Disqualification of Directors and Secretary
Since it is legal requirement that companies incorporated in Singapore must have a minimum of 1 director who is ordinarily resident in Singapore, a director can be disqualified for a number of reasons, including wrongful trading, fraudulent trading or ‘unfit’ conduct.
This article will guide you on all the factors that may lead to the disqualification of a director of a Singapore company.
Statutory Framework for Disqualification or Debarment
The Companies Act sets out particular scenarios whereby individuals are discredited or debarred from being directors to a company and taking part in management activities within the firm.
The guidelines set out in the Companies act aim to protect members of companies by rendering it an offence for persons who is deemed unfit from being part of the firm’s management team.
The laws are summarized as below:
Sections under the Companies Act
Scenarios of leading to disqualification
Restrictions on undisclosed bankruptcy regardless of the proclamation by a Singapore court or a foreign one that an individual is bankrupt
During the period of bankruptcy unless given consent by the a certified judge or a written letter from an Official Assignee
A disqualification order directed by the court following an application made by the Minister of Finance or any Official Receiver that a certain company has gone into liquidation, and the court finds the his/her actions unfit to for the position
Almost 3 years since the disqualification order
An order made following an application against the company’s directors. The directors must be from a firm that is no longer operational for being a threat to national security or the interest of the public
3 years since the winding up order was made
(1)(a) Where an individual is guilty of:
(i) a crime in Singapore or elsewhere where the individual was convicted of fraud and imprisoned for more than 3 months or more, or
(ii) a crime listed in the under Pt XII of the Securities and Futures Act, or
(1)(b) a scenario when the person is faced with a civil penalty under Section232 of the Securities and Futures Act
(2) disqualification following an offence related to the incorporation of affirm or any of the illegal acts mentioned under the Section 157 or 339 of the Companies Act
5 years from the date of imposition of civil penalty or conviction (in case the individual not incarcerated) or from the time he/she was released from prison.
An individual who has persistently refused to comply with regulations stated in the Companies Act as elaborated in s 155(2) of the Companies Act
At least 5 years from the date of the most recent conviction if the leave of court is not obtained
An individual who has been a director in more than three firms that have been blacklisted in the registers as stipulated by the Section 344 of the Companies Act within a period of 5 years .the person must have been the director when the companies were removed from the register.
At least five years after the last firm was blacklisted unless the leave of court was obtained
Note: Section 155A of the Companies Act only applies where all 3 companies were struck off on or after 3 January 2016
A person against whom a debarment order has been made by ACRA as defined in Section 155(3) of the Companies Act and such order and the order has been persistent for more than 3 months while the individual held the position of director or secretary at the time
From the time the debarment was made until ACRA cancels or suspends it
Note: The disqualification only applies in relation to new appointments and does not affect directorships in companies which the person served before the debarment order
In situations where the individual has been disqualified as per Section 34, 35 or 36 of the Limited Liability Partnerships Act 2005 (Cap 163A)
From the time the person ceases to be disqualified or leave of court is obtained
Automatic Disqualification due to Backruptcy
An individual who is legally bankrupt attracts an automatic disqualification from assuming the position of the director despite being adjudged bankrupt by a court in Singapore or one situated abroad. He/she will be found culpable for committing the illegal act if he/she assumes the role of the director directly or indirectly participates in the day to day management of the organization.
The individual only assume office as a director if he recieved the leave of court or has obtained the consemt of the Official Assignee (OA). In case of failure, the person will be found liable once he/she is convicted to a fine of less than S$10,000 or be imprisoned for a maximimum of 2 years.
The court will only give the leave of court when an application notice is approved by the Minister and the OA to allow either to be represented at the hearing for such leave and the opportunity to oppose to such granting of the application.
Automatic Disqualification due to Conviction for Certain Offences or Contravention of Certain Laws
If an individual is subject to a conviction in Singapore and abroad because of offences related to fraudulent activities or any other form of crime that leads to prison time of more than three months, they are automatically disqualified from managing companies for a specified period.
As long as the crime attracts more than # months of imprisonment, it does not matter if the offender is actually sentenced to imprisonment for 3 months or more. The period of disqualification is taken to be the first five years after being convicted or the individual was imprisoned after being released from jail.
In addition, scenarios where the individual is subject to a conviction of a crime mentioned under the Pt XII of the Securities and Futures Act, or has a civil penalty order made against him/her for contravention of provisions of the legislation, the person will receive an automatic disqualification from participating in the management roles.
Section XII of the Securities and Futures Act deals with securities offences such as market manipulation, fraudulent conduct, continuous disclosure requirements and insider trading, etc. A civil penalty order is an order as per Section 232 of the Securities and Futures Act imposing a fiscal penalty on someone who has contravened a provision under Pt XII of the Securities and Futures Act. The contravention is not regarded as a criminal offence.
Automatic Disqualification for Persistent Default in Delivering Documents to ACRA
A person who, within a five-year period, was a director of 3 or more companies which were blacklisted in the register as stated in Section 344 of the Companies Act is automatically disqualified from managing companies.
The person must have been a director of the companies at the time that they were struck off. The disqualification is for 5 years from the date of the latest striking off.
Debarment Order Made by ACRA
A person who is not in persistent default of a relevant requirement under the Companies Act may nonetheless be debarred from acting as a director or a secretary. This may occur where a firm fails to comply with the directives and the individual was the acting director when the company received the debarment order.
An individual with such a debarment order is prohibited from acting as the director of the firm except in of companies in which the person was a director before the order was presented. Contravening this is an offence.
ACRA shall make a debarment order as long as non-compliance linked to the requirements stated in the Companies Act has existed for more than 3 months and the individual was the acting director at the time.
ACRA must also send a notice informing the director of ACRA’s intention to make such an order at least 14 days before the debarment order is made. The notice must specify the default in question and give the director the chance forward their grievance on why the order should be suspended. A disbarment order will apply from the date which it is made until it is cancelled or suspended by ACRA in accordance with the section. Any person aggrieved as a result of a debarment order may appeal to the Minister.
Court-ordered disqualification because of involvement in companies that have undergone insolvent liquidation
- the court may under section 149 of the Companies Act, disqualify a person from participating in the daily management of the firm for more than 5 years following an application made by the Minister or the Official Receiver as long as the court is convinced:
- the individual subjected to the order has less than 14 days’ notice after the application was made; and
- the individual has held the position of director in a firm that at some point of its existence undergone liquidation (whether while he/she was a director or within 3 years of his/her ceasing to be a director) and is unable to pay the debts; and he/she has been deemed unfit to hold the position in that companies and others or to be part of the daily management in the firm.
When making the decision on whether an individual’s action and behaviour make him/her unfit to be part of the management team in the firm, the following matters may be considered by the court:
- If the person is found to have breached the fiduciary duty or any other responsibilities expected if the firm’s directors;
- If the director is accused of misapplication and the retention, or any actions that may lead to a situation whereby the individual’s accountability is questioned when it comes to the company’s money and assets;
- The degree of the director’s involvement in the firm becoming insolvent;
- Whether the director is responsible for any failure by the organization becoming insolvent;
- Whether the director is responsible for any failure by the organization to comply with section 138, 190, 191, 196B, 197, 199 and 201 of the Companies Act;
- The responsibility of the person in disposing of assets or the transfer of shares belonging to members after the operations to wind up the business have commenced in contravention of section 259 of the Companies Act ; and
- If the causes of insolvency are linked to the company’s operations in a particular industry where the risk of becoming insolvent is considered to be higher
Court-ordered Disqualification Pursuant to Conviction for Selected Offences
The court may under Section 154(2) of the Companies Act prevent an individual from taking part in any managerial roles within the firm when the person is arrested in Singapore for:
- Any crime related to the company’s management or the formation of a corporation (e.g. the failure to adhere to the prospectus obligations when it comes to promoting the company); or
- Any crime mentioned under the Section 157 of the Companies Act (the failure to apply reasonable diligence in undertaking the duties if the director or the inappropriate use of information or his/her role as the company’s staff) or 339 of the companies Act (the failure to have the right accounts or involvement in illegal trading)
- The disqualification order is presented in the court proceedings related to a particular crime and in some instances it can be considered as an additional sentence to the person. When the individual is not looking at imprisonment, the order can be presented after more than 5 years since the convictions was made. In instances where the person has already been imprisoned, the disqualification order will become valid when the conviction is made and this can go as long as 5 years fate the person’s release date.
Court-ordered Disqualification on Grounds of National Security and Interest
According to Section 149A, the Minister of Finance has the authority to make an application to the court against a person to be disqualified from managing companies where the firm has been blacklisted because of becoming a threat to the national security or interest of the public.
The individual against whom the application is made must have assumed the role of the director of the firm at the time the enterprise was dissolved. According to the law, the court has the power to disqualify the person for as long as 3 years from the time the order was made. The court on the other hand cannot present a disqualification order in situations where the person provides evidence that the director has been involved in activities that threaten national security without his/her approval and that the individual has gone of his/her way to ensure that the company does not engage in such criminal activities.
Disqualification under the Limited Liability Partnerships Act
Disqualification provisions which prohibit disqualified persons from acting as managers of limited liability partnerships are contained in the Limited Liability Partnerships Act 2005. The disqualification provisions are similar to those provided in the Companies Act in relation to companies. Section 155C of the Companies Act provides that where the individual is disqualified under the Limited Liability Partnerships Act 2005 from acting as a manager under the limited liability partnerships, that person is not eligible to fill the position of the director and take any other managerial role.
Relief from Disqualification
A disbarred director may make an application to the court for leave to be involved in the managerial roles of the company. The court has the power to grant leave either generally or in relation to specific purposes. In addition, a person who is disqualified because of bankruptcy may make an application to the OA who has the power to grant leave to bankrupts to manage companies. However, the court lacks the mandate to give the leave to a disbarred director where the court has made a decision as per Section 149A of the Companies Act related to director of companies accused to being threat to national security. Furthermore, when ACRA has made a debarment order against the director n the case of debarment, an application may nonetheless be made to ACRA to cancel or suspend the debarment order.
In deciding whether to exercise its discretion to relieve a director from disqualification, the court takes into account:
- the nature of the offence committed;
- the type of director’s participation;
- the overall personal traits of the director;
- the composition and type of business activities the companies affiliated to the applicant that seeks court’s permission to be an active member of the management team;
- the public’s interest as well as that of the shareholders, the staff and the creditors ; and
- any threats and risk to the general public if the directors assumes and management position. It is for the director to satisfy the court that he possesses commercial integrity expected of individuals with influential managerial functions in companies should be endowed with.
Effect of Disqualified Person Managing a Company
A person who is disqualified from managing companies and does not have permission to manage companies will be committing an offence if the person assumes the role of the director directly or indirectly participates or is interested in the firm’s management.
Such a person may be fined up to S$10,000 or imprisoned for up to 2 years, or be subject to both these penalties. Nonetheless, the acts of all directors remain valid notwithstanding the fact that the act may have been done while the person was disqualified at the time.
Debarment Order against Company Secretary
In instances, where the Registrar is convinced that the company defaulting the requirements of the mentioned in the Companies Act, the Registrar has the authority to offer a debarment order against the individual that was the firm’s director or secretary when the order was drafted.
A person with a debarment order against him/her is not permitted to act as secretary for any company save in respect of companies which the individual serves as a secretary before the order was made and a contravention of the same is an offence.
The Registrar will not make a debarment order unless:
(i) the non-compliance to the requirement set out by the regulatory body has been so for more than three months and the individual was wither a secretary or held the position of the director in the organization.
(ii) the Registrar has, not less than 14 days before the order is made, sent the director or secretary a notice of the Registrar’s intention to make a debarment order specifying the default in relation to the relevant requirement of the Act for which the debarment order is proposed to be made and giving the director or secretary the opportunity to show cause why the debarment order should not be made.
A debarment order will apply from the time it was initiated and will continue to be valid until is suspended by the Registrar of companies. A person aggrieved by a debarment order may appeal to the Minister.
If you need guidance on matters concerning the disqualification of directors in Singapore, contact our experts at Tianlong Services today and we will offer expert guidance to ensure your company remains in compliance with Singapore law as it grows and expands. Contact us today for a free consultation.