Retirement, re-election and vacation of Directors
In Singapore, while it is an honour to be nominated and elected to a company’s board of directors, the position comes with a number of serious duties and responsibilities.
Why are Directors’ Duties and Responsibilities Vital?
Generally, the director is concerned with performance, with the proposals and budgets that are brought up by management. He/she is concerned with performance within those budgets, the funds required for those budgets; if the funds are not used, he/she will want to know why; if more funds are used, he/she will want to know why.
He/she is concerned with performance of the various divisions or units within a company and with turnover and the return on funds. He/she is concerned as to financial commitments, whether committed, possible or probable, whether immediate, short term or long term and should try to look five years or further ahead.
He/she is concerned with the major contracts and obligations that the company may enter into. In brief he/she is concerned to see that top management effectively does its job, that proper reports are made and information given.
After carrying out all the above-mentioned commitments, the retirement, re-election and vacation of directors must be handle with care.
Overview of Retirement, Re-election and Vacation of Directors
The conditions of a director`s office are normally stipulated in the organization`s constitution. Alternatively, the committee appointing the director may specify his/her term of appointment.
At the end of the tenure, the director will leave their position and can vie for re-lection unless the constitution denies it. According to the constitution, retirement is the process by which the administrators step down annually or after the period stipulated in the constitution.
Retirement is an essential element when it comes to organizational management. It allows companies to transition from one generation of directors to another while ensuring continuation. Additionally, it allows business entities to bring in fresh talent that offers a wide range of new ideas.
For example, in the case of companies listed on the SGX, the Code suggests that every director must re-apply for re-nomination and re-election after a specific period, usually after every three years. However, the Companies Act does not provide for retirement and it is possible to omit provisions relating to retirement in the constitution.
The retirement procedure gives shareholders an opportunity to assess the retiring administrator`s performance and determine if the director qualifies for re-election. Whether the director is considered to have vacated office is determined after the result of the re-election.
Retirement should not be equated to automatic vacation of office of a retiring executive. It means that if a director offer him/her for re-election, is treated as re-elected unless:
- the retiring director is disqualified or debarred from vying for the position of the director as stipulated in the Companies Act;
- At the AGM when shareholders decide not to recruit a person for the vacated position; or
- A motion to re-elect the director is tabled during the meeting and rejected.
It is important to note that the retirement and re-election of directors is not compulsory for private companies but is recommended by the Code for companies listed on the SGX. It is uncommon for listed companies to omit the retirement and re-election processes.
Moreover, a director can also be elected for life if stipulated in the constitution. Nonetheless, the executive of a public firm can be removed from their position following the procedure in Section 152 of the Companies Act, notwithstanding any conditions laid out in the organization`s constitution or any contract between the director and the firm.
Thus, a “life appointment” of an executive in a public corporation simply means that the director’s appointment continues until it is terminated and the director need not seek re-election; or when the director is removed. Many companies, especially private corporations, provide directors with “life appointment” since most of these executives are co-founders or major shareholders.
Rules for Retirement and Re-election
The Model Constitution of the Companies (Model Constitutions) Regulations 2015 which is adopted by some limited companies sets out the following rules as to the retirement and re-election of directors:
- All the directors of a company are to retire at the first AGM and to seek re-election.
- At the AGM following the first AGM, one-third of the elected directors (rounded to the nearest multiple of 3) have to retire. The number of retiring directors may be increased or decreased by ordinary resolution.
- Retiring directors are eligible to be re-elected.
- The retiring directors must include the longest serving individual since the since their last appointment. When more than one individual becomes a director at the same time, the retiring executive must (unless stated otherwise in the contract) be selected by the majority.
- Directors are empowered to appoint any person to fill a casual vacancy as director or as an extra executive according to the number of directors stipulated by the constitution. Such newly appointed director(s) will stay in the position until the next AGM and then qualify to be re-elected. The new director will not get a vote in choosing which executives should retire.
The terms of directors are governed by the company’s constitution and may come to an end while a winding-up order is in effect.
Rules for Vacation of Office
The vacation of office by directors is governed by a company’s constitution. Companies frequently adopt reg 76 of the Model Constitution which lists out the situations in which a director’s office is vacated.
Such situations are where the executive:
- stops to be an executive in accordance with the Companies Act;
- goes into bankruptcy or formulates any plan with their creditors;
- Is disqualified from holding the position of a director because of removal or revocation of their appointment as an executive in accordance with the constitution;
- Is banned from becoming a director as stipulated under the Companies Act;
- When one is an executive of a Registered Fund Management Company as described in the Securities and Futures Regulations (Cap 28, reg 10), and they were removed from office as stipulated in those Rules;
- Develops mental conditions, becomes incapable of looking after themselves, or becomes an individual who is liable under any regulations connected to mental capability;
- Steps down from his/her position by tabling the resignation in writing;
- Fails to attend the executives` meeting consecutively for more than half a year without seeking consent from other executives;
- Has direct or indirect interest in any agreement or planned agreement with the organization and fails to disclose their intentions and interests as mandated by the Companies Act.
The “applicable law” under part (d) above includes but is not limited to the following:
Applicable law: Section 148, 149, 149A, 154, 155, 155A or 155C of the Companies Act;
Unless granted leave or written permission, it is an offence for an undischarged bankrupt to act as a director.
The court may declare the director of a bankrupt corporation as unfit.
The court may declare the directors of corporations which are closed due to national security as unqualified.
- Any individual who has been imprisoned because of fraud or dishonesty for three months or more;
- Any crime as stipulated in part XII of the Securities and Futures Act;
- The obligation of the civil penalty as stated in Section 232 of the Securities and Futures Act.
Ineligibility by court mandate:
- If the executive found guilty of any crime relation with the establishment or management of a company; or
- Any crime as stipulated in Section 157 of the Corporation Act.
Ineligibility because of persistently failing to deliver documents to the Registrar.
Ineligibility because of being a director in not less than three corporations which have been closed down in the last half-decade.
An individual who is subject to ineligibility under Section 34, 35, or 36 of the Limited Liability Partnership Act cannot become a director.
Applicable law: Banking Act (Section 50 or 54)
The Monetary Authority of Singapore (MAS) could assume control of a bank if it is unable to meet its obligations, etc, or is conducting business to the detriment of depositors. Any appointment of a director before taking authority, shall be invalidated unless it is approved by MAS.
Where the MAS is satisfied that a director:
- has been convicted of certain offences, especially those relating to deception or deceit;
- remains bankrupt;
- has failed to adhere to a judgment on returning debt
- has engaged in a compromised contract with their creditors which is still operational;
- still has an active exclusion order against him/her;
- has served as a director of a financial company that has been closed down or whose license has been retracted;
- has willingly contravened or wilfully caused the entity (in this case, a bank) to infringe any of the conditions stipulated in relevant regulations;
- is unable to ensure the organization adheres to the relevant regulations;
- Fails to perform any of their tasks. In this case, to protect the public and shareholders` interests, an entity (for our case, a bank) may remove the director.
Note that since the factors above are replicated for different entities which are governed by the different statutes presented below, these factors will be hereinafter be referred to as “relevant factors”.
Applicable law: Finance Companies Act (Cap 108) Section 47
Where the Mas is satisfied that an executive of a financial institution has been involved in any of the “relevant factors”, the MAS may, to safeguard the public, creditors, or depositors, direct the finance corporation to fire or disqualify the director from their position.
Applicable law: Financial Advisers Act (Cap 110) Section 57
This section stipulates that when MAS is contented that a licensed financial adviser has been taken part in any of the “relevant factors”, the MAS can decided to interdict the licensed officer to protect the public, investors, or policy owners.
Applicable law: Insurance Act (Cap 142) Section 31, 31A, 35ZJ, or 41(2) (a) (ii)
The MAS may direct a licensed insurer to remove a director who has failed to perform his functions or is no longer a fit and proper person to protect public interest and policy owners.
A licensed insurer commits a crime if, without consent from MAS, it permits a person involved in “relevant factors” (1)–(6) to act as its director.
The MAS may direct a registered insurance broker to remove a director who has failed to perform his/her functions or is no longer a fit and proper person.
The MAS may issue directions to a licensed insurer or an insurance intermediary to remove any of its directors whom MAS considers unfit to be associated with it.
Applicable law: Monetary Authority of Singapore Act (Cap 189) Section 30AAI
Where the MAS is satisfied that a director of a relevant financial institution has been removed in any of the “relevant factors”, the MAS may feel it necessary to mandate the financial company to sack the director from his/her position or employment to protect public interest or certain individuals.
Applicable law: Money-changing and Remittance Businesses Act (Cap 187) Section 12A
When the MAS is contented that an executive of a licensee has engaged in any of the “relevant factors”, the MAS may find it necessary to mandate the licensee to interdict the director from his/her position or employment to safeguard the public and customers of the licensee.
Applicable law: Payment Systems (Oversight) Act (Cap 222A) Section 22
When the MAS is contented that an executive of a Singapore operator organization of a chosen payment system has taken part in any of the “relevant factors”, the MAS may be inclined to mandate the operator institution to fire the executive from his/her position or office to protect the interest of society or a portion of the public.
Applicable law: Securities and Futures Act (Cap 289) Section 44, 46Z, 81P, 81ZJ, 97 or 292A
When the MAS is contented that an officer of an approved exchange or a notable market operator has taken part in any of the “relevant factors”, except (5) and (6), the MAS may feel the need to mandate the re-known market operator to interdict the officer from his/her position or employment to protect public interest or investors.
When the MAS is contented that an officer of a licensed trade repository has been involved in any of the “relevant factors”, except (5) and (6), MAS may be inclined to mandate the licensed trade repository to interdict the officer from his/her position or employment to safeguard public interest or investors.
When the MAS is contented with an officer of an approved or notable clearing house has taken part in any of the “relevant factors”, MAS may feel the need to mandate the approved clearing house to get rid of the officer`s position or office to protect the interests of the public or investors.
When the MAS is contented that an officer of an official holding firm has been involved in any of the “relevant factors”, except for (5) and (6), the MAS may be inclined to follow the interests of the public or a part of society, or to safeguard investors. Therefore, the MAS may mandate the approved holding organization to interdict the officer from his/her position or employment.
Where the MAS is contented that an executive of a holder or capital markets services licence has taken part in any of the “relevant factors”, then MAS may feel the need to follow the interests of the public or a part of the population, or to safeguard investors. Hence, the MAS may instruct the holder to relieve the director of his/her duties.
In a scenario where the MAS is contented that an executive of an approved trustee has been involved in any of the “relevant factors”, the MAS may be inclined to act based on the interests of the public or part of the population, or to protect investors. Therefore, the MAS may instruct the approved trustee to fire the director from his/her position or employment.
Applicable law: Trust Companies Act (Cap 336) Section 14
In a situation where the MAS is contented that an officer of a licensed trust corporation has taken part in any of the “relevant factors”, except for (5) and (6), the MAS may be inclined to act based on public interests, or according to a part of the community, or to safeguard investors. Hence, the MAS may mandate the licensed trust organization to interdict the officer from his/her position or employment.
If you need guidance on matters to with the retirement, re-election and vacation of directors in Singapore, feel free to contact our experts at Tianlong Services today. We are the right choice to offer you expert direction to ensure your company remains in compliance with Singapore law as it grows and expands. Contact us today for a free consultation.