liability of the members may be limited.

The Company would continue to be in existence unless proceedings for winding up have run their course. If the Company is wound up, its members bear the responsibility to providing for its assets in accordance with the Act.

COMPANY’S “SPLIT” CORPORATE PERSONALITY, SEPARATE FROM ITS MEMBERS

Company is an entity that is distinct from its members

Since the law treats the shareholders and Directors as separate from the Company, the Company has a separate legal personality from those who own and manage it. Therefore, there is a corporate veil separating the Company from the individuals behind it.

• The corporate veil applies whether or not it is managed by a single person or multiple persons;
• The individual who runs such a Company will therefore be treated as separate from the Company;
• There are certain circumstances under which corporate veil can be lifted, and the people behind it to be held liable for acts of the Company.

Corporate Personality and Limited Liability

The idea of a Company is that it has a separate legal personality to its members or directors. Corporate personality and limited liability are closely linked.

• Corporate personality serves the function of marking out an asset pool against which creditors of the enterprise have prior and/or contingent claims – the fact that the Company has a separate identity partitions this asset pool from the personal assets of stakeholders;
• The recognition of corporate personality is thus closely tied to the limited liability doctrines – the recognition of the corporation as an entity whose rights and duties are distinct from those of its members and Directors is a precondition to the limited liability that members of most types of registered Company enjoy.

This means that generally, the Company’s members are not responsible for its liability, except where the Company is an unlimited one. If the Company goes bankrupt and is not in a position to settle its debts, its creditors would suffer the loss, no matter how well-to-do its members could be.

On 30 July 2020, the Insolvency, Restructuring and Dissolution Act 2018 (“the IRDA”) took effect, essentially consolidating all insolvency and debt restructuring laws into one Act of Parliament. Part of the intention in having the IRDA passed was to cement Singapore’s place as a “hub” for debt restructuring. The IRDA presents new possibilities in holding certain key players in a Company responsible, despite the Company’s distinct personality that is separate from its members.

“Lifting” the Corporate Veil – the Company “unmasked”

There could be certain situations when the Court will find a Company’s members responsible for its debts. When the Court does so in these exceptional situations that are pursuant to an Act of Parliament or case (common) law, the Company’s corporate veil is “lifted” for the purposes of finding its individual members and holding them responsible for debts.

It is important to note that there are 3 distinct aspects of “lifting the veil”. First, when the corporate veil is lifted, the Company’s liability is the liability of its members. Second, when the corporate veil is lifted, the Company’s property belongs to its members. Third, when the corporate veil is lifted, the Company and its members will be treated as one and the same.

Considering the Court’s reliance on previous well-established case (common) law, the Courts are generally slow to lifting the corporate veil and holding the Company’s Directors and/or members responsible. Hence, we must first consider situations where doing so is not required:

• Directors and/or Members of a Company can still be held civilly and criminally responsible. A person is always going to be held responsible for any criminal or negligent, tortious act that s/he has carried out. Here, the Company would be held responsible over and above the person responsible. Hence, in such circumstances, a person cannot escape civil and criminal responsibility by claiming that the act was done by the Company.

• Company’s business for fraudulent purposes. Under case (common) law, if a Company is made to commit fraud, or conduct its business to do so, the person who knowingly participated in such activities may be required to pay the Company’s debts in full or partially, without limitation of liability. This understanding is also covered and supplemented under Section 238(1) of the IRDA. In this way, when the Court has to assess the mental state in such fraudulent conduct, it must necessarily find the actual persons who are the decision-makers behind such conduct. This is where the Court assigns responsibility directly to the actual persons who are in control and does not have to lift the veil. Here, creditors are entitled to sue the Company and bring its Directors in as co-defendants.

• “Sham” Company situations. This situation is to be distinguished from a “sham” deal between Companies that are already in existence. It applies where a Company has not even been set up, but represented as a Company e.g. by using a letterhead. If a Company has not been registered or incorporated, then it will not be recognised as a Company. In such a case, the person who has committed the fraud will be held personally responsible for any contracts and dealings of the sham “Company”.

• Where a “trust” relationship is found for personal gain. Because a Company can hold assets or property on trust for its Directors, they are often used as a façade to conceal them from tax administrators or spouses. Here, the Director wants to treat the assets or property as her or his own, despite those assets or property appearing to belong to the Company. Here, the Court is entitled to see the reality that the Company holds such assets or property on trust for its Director’s personal gain.

• Where the Company is effectively an “agent” for services rendered. A professional, such as an accountant could bill someone for services rendered, but issue the invoice using the name of her or his Company. However, the agreement is between the accountant and the client. Accordingly, the professional is can still be held responsible for misleading conduct or negligence. In such a case, the Company here is just an agent that claims payment for the professional.

 

General Situations that might allow lifting the corporate veil

Generally, there are 3 types of situations where the Court would be prepared to lift the corporate veil.

1. If a Company is being incorporated primarily to take advantage of a provision of an Act of Parliament, or evade it, it is open for the Court to decide that the intention of that Act of Parliament has been undermined and choose not to treat the Company as a distinct entity. Hence, the Court could lift the corporate veil and hold a Director who has set up a Company to evade tax personally responsible.
2. If it is obvious that the Company and its Directors and/or members are one and the same, such as where the Company is being used for ulterior motives, the Court may refuse to provide relief and Company’s Directors and/or its members may be held personally responsible.
3. If the “controller” of the Company or its subsidiary is in reality its “alter ego”: this situation may arise where the Company is more or less a “corporate puppet” dancing to the tune of the Company’s controller or its subsidiary. For instance, when Directors order a wrongful act to be done by a Company (e.g. that amounts to a tort), the Directors could be held responsible on the basis that they have “procured or directed” the wrongful act to be done. Here, the Court would consider the Directors’ extent of participation and/or role in the Company (level of involvement in it) to decide how far s/he has become its “alter ego”.

Specific Situations that might allow lifting the corporate veil under Acts of Parliament (Statute)

• “Wrongful trading” under the IRDA: If a Company “trades wrongfully” by either accruing debts or other financial obligations while it is bankrupt, or is bankrupt due to accruing such debts and liabilities, without being able to settle them, any Director, Executive or Company Secretary of the Company (an “Officer”) could be held responsible for wrongful trading if s/he should have been aware that the Company was trading wrongfully. Here, it is not necessary to prove that the relevant Officer was well aware of such wrongful trading. Over and above this, any person aside from the Officer concerned who participated in such wrongdoing and was aware that the Company was trading wrongfully, could be held personally responsible for the Company’s debts or liabilities. There is no longer the requirement to prove the person’s criminal responsibility as a prerequisite to hold that person responsible in civil proceedings.

• Accordingly, a Director or a struggling Company must be careful when signing a contract on behalf of the Company. However, if the Court is persuaded that s/he conducted himself or herself honestly, on the totality of the evidence, s/he may not be held personally responsible. To pre-empt personal liability, a Company or any person responsible for the Company’s business can seek a declaration from the Court that a particular activity (e.g. entering into a contract or engaging in a transaction) would not amount to wrongful trading under the IRDA. On a related note, where the Company has accrued debts in circumstances where there was no reasonable or probable expectation that the Company could settle those debts, any officer who incurred those debts could be held personally responsible for wrongful trading. In this context, the IRDA appears to have made it easier to prove civil liability. Previously, criminal responsibility had to be proven first, as a necessary prerequisite. It still remains open for the Company representative responsible to be charged for committing a crime.

• Debts from the Company’s business carried on with intent to defraud creditors: Where it seems from judicial management of a Company or its winding up, the Company’s business has been continued with the intention to defraud its creditors, creditors of third parties or for any other fraudulent objective, the Court can hold a person who knowingly participated in the above personally responsible for the debts of the Company, in full or in part. Any person who knowingly was a party with such intention to defraud would be guilty of a crime and upon conviction faces a fine of up to $15,000 and/or imprisonment for up to 7 years.

• Debts due to dividends given that are above usable profits: Where dividends have been distributed in circumstances where there are no profits that can be used for such purposes, a Director or CEO of a Company who intentionally and/or knowingly does so, or allows this to be done, will be held responsible to the creditors of the Company for the sum owing to them. This means that the Director or CEO of the Company will be held personally responsible for the relevant amount i.e. the value of Company’s dividends given that has surpassed its profits. To this end, the creditors and/or liquidator acting on their behalf would be able to recover this amount.

Under Case (Common) Law

• Exploiting the Corporate identity of the Company for personal gain, or to avoid personal loss: Sometimes, people set up Companies to protect themselves from being held personally responsible if the business collapses, or is unsuccessful. A Company’s members cannot misuse the corporate identity of the Company to hide themselves from liability, particularly where they use the Company’s corporate identity for inappropriate or illegal purposes. Hence, if a person has ongoing legal responsibilities, but tries to use the Company’s identity to avoid them, the Court will pay no attention to the Company’s separate legal personality and hold the person accountable. For example, a person who commits to the sale of property cannot avoid his contractual responsibilities by transferring the property to a Company. S/he would have to proceed to sell the property, though the Company was not part of the contract for sale.

To summarise, in all cases where it is sought to lift the veil of incorporation, it is necessary to provide evidence as to the ownership and control of the company. The higher the level of ownership and/or control, the more likely it will be that the veil will be lifted. However, if the evidence shows that the company has in fact been run as a separate entity, the court will not lift the veil of incorporation.

CORPORATE GOVERNANCE

A Company’s business has to be managed by Directors, who can carry out the Company’s tasks, except for where the Company’s Constitution reserves certain matters to be determined by the members in a general meeting. Here, there is yet another division of responsibilities – where the Directors manage the Company as opposed to its members or shareholders who own it.

In practice the everyday tasks of the Company may be carried out by Executives and/or Company Secretaries, under the general supervision of Directors or the Board of Directors. The duties of Directors and Officers under Acts of Parliament (Statute) listed below complement other duties of Directors under common (case) law that are set out further below. Directors of a Company are still charged with the responsibility to make important decisions in accordance with their legal duties. Accordingly, Directors could face civil or criminal liability, or both. It is important to note that civil and criminal liability are different and lead to different consequences.

Fiduciary Duties of Directors and Officers

A fiduciary obligation refers to ethical and legal obligations that arises out of a relationship of loyalty or “trust”. A fiduciary of a Company has a duty of loyalty to the Company. The fiduciary would be acting for or on behalf of the Company, exercising discretion or power which will affect the Company’s interests.

Directors owe fiduciary obligations to the Company itself, not its members. Generally, if a Director breaches her or his fiduciary duties, the civil suit has to be brought by the Company, not its members. For example, a Director breaches his fiduciary duties to Company A when s/he authorises the purchase of shares in Company B that s/he has a personal interest in, such as aspiring to be on Company B’s Board of Directors. In such a case, the Director may have taken such action out of personal interest rather than for Company A’s benefit.

An employment relationship could result in fiduciary duties on the part of an employee. Generally, the duties of employees are not as extensive as Directors’ duties. The higher an employee is in the corporate hierarchy, the greater the responsibility that s/he holds, and the greater the likelihood that s/he would be seen as a fiduciary. A Senior Manager may owe fiduciary duties to the Company. On the other hand, employees in non-managerial positions may have a duty of fidelity to their employer (not a fiduciary duty), which could extend to situations where an actual conflict of interest arises, though the duty may not cover potential conflicts of interest.

Directors’ Fiduciary Duties under Case (Common) Law [which are subject to and supplemented by Section 157 of the Act]

Duty to Act in Company’s Best Interests: The general principle is that Directors must honestly act in what they believe is in the Company’s best interests. The test of honesty is an objective one. For example, a Director in exercising her or his powers must act in what s/he honestly considers to be in the Company’s best interests. This is different from making the “wrong” judgement call, in which case the Court would be unlikely to intervene. Likewise, if the Board of Directors of a Company made a decision that no other reasonable Board would make, this could raise concerns over whether it had genuinely acted in the Company’s best interests. However, so long as the Board had a reasonable basis to reach the decision that was genuinely made in the Company’s best interests, the Court is unlikely to question the decision made.

Duty to Avoid Conflicts of Interest: A Director must not put himself in a position where her or his interest conflicts with the Company. Whenever a Director has personal interests that possibly may conflict with those of the Company, s/he is required to disclose the conflict to the Company (generally meaning to the members in a General Meeting). For example, a Director cannot benefit financially from carrying out the responsibilities that come with the office or position s/he has unless the Company (represented by the Board of Directors as a whole, none of whom stand to benefit) has given permission for the Director to proceed. In making its decision on this issue, the Court applies an objective test.

The Duty to Avoid Conflicts of Interest is strictly applied. A Director is duty-bound not to put herself or himself in a position where the interests of the Company that s/he is bound to protect comes into conflict with either her or his personal interest or the interest of a third party.

The Duty to Avoid Conflicts of Interest is also very broad, in that it is not confined to instances where a Director gets a profit. The Duty applies even where the Company would not be able to secure a profit or would not suffer any loss.

A Director who faces such a conflict must disclose the conflict to the Company (to members in a General Meeting), or run the risk of being held accountable for any profit that s/he makes. S/he is duty-bound to make such disclosure even where the Company has suffered no loss.

If a conflict of interest is unavoidable, leading to a conflict, the endorsement should be secured from shareholders, or an announcement made as soon as possible as set out in Chapter 9 of the SGX LR. Transactions that involve related parties should be disclosed in the Annual Report in compliance with Financial Reporting Standard 24. Steps should also be taken to avoid any negative impact on the Company.

Duty to Act Properly: Despite Directors genuinely believing that they have acted in the Company’s best interests, they are also required to carry out their responsibilities properly. Even where a Director acts honestly in what s/he considers to be in the Company’s interests, s/he may still be liable for using her or his power for purposes outside the scope of such power. Likewise, even if a Board of Directors had not acted in its self-interest, but acted out of a misguided sense of what was in the Company’s interest, the Board could be held to be in breach of its duty.

For instance, the issuing of shares for any reason other than to raise capital would amount to a breach of this duty. If Directors have distributed shares in accordance with Section 161 of the Act and the Company’s Constitution that enables them to do so, the Court might find that they were not discharging their responsibilities properly if they made this decision for extraneous purposes, such us paving the way for a takeover bid.

Consequences of Breach of Fiduciary Duty under Case (Common) Law

Where Directors enter into a transaction in breach of their fiduciary duties, such transactions would be invalid.

Directors and Officers’ Duties under Statute

An “officer” includes a person who at any time has been an officer of the Company.

Honesty and Reasonable Diligence: Directors, Officers and even Agents must act honestly and exercise reasonable diligence in carrying out the responsibilities of his or her office. The Courts have observed that the duty to act honestly and the duty to exercise reasonable diligence are conceptually different. In assessing the duty to act honestly, the Courts apply a subjective test – the Courts will decide whether the person responsible genuinely acted in the Company’s interests. Conversely, the duty to exercise reasonable diligence may be related to negligence, or run in parallel with it. In this regard, when a Director is sued for negligence (a civil claim), it must be shown that the Director’s lack of skill care and diligence made the Company suffer loss. However, if the Director facing a civil suit in negligence had acted honestly and reasonably, the Court may relieve her or him wholly or partly from liability. When deciding whether the Director is negligent, the Court will have regard to her or his role in the Company e.g. whether Executive or Non- Executive Director.

Prohibition against Misuse of Information: Officers or Agents of a Company cannot inappropriately misuse information they had due to their position to directly or indirectly get a benefit for themselves or for someone else, or to make the Company suffer from some disadvantage or loss.

Any person responsible for a breaching Sections 157(1) or (2) of the Act can be held personally responsible to the Company for any proceeds gained or losses that resulted from such a breach. If the person responsible is unable to pay, creditors can enforce the judgment, and personal belongings may be seized and sold to settle the matter.

In addition, any person who breaches these provisions would have committed a crime. If s/he is found guilty, s/he could face a fine of up to $5,000 or up to 12 months in prison. If the person responsible was not just negligent, but acted rashly or recklessly, s/he is acting despite being aware of the risks involved. Accordingly, s/he may face imprisonment (or a longer imprisonment term), not just a fine.

Due regard to Company’s Employees, and Members’ Interests: In carrying out their duties, Directors and Officers would be able to consider the interests of the Company’s employees and its members.

Due regard to Creditors’ Interests particularly in circumstances of Bankruptcy: Directors and Officers are also obliged to give due consideration to creditors’ interests, particularly when a Company is not in a position to settle its debts, and hence is at risk of going bankrupt. In such a situation, creditors have a right to get a liquidator to secure the Company’s property and might have priority over the Company’s members. Hence, Directors must ensure that the Company’s affairs are in order with a view to settling its outstanding debts. In particular, Directors are to ensure that the Company’s assets are not sold at the expense of creditors’ interests.

Directors’ and CEO’s Duties under Statute

Duty to Disclose Conflicts of Interests in Transactions, Property, Offices, etc.: Generally, a Director or CEO must disclose if s/he has an interest in an entity that is dealing with the Company in writing. Section 156 of the Act requires a Director or CEO to disclose the type of any conflicts with her or his responsibilities that might come from holding property or any other role or office that s/he holds, and the degree of such a conflict. Such disclosure may not be necessary should her or his interest arises from just being a member or creditor of the entity that the Company is dealing with, or if her or his interest can be appropriately considered as insignificant. There are a certain exceptions to this duty of disclosure.

If the Director or CEO does not abide by the duties to disclose set out above, s/he could be fined up to $5,000 and sent to prison for up to 12 months.

It is worth noting that the statutory Duty to Disclose Conflicts of Interest has been extended to the CEO of a Company.

Conflicts of interest can arise in, amongst others, the following circumstances:

• Where Directors have a direct or indirect material interest in transactions of the Company;
• Where Directors take up positions or have property that could give rise to conflicting responsibilities; or
• Where Directors could benefit from certain commercial information they receive or opportunities that are given to them as Directors or Officers.

To address conflicts of interest, Directors and CEOs should, among others (such as Articles of Association), examine the Act, particularly provisions contained in the Act that forbid or prohibit circumstances that give rise to conflicts, or set out procedures to manage a particular situation of conflict.

An actual or potential conflict of interest may not necessarily prevent a person from remaining on a Company’s Board of Directors, but complete disclosure ought to be made and if required by law, members’ approval should be secured to protect the best interests of the Company and its members.

Some Potential Consequences arising from a Breach of the Responsibilities set out above

If a Director favours her or his own interests above those of the Company, s/he can be held responsible for any resulting loss to the Company. If the Director has benefited financially from her or his office without the Company’s knowledge and permission, s/he can be required to disclose the proceeds to the Company and account for the same. If the Director has signed an agreement for the sale of certain property to the Company in breach of her or his fiduciary duties, the Company may have good reason to disregard the contract.

Where Directors and Officers (or even Agents) who are entrusted with control over the Company’s property, use its property for their own benefit or for the benefit of others, they may be found guilty of dishonest misappropriation of property or criminal breach of trust (“CBT”). Any of these persons responsible who dishonestly “misappropriates” an asset or property (through wrongful use or assignment to the wrong person) faces imprisonment of up to 2 years and/or a fine. Also, any of these persons responsible who dishonestly uses or disposes of that property in breach of a law that prescribes how to discharge responsibilities under a trust or any legal agreement, or wilfully causes another person to do so, may be found guilty of CBT. A person found guilty of CBT faces imprisonment of up to 7 years and/or a fine.

Criminal Liability of Directors and Officers

Where Directors and Officers (or even Agents) who are entrusted with control over the Company’s property, use its property for their own benefit or for the benefit of others, they may be found guilty of dishonest misappropriation of property or criminal breach of trust (“CBT”). Any of these persons responsible who dishonestly “misappropriates” an asset or property (through wrongful use or assignment to the wrong person) faces imprisonment of up to 2 years and/or a fine. Also, any of these persons responsible who dishonestly uses or disposes of that property in breach of a law that prescribes how to discharge responsibilities under a trust or any legal agreement, or wilfully causes another person to do so, may be found guilty of CBT. A person found guilty of CBT faces imprisonment of up to 7 years and/or a fine.

“Negative Duties of Directors”

Generally, save for certain prescribed exceptions, a Company cannot provide a loan to a Director. If a Director accepts such a loan from the Company in breach of the Act, then those Directors who endorsed the transaction will have to indemnify the Company from loss and would also be held criminally responsible.

COMPANY’S RIGHTS AND RESPONSIBILITIES

Company’s Civil Liability – Suing and Being Sued

Company Suing
Suing is a commercial decision often made at the managerial level (though it can be delegated). Usually, the power to authorise litigation to enforce the Company’s rights rests with the Board of Directors or an Executive who has been delegated such power. Where the Board is not in a position to act e.g. due to a deadlock or not enough numbers, such power could rest with members in a General Meeting.

In exceptional cases where the Board of Directors does not act to enforce the Company’s rights, a member may bring an action in her or his own name in order to do so. A minority shareholder may also initiate a suit on the Company’s behalf where the Directors themselves are the wrongdoers because they would not initiate proceedings against themselves in General Meetings. This situation may arise where there is fraud on the part of the majority in that they secured a benefit at the Company’s expense or caused the Company to suffer loss, and used their power to protect themselves from being sued.

If the Company is bringing a civil action against a fiduciary (which may include an Agent), the law does not allow the person responsible to take advantage of the wrongdoing s/he made by claiming that the Company was aware of the breach of fiduciary duty. The person responsible may be able to successfully defend himself or herself from suit if the Company had authorised the wrongful action taken, whether through a majority decision by the Board of Directors or an informal decision by all Directors. If there was no such authorisation, the Company might be able to succeed against the person responsible.

Because a Company has a personality that is distinguishable from its members, generally speaking a member cannot sue to uphold or defend that Company’s rights. Normally, in accordance with the Company’s Constitution, it is the Board of Directors that can decide whether the Company should make a claim or defend against a claim. Despite this distinction between a Company and its members, there could be exceptional situations where a member can represent a Company in making a claim or defending against one, set out below. When a member of a Company does so on the Company’s behalf, such an act is called “derivative action” because such rights come from the Company. Hence, these rights are not directly enjoyed by the member. Such action is taken to protect the Company’s interests.

Derivative Acts under Case (Common) Law
A member of a Company could make a claim against someone who commits a wrongdoing to the Company, using his or her authority or power to stop any action from being taken against him or her. If the member has made the claim in bad faith, the Court could consider this in deciding whether it would be in the Company’s best interests for the claim to proceed.

Derivative or Representative Acts under Statute
Over and above the common law, where applicable, a member of the Company, the Minister of Finance (in selected cases) or “any other proper person” could apply to make a claim under Section 216A (read together with Section 216B) of the Act on behalf of the Company.

A member or other appropriate person may seek the Court’s permission to make a claim, seek arbitration, or participate in such a claim or arbitration where the Company is a party to prosecute, defend or stop the claim or arbitration from proceeding on the Company’s behalf. The Court will only give permission to proceed in doing so if: (i) the person concerned has given 2 weeks’ notice to the Company’s Directors of her or his intention to make a claim or seek arbitration and bring this to the Court’s attention if they do not diligently take the appropriate action; (ii) the person concerned has made the claim, sought arbitration, or sought to participate in proceedings in good faith; and (iii) the claim made, arbitration sought, or request to intervene seems to be in the Company’s interests. In making its order, the Court will give due consideration to whether shareholders of the Company have approved the reported breach of the Company’s rights or obligations, but this is not the sole consideration.

From the perspective of the person concerned, it may be more useful to consider initiating a derivative action under Statute (as opposed to common [case] law) because under Statute, should the Court enable the member to make the claim, it can require that the Company pay the requisite costs/fees incurred. A member who makes such a claim under Statute may not have to bear all the legal costs when proceedings are ongoing (including her or his own legal fees), though s/he may be required to do so when the Court finally resolves the matter.

Company being Sued

Being Sued in “Tort”

A Company can be held vicariously liable for the acts of its employees and agents even where the Company itself is not at fault. A Company can be held responsible where there is enough of a close connection between the acts done and the employee’s functions so that it is fair and just to hold the Company responsible. Under this “close connection test”, the Court will consider, amongst others, the extent of authority and opportunities given to the employee and the vulnerability of potential victims to the employee’s wrongful abuse of her or his power. The Court may also take into account policy considerations.
A Company can be sued for the “tort” of conspiracy between itself and the person who controls it. In order for such a claim of conspiracy to succeed, the following elements have to be met:

• A combination of two or more persons (conspirators) agree to do certain acts (e.g. overcharging for services provided);

• Even if the conspiracy involves lawful acts, it is enough if the conspirators’ main purpose is to cause damage or injury to the innocent party, but if the conspiracy involves unlawful means, then there is no need to prove the main purpose or intention;

• The acts must be done to further the agreement or conspiracy;

• The innocent party must suffer loss or damage.

Being Sued under Contract

A third party may be able to successfully sue a Company under contract if the relevant transaction had taken place through responsible persons who had acted with real or apparent authority. This may be the case especially if the third party did not know of the responsible person’s lack of authority. In determining this issue, the Court will look at: (i) the role of the responsible person and the authority that comes with the particular position or post; and (ii) the evidence as to the practice within the company and the industry.

Company’s Criminal Liability

A Company must not breach certain regulatory offences (which are often called “strict liability” offences).

Extending Criminal Responsibility to a Company generally: For crimes that require a state of mind, a Company could be held criminally responsible if the person responsible (e.g. a store manager who fails to supervise properly, resulting in an offence in the store) is really the “directing mind and will” of the Company. On the other hand, if the Company had taken all proper steps to avoid the commission of the crime by the person responsible then it would not be held criminally responsible. In making its decision on this issue, the Court will consider whether the person responsible had actual control of the Company’s operations such that s/he is not accountable to another person in the Company for the way s/he carries out his responsibilities.

A Director, Employee or Agent who had acted within the scope of his real or apparent authority had the requisite state of mind (be it knowledge, intention, belief or opinion), that state of mind could be extended to the Company for the purposes of holding the Company criminally responsible.

Extending Criminal Responsibility to a Company for Crimes that require Knowledge: For example, when:

• an employee knowingly imports VCDs into Singapore under a Company’s name without the owners’ consent in breach of the Copyright Act, or ought to have known that this was the case;

• the Company’s Director (or the Board of Directors collectively) also had the requisite knowledge of such unlawful acts,

then such knowledge could be extended to the Company, such that the Company would be treated as having the requisite knowledge to be held criminally responsible.

Extending Criminal Responsibility to a Company for Crimes that require Intention: The issue here is whether an Officer’s criminal intent can be extended to the Company. If the Officer is high in the corporate hierarchy and commits a criminal offence, it may be possible to treat her or his criminal intent as that of the Company.

Company’s Criminal Responsibility for Negligence: In theory, where an offence requires negligence, there is also no great problem in holding the Company criminally responsible. For example, if a Company runs an amusement ride and nobody checks the seats, resulting in malfunctions causing the death of riders, the Company could be held criminally responsible for causing death by rash or negligent act. This would be the case because the Company had a duty to ensure the safety of the ride and failed in its duty, causing death. The Company could be held criminally responsible for negligence, even if it would be problematic to charge or convict the employee.