Legal guide for company directors and CEOs in Singapore

Broadly, directors’ duties to act in a company’s best interests (which include the interests of its employees generally and its shareholders) could possibly extend to ESG-related matters. Specific legislation and case law may also indirectly impose ESG-related obligations on directors/CEOs by imposing liability on companies (and consequently on their officers which include directors) that do not comply with applicable environmental sustainability, workplace safety and disclosure/reporting regimes.

Further details are elaborated later in this guide.

General Employee Considerations

The Companies Act (Chapter 50 of Singapore) (the “Companies Act”) mandates that the directors of a company, in exercising their powers, are entitled to have regard to inter alia the interests of the company’s employees generally.

Board Diversity

Under the Code of Corporate Governance (the “CG Code”), which applies to Singapore Exchange (“SGX”)-listed companies on a ‘comply or explain’ basis, companies should ensure that their board and board committees consist of directors who, as a group, provide an appropriate balance and mix of skills, knowledge, experience and other aspects of diversity such as gender and age, so as to avoid groupthink and foster constructive debate. The board diversity policy and the progress made towards implementing such board diversity policy, including objectives, are to be disclosed in an SGX-listed company’s annual report.

Workplace safety

The Workplace Safety and Health Act (the “WSH Act”) requires employers to take, so far as is reasonably practicable, such measures as are necessary to ensure the safety and health of their employees at work. The Ministry of Manpower provides further guidance on an employer’s responsibilities to ensure compliance, including the need to ensure:

• The work environment is safe
• Adequate safety measures are taken for any machinery, equipment, plant, article or process used at the workplace
• Workers are provided with sufficient instruction, training and supervision so that they can work safely.

Directors and CEOs may be held responsible for offences that have been committed by their company under the WSH Act. Where an offence has been committed by a body corporate, an officer of the body corporate (which includes directors) may be guilty of the offence and subject to prosecution unless he/she proves that: (i) the offence was committed without his/her consent or connivance; and (ii) he/she had exercised all such diligence to prevent the commission of the offence as he/she ought to have exercised, having regard to the nature of his/her functions in that capacity and to all the circumstances.

Environmental

The Energy Conservation Act (Chapter 92C of Singapore) (the “EC Act”) mandates energy efficiency requirements and energy management practices for certain registrable corporations to promote energy conservation, improve energy efficiency and reduce environmental impact. This extends to corporations which have attained certain energy use thresholds and which are in prescribed sectors such as manufacturing and manufacturing-related services; supply of electricity, gas, steam, compressed air and chilled water for air-conditioning; and water supply and sewage and waste management. Such corporations must, among other things, conduct an energy efficiency opportunities assessment on each prescribed business activity or premises under their operational control. It is possible that officers of such registered corporations (including directors) could be held liable if the registered corporation commits an offence under the EC Act with the consent or connivance of an officer of the body corporate, or if such offence is attributable to any act or default on such officer’s part.

Under the Carbon Pricing Act (the “CP Act”), any industrial facility that emits direct greenhouse gas emissions above certain prescribed limits annually has to register itself as a reportable facility and to submit certain prescribed emission reports. It is possible that officers of such registered corporations (including directors) could be guilty of an offence if the registered corporation commits an offence under the CP Act if inter alia the relevant officer had consented, connived or conspired with others to effect the commission of the offence, or where such officer knew, or ought reasonably to have known, that the offence by the corporation (or an offence of the same type) would be or is being committed and failed to take all reasonable steps to prevent or stop the commission of that offence.

N.A.

SGX-listed companies

Under the SGX Listing Rules, sustainability reporting is mandatory in order to provide potential investors with a more holistic assessment of a company’s financial prospects and quality of management. SGX-listed companies are required to prepare and publish a sustainability report covering ESG factors annually, within 5 months after the end of their financial year.

The sustainability report must describe the sustainability practices with reference to the following primary components:

• Material environmental, social and governance factors
• Policies, practices and performance
• Targets
• Sustainability reporting framework
• Board statement.

The exclusion of any primary component must be disclosed and the alternatives undertaken must be described with accompanying reasons.

In Singapore, companies have a one-tier board (rather than having separate boards, e.g. a management board and a supervisory board). That said, a board of directors in practice can delegate certain functions to separate committees. 

The board of a Singapore company may comprise both executive directors and non-executive directors (the latter may be independent directors). In general, the law does not distinguish between executive and non-executive directors in terms of their directors’ duties and obligations, and all of them are treated as fiduciaries in relation to the company.

While this guide focuses on the rules applicable to executive directors (i.e. directors who have an executive role within the company with responsibilities on the company’s management and operations), much of the information will apply equally to non-executive directors (generally, this refers to directors who do not have any executive functions within the company).

There is no statutorily-prescribed role for non-executive directors under the Companies Act (Cap. 50 of Singapore) (the “Companies Act”). That said, non-executive directors in practice can serve as a supervisory check and balance function (e.g. for good corporate governance through independent directorships), represent their appointee’s interests (for example, in a joint venture setting), comment on corporate strategy, direct general policy and overall supervision of the company, and provide objective high-level strategic inputs (if they are professionals or experts in certain fields or industries).

The Companies Act provides for certain criteria for a person to be appointed as a director, including the following:

• a “natural person” that is at least 18 years old and of full legal capacity, and
• not being an undischarged bankrupt, except with the leave of the Singapore courts or the written permission of the Official Assignee.

Singapore does not permit corporates or non-natural persons to be appointed as directors of Singapore companies.

A company must have at least one director who is ordinarily resident in Singapore (i.e. a Singapore citizen, Singapore Permanent Resident or EntrePass holder).

Generally, for entities that are not specifically regulated under other legislation or by a specific authority, there is no prescribed requirement under the Companies Act that a director should possess certain/minimum academic or professional qualifications or business experience. Notwithstanding the foregoing, all appointed directors are subject to fiduciary duties and obligations and are expected to be aware of, and be able to discharge, these director duties and obligations.

Director appointments are generally governed by the company’s constitution. In practice, directors may be appointed by ordinary resolution passed at a general meeting unless the constitution provides otherwise (i.e. appointment by other directors, specific shareholders, investors, creditors, etc.). In practice, boards of directors are also generally empowered under constitutions to appoint additional directors to fill casual board vacancies, but usually with a corresponding requirement that shareholders vote on such director appointment at the next annual general meeting.

For public companies, a general meeting motion for the appointment of two or more persons as directors by a single resolution shall not be made unless a resolution that it shall be so made has first been agreed to at the general meeting without any vote being given against it.

There are no statutory provisions dealing with the removal of directors of private companies. The office of such directors can only be vacated if the constitution provides accordingly. Where the constitution does not provide for the power to remove a director, it must first be amended to give such a power, and such constitutional amendments can be done by requisite shareholder approval. 

For public companies, shareholders may by ordinary resolution remove a director before the expiration of his/her period of office; notwithstanding anything in its constitution or in any agreement between it and him/her, but where any director so removed was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove him/her shall not take effect until his/her successor has been appointed.

Directors are also free to resign from their office by notice to the company (this being subject to any contractual agreements in place between the directors and the company or their appointees concerning notice period etc.). Such resignations are typically done by way of a resignation letter which would include provisions on the directors confirming that they have no claims against the company (or if there are any claims, such claims shall be waived).

The board of directors are statutorily empowered to manage the business of the company. Unless expressly provided to the contrary in the constitution of, or the shareholders’ agreement relating to, the company, generally all the powers of the company are reserved in the board of directors as a collective body. They can act on behalf of the company where their collective decisions are expressed by resolutions. 

In favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company’s constitution. For these purposes: (i) a person dealing with a company is not bound to enquire as to any limitation on the powers of the directors to bind the company or authorise others to do so; and (ii) is presumed to have acted in good faith unless the contrary is proved. Note that the aforementioned limitations on directors’ powers under the company’s constitution include limitations deriving from: (A) a resolution of the company or of any class of shareholders; or (B) any agreement between the members of the company or any class of shareholders.

Note that the Companies Act states that there shall be no constructive notice with respect to a company’s constitution, i.e. notwithstanding anything in a company’s constitution, a person is not affected by, or deemed to have notice or knowledge of the contents of such constitution merely because the constitution is lodged with ACRA or available for inspection at the company’s registered office. 

A board of directors would hold meetings to discuss strategic, financial and operational matters concerning the company, though in practice some boards would delegate responsibility for day-to-day management and operations of the company’s business to management/executives (who would adhere to the strategic direction determined by the board). The extent of delegation depends on the size and nature of the company, and generally it would be more feasible for directors of smaller companies/start-ups to be more involved in the day- to-day business/management, whereas for large multi-national corporations/listed corporations it is less practical for individual directors to be as heavily involved in every aspect of day-to-day business and management.

Decisions of the board are decided at board meetings, whereby board resolutions are passed. Where the constitution of the company permits, directors may also elect to pass written board resolutions in lieu of holding an actual physical board meeting. Constitutions also would commonly permit the board to conduct non-physical meetings by way of teleconference etc., and the signing of written resolutions by electronic means.

Certain transactions may require the action or involvement or more than one director. For example, certain bank signing mandates above a specified financial threshold would require the signature of at least two directors.
Another example would be in the case of a joint venture where certain agreed reserved matters would require the affirmative consent of at least one director nominated by each key shareholder.

Appointment as a director does not of itself constitute a contract with the company, although such appointments may be accompanied with a director services agreement between the company and the director. An executive director of a company is often (though not necessarily) an employee of the company, and therefore is subject to an employment agreement. 

A director may also be a shareholder of the company at the same time, and as such would have (in their capacity as a shareholder) a contractual relationship with the company pursuant to the constitution or a shareholders’ agreement (if any).

Where a company engages the services of a nominee director through a corporate secretarial services provider, there is typically an agreement for such services between the company and the provider. 

Directors are subject to certain fiduciary duties to avoid conflicts of interest both under the Companies Act and at common law, certain of which are summarised in this section.
A director who is in any way interested in a transaction or proposed transaction with the company, whether directly or indirectly, shall as soon as is practicable after the relevant facts have come to his/her knowledge: (i) declare the nature of his/her interest at a meeting of the directors of the company; or (ii) send a written notice to the company containing details on the nature, character and extent of his/her interest in the transaction or proposed transaction with the company. The notice referred to in (ii) should be given as soon as is practicable after the date on which the director became a director or (if already a director) the date on which the director became, directly or indirectly, interested in a transaction or proposed transaction with the company.

A director may disclose information which he/she has in his/her capacity as a director of a company, being information that would not otherwise be available to him/her, to: (i) a person whose interests the director represents (e.g. an appointing shareholder); or (ii) a person in accordance with whose directions or instructions the director may be required or is accustomed to act in relation to the director’s powers and duties, if such disclosure is not likely to prejudice the company and is made with the authorisation of the board of directors. Such authorisation may be conferred in respect of disclosure of all or any class of information, or only such information as may be specified in the authorisation.

A director can be a director of more than one company, however, disclosure must be made where there is a potential conflict of interest that can arise where he/she acts as a director of two companies, even if he/she does not have a personal interest.

The duties and responsibilities of directors of Singapore-incorporated companies broadly fall within the following categories based on Singapore legislation and case law:

• a duty to act honestly and in the best interests of the company  a duty to act without conflict
• a duty to act diligently and with due skill and care, and
• a duty to make proper disclosures.

There is some degree of overlap in the abovementioned categories which also encompass other duties including, but not limited to, a duty not to make secret profits, a duty to comply with all statutory requirements, a duty to act in good faith and a duty to act for the proper purposes of the company.

A director’s duties are primarily owed to the company itself, although in certain circumstances, they may owe duties to other stakeholders (i.e. to creditors when the company is in financial difficulties, etc.). 

The fiduciary role of directors expands when a company becomes insolvent or nearly insolvent to make the director a fiduciary to creditors of the company and there are additional duties under the Companies Act that directors must undertake to ensure creditors’ interests are not compromised. The “trigger” for when these additional duties arise is at some stage before the company actually becomes unable to pay its debts as they fall due, and the courts will undertake a broad assessment of the surrounding circumstances of the case to determine when this “trigger” has been reached.

Pre-appointment of liquidator

In the course of the winding up of a company or in any proceedings against a company, a director of a company must not be a party to the contracting of a debt if, at the time the debt was contracted, it appears that the director had no reasonable or probable ground of expectation, after taking into consideration the other liabilities, if any, of the company at the time, of the company being able to pay the debt.

On appointment of liquidator

On the appointment of a liquidator in a voluntary winding up (whether initiated by members or creditors), the powers of the directors shall cease except so far as is allowed by the liquidator or the members, or the committee of inspection or the creditors in the case of a creditors’ voluntary winding up with the consent of the liquidator.

The directors are also required, among other things, to disclose to the liquidator all the movable and immovable property of the company, and how and to whom and for what consideration and when the company disposed of any part thereof, except such part as has been disposed of in the ordinary way of the business of the company.

Within the 12-month period before the commencement of the winding up or at any time thereafter, a director shall not, among other things: (i) conceal any part of the property of the company to the value of SGD 200 or upwards, or conceal or have concealed any debt due to or from the company; (ii) fraudulently remove any part of the property of the company to the value of SGD 200 or upwards; or (iii) obtain on credit, for or on behalf of the company, under the false pretence that the company is carrying on its business, any property which the company has not subsequently paid for.

A breach of directors’ duties may attract criminal and/or civil liabilities. Companies can also seek equitable remedies against errant directors who breach their fiduciary duties. 

Criminal

Criminal liability may be attached to certain breaches of duties imposed by law – for example, in respect of fraudulent acts. Certain actions by the company (where the directors are seen as being the company for the purposes of its decision-making) will attract criminal sanction for individual directors (for example, in the case where the company advertises, circulates or publishes any misleading statements concerning the company’s capital). Directors can be subject to imprisonment or to a fine depending on the type of breach.

Civil

Civil liability generally takes the form of fines; and/or a director being sued by the company (or third parties) under a range of remedies, including damages, restitution of property, accounting for profits made, as well as injunctive and declaratory relief.

Loss of profits

A breach of duty which would cause a company to make a loss can generally result in the company being able to recover that loss from the director, and in a case where a breach of duty enabled a director to make a profit, the amount of such profit can be claimed by the company.

In general, a company may indemnify its directors against third party liability. However, provisions purporting to exempt any director from liability in connection with any negligence, default, breach of duty or breach of trust in relation to the company will be void under Singapore law. The indemnity also cannot be provided for payment of fines in criminal proceedings, payment of penalties in respect of regulatory non-compliance, defending criminal proceedings where the director is convicted and defending civil proceedings brought by the company or a related company in which judgment is given against the director.

A company may also take out directors’ liability insurance for its directors, subject to certain exclusions. 

A director could also limit his/her liability by avoiding, as best as he/she can, any conflicts or potential conflicts of interest. He/she should disclose any such conflicts that he/she has at the earliest opportunity and should abstain from voting on certain board resolutions if required.

Disclaimer: The above is intended as a general guide only and is not to be taken as legal advice or an exhaustive statement of the applicable laws. We hereby disclaim any and all liability for any reliance or use of the above information. If you require specific legal advice, please contact us directly.

Solvency

As a regional and gateway hub, Singapore is heavily reliant on the health of the global and regional economy. Domestic businesses, more so than regional businesses and MNC subsidiaries, are exposed to adverse financial effects caused by: (i) business restrictions due to government ‘non-essential services’ control measures; (ii) decline in business activities for certain products and services due to enforced closures; and (iii) disruption in the supply of manpower, in many cases due to travel restrictions. The financial impact may not be immediate, but directors need to remain vigilant and carefully review liabilities and potential exposures, against a deterioration in revenue. Particular risks include payment default, particularly to trade creditors and customers and their own employees. Directors should keep abreast of the latest COVID-19 related restrictions and safe management measures as well as the relief measures that are applicable to their businesses, introduced through a series of recent stabilisation budgets.

Companies facing financial difficulties are advised to obtain specialist advice and ensure that all directors and key stakeholders are kept informed of their situation. Directors must be mindful that they owe their duties to the company itself and not to any other group entity or its parent company or its ultimate holding company.

However, if solvency concerns begin to surface, then stakeholders such as creditors become relevant to the directors in their discharge of duties. Should these complex scenarios arise, directors may wish to seek independent advice when determining a course of action.

Business operations

Directors must strike a balance between the need to continue business operations (working within the applicable COVID-19 control measures in place) and the safety of their employees. They need to take precautions to minimise the health risks, regardless of whether their employees are carrying out “essential services”. Companies which engage foreign employees are advised to closely monitor movement restrictions of the home countries of their employees, border restrictions and quarantine requirements so that they can plan and make alternative arrangements to minimise any possible impact due to manpower unavailability. This will take some time to completely normalise.

Tax Residency

The COVID-19 pandemic has brought with it an unprecedented global slowdown in air and cross-border travel, and with widespread social distancing measures still in place, it is difficult for directors to hold physical meetings. In Singapore, as a general principle, a company’s tax residency status is determined by reference to the jurisdiction in which its business is controlled and managed, and the location in which board meetings are held (where strategic decisions are made) is typically a key factor in determining control and management. Unsurprisingly, the COVID-19 pandemic has resulted in practical difficulties in conducting physical board meetings in Singapore. In order to diffuse concerns, the Inland Revenue Authority of Singapore has made announcements to specifically address this issue by relaxing certain conditions for the determination of tax residency status – see our CMS publication on this topic.

Shareholder Meetings

It is also challenging to hold physical shareholder meetings in Singapore due to safe distancing measures. In connection therewith, the Accounting and Corporate Regulatory Authority of Singapore (ACRA) has statutorily introduced alternative arrangements in relation to general meetings of private companies (i.e. annual general meetings (AGMs) and extraordinary general meetings) – see our CMS publication on this topic.

While no government relief measures have been targeted specifically at company directors, certain government relief measures continue to have been made available for companies. The current relief measures are as follows:

under the new Enhanced Jobs Support Scheme, for the period between 22 July to 18 August 2021, businesses in the “closed sectors” or “sectors with enhanced safe management measures” (i.e. food & beverage, gyms and fitness studios and performing arts and arts education) will receive 60% of the first S$4,600 of gross monthly wages of their local employees (i.e. Singapore Citizens and Permanent Residents), while those operating in “significantly affected sectors” (i.e. retail, cinemas, museums, art galleries, historical sites, family entertainment, affected personal care and tourism) will receive payout of 40% of the first S$4,600 of gross monthly wages of their local employees (i.e. Singapore Citizens and Permanent Residents). The payouts will be reduced to 10% of the first S$4,600 of gross monthly wages for the above mentioned sectors for the period between 19 August to 31 August 2021; and  

temporary relief from legal action for those who are unable to perform certain types of contracts (e.g. construction contracts or supply contracts, or a performance bond or equivalent that is granted pursuant to a construction contract or supply contract, etc.) due to the COVID-19 pandemic. These measures apply to contractual obligations that are to be performed on or after 1 February 2020 and only for contracts that were entered into before 25 March 2020.

These relief measures are covered in more detail in other CMS publications (see our Singapore COVID-19 page).

All directors’ duties are generally unaffected notwithstanding the COVID-19 pandemic, although it is useful to note certain changes on statutory compliance matters which include:

alternative arrangements for company meetings – see our CMS publication on this topic; and

alternative board meeting arrangements and revised corporate substance/tax residence requirements – see our CMS publication on this topic.