To start with, it is important to know the meaning of a disclosure requirement.
What is a Disclosure Requirement?
Generally, this refers to the releasing of both positive and negative information about a company, which includes data, news, and financial information affecting its business. This information is usually vital for investors who should access various facts about your company.
Disclosure in law requires that companies must adhere to the rules stipulated in disclosure statements in order to protect customers and clients. If your company wants to enter into a business deal, your company directors must ensure that the dealers abide by certain requirements in the disclosure statement.
Company directors in Singapore bear the responsibility and duty to make sure that they also abide by the disclosure requirements in accordance with the Companies Act, failure to which they can face severe penalties for non-compliance.
Some of the important disclosure requirements relate to:
- Interests in contracts, property and offices; and
Disclosure of Interests in Contracts, Property and Offices
As stipulated in Section 156 of the Companies Act, all transactions overseen by directors and CEOs in a company are bound by disclosure of interests. According to this section of the Act, as soon as any of your directors or even the CEO is interested in closing a business deal on behalf of your company, he/she must disclose the same to the board in a meeting.
This rule applies whether he/she is directly or indirectly involved in the transaction. His declaration must be known as soon as he/she is aware of all the relevant facts unless the circumstances provided does not oblige him/her to disclose the facts.
Alternatively, a director and/or CEO can notify the board in writing by expressing to them all the details of his/her involvement in the proposed transaction as well as the nature of the transaction to make up for the declaration at a board meeting.
As stipulated in Section 156(5), the director can give a general notice to his/her fellow directors (in accordance with the provision) specifying the fact that he/she is an officer is a member of another company. This notice can be used in subsequent transactions that the director may be interested in as per Section 156(1), subject to other conditions that must be met.
On the other hand, as per Section 156(1), company directors/CEO are not obligated to make a disclosure if the:
- director’s/CEO’s interest in the transaction is to be a member or creditor in the corporation he/she is entering a business deal or if the director’s/CEO’s role in the proposed transaction is not of material interest;
- proposed transaction or transaction is associated with loans that your company owes, and where the director or CEO is one of the guarantors in the repayment, unless the constitution provide otherwise; or
- proposed transaction or transaction will benefit the director/CEO or a related corporation that he/she is also a director or CEO in, unless the constitution provides otherwise.
In addition, as stipulated in Section 156(6) of the Companies Act, a director/CEO must disclose all properties he/she possesses in other companies as well as all the offices he/she holds in any case his/her interests in a specific transaction would bring about conflicting issues with his/her duties or interests.
As stipulated in Section 156(7), the directors/CEO must disclose the details of all the offices they hold or all the properties they possess in other corporations either at the first directors’ meeting as soon as they held the directorship office, or at the first directors’ meeting once they started executing duties of a director or holding the directorship office.
Apart from the Companies Act, the director’s duty to disclose his/her interests is also mandated by Section 133 of the Securities and Futures Act.
It should be noted that, apart from avoiding liability under statutes, disclosure by a director also may prevent him/her from breaching his/her fiduciary duty. For example, where a person is a director of company A and owner of company B and company A intends to purchase equipment from company B, such director should disclose his/her interest in the contract and ensure that company A obtains shareholder approval to enter into the transaction to avoid being in breach of his/her fiduciary duty.
The decision of the Singapore High Court in Yeo Geok Seng v Public Prosecutor  SGHC 295 dealt with the issue of multiple directorships.
In that case, the court held that:
- the wording of Section 156(6) (which at the time of the case was Section 156(5) of the then Companies Act) is clear and sufficiently comprehensive to make sure that a duty of disclosure is enforced on a company director who is also a director in a different corporation. This is enforceable even if the director is not directly or indirectly involved in the transaction, provided that an existing potential conflict of duty is evident as a result of his/her directorship duties in the two corporations.
- in such circumstances where a director is executing his/her duties in more than one corporation, it is important to examine whether his/her multiple directorship duties could create potential conflicts. If that is the case, it is obligatory for the director to declare the nature of the conflict as stipulated under Section 156(6). On the other hand, Section 156(6) might not be applicable at all times when there is multiple directorships. Depending on the circumstances, there are many issues that must be considered, such as the affiliation of the corporations affected by the multiple directorship.
On top of the various restrictions stipulated in the Companies Act, common law enforces other disclosure duties on directors when it comes to a number of circumstances that lead to conflicts of interest in their directorship. Therefore, it is important to note that the Companies Act does not derogate the applicable rules stipulated in the common law, but uses its obligations to complement the positions it takes.
In addition, a company must acknowledge that even if a director is ingeniously executing his/her duties in one corporation, he/she is not obviously doing the same in the other corporation. For that reason, even though disclosing their multiple directorship duties as well as their property ownership in different companies helps them avoid the penalties emanating from breaching Section 156 of the Companies Act, the disclosure also helps them evade any potential civil liability. Furthermore, both circumstances are not coterminous.
A case in point is a position taken by the common law that company directors only have a duty of disclosure in circumstances that bring about conflicts between their individual interest and the corporation they work for. Yet, as stipulated under Section 156 (6), company directors have a duty to make a disclosure, even if there exists a potential conflict of interest involving their multiple directorship.
One interesting thing to note is that the Companies Act does not mention whether or not a company director/CEO is allowed to cast a vote on a transaction he/she is interested in at a board meeting. This is a matter to be regulated by the particular company’s constitution. It would, however, be prudent for the constitution to disallow voting.
If you defy the disclosures stipulated under Section 156, the courts will find you guilty of an offence and force you to pay a fine of at least SGD$5,000 or a prison term not exceeding 1 year.
Disclosure of Shareholdings
As stipulated under Section 165 of the Companies Act, a director and/or a CEO has to make a written notice disclosures of the following interests that are applicable to him/her:
- shares he/she owns in the corporation or shares he/she is a registered holder in a related corporation or shares he/she is interested to own;
- rights or options of him/her, or of him/her and another person or other persons in respect of the acquisition or disposal of shares in the company or a related corporation;
- debentures of or participatory interests in the corporation or a related corporation that he/she holds or in which he/she is interested in as well as the nature and extent of that interest; and
- contracts that he/she is a part of or that he/she is eligible to benefit from, being contracts he/she can call for in his/her own right, or deliver.
You need to note that company directors have the duty to notify the board in writing about all the details of their interests in a transaction as well as any changes that may arise. This notification must be executed within 2 business days as soon as they assume their office as the director/CEO (as the case may be) of your company.
In this regard, you must also note that your company is obligated to keep a register showing all the directors and CEOs shareholdings. Should the director or CEO fail to provide accurate details of these requirements, the courts will find him/her guilty of an offense. He/she will be forced to pay a fine of at least SDG$15,000 or serve a prison term not exceeding 3 years. If the offence is repeated, he/she will pay an additional fine of SGD$1,000 on a daily basis after from the time he/she was convicted.
Now that you have comprehensively learnt about disclosure requirements, if you are a company owner or a shareholder in Singapore who needs further guidance, contact us today and we will take it up with you every step of the way.