Don’t Let It Happen To You
In any company, the role of directors is always a vital one. Apart from setting direction and making strategic decisions, they carry the heavy responsibility to ensure the company is fulfilling its statutory obligations. Recently, there was a stark increase in directors disqualified for breaches of the Companies Act. This led to authorities stepping up in their regulatory actions against repeat offenders. Once disqualified, the individual is barred from taking directorship or participating in management of any company unless given permission by the High Court or Assignee. They will also be listed on the Accounting and Corporate Regulatory Authority’s (ACRA) public register.
The penalty and disqualification being imposed on directors reinforces the importance of directors complying with their statutory obligations.
The circumstances which disqualify a person from being a director may include the following 6 common reasons:
1. Disqualified for Default in Delivery of Documents to ACRA
Under Section 155 of Company Act (CA), directors can be disqualified for the following:
- Convicted for three or more filing related offences within five years
- Three or more High Court Orders made against him compelling compliance with the relevant requirements of the Act, within five years
- Under Section 155A, ACRA has struck off three or more of companies he belongs to within five years. The five-year disqualification period commences from the striking-off date for the third company.
Any disqualified individual found continuing or participating in any directorial activities is guilty of an offence and when convicted, is liable to a fine not exceeding $10,000 and/or imprisonment term not exceeding two years.
2. Disqualified for Conviction of Fraud or Dishonest Offence Involving
For convicted offences of fraud and dishonesty in Singapore or elsewhere, the person will face automatic disqualification of 5 years under Section 154 of Singapore Companies Act. They will be subject to punishment equivalent to 3 months or more. Examples include theft, cheating, insider trading and criminal breach of trust.
Director can be disqualified by court if convicted of offences relating to company’s formation or management or failure to keep proper accounts or trading during insolvency.
If the director is imprisoned, his disqualification period begins at the point of conviction and extends for 5 years or shorter after his/her release. Subjected to Court’s approval. If not imprisoned, the director can apply to the Court for permission for resumption of director role during the disqualification period.
3. Disqualified due to Bankruptcy
Under Section 148 of Singapore Companies Act, a director is ineligible for the role of director or involvement in the management capacity of any company when he/she has been declared bankrupt by Singapore Court or foreign court. Without the Court Order or the Official Assignee’s written permission, they will be unable to function in that capacity. However, if the bankruptcy has been discharged, they will be eligible for reappointment as director in any company.
4. Disqualified for Unfit Directors Of Insolvent Companies
According to Section 149 of Singapore Companies Act, Court Order may be placed against the director to disqualify him/her from participating in the management of the company under the following situations:
- The person was a director of an insolvent company that was liquidated. The person may be disqualified if he was director at the time of liquidation or cease to be director within three years from date of liquidation.
- The person’s performance as director of an insolvent company proves him to be unfit for holding the appointment and involvement in the company’s management process.
The director can apply to the Court for permission for resumption of director role during the disqualification period. Or he/she can wait till the end of the disqualification period of 5 years before being reappointed or incorporate a new company.
5. Disqualified for Companies Winding Up on Grounds of National Security Or Interest
Under Section 149A of Singapore Companies Act, the Court has the power to disqualify any person who uses the directorial position for intent against national security or interest.
The person will be disqualified for 3 years from the date of issue of winding up order. After which, he/she may be appointed or incorporate companies.
6. Disqualified for Failure to Make Returns
According to Section 13 of CA a director may be disqualified from his/her directorial position after conviction of 3 or more offences for not filing, amending and resubmitting or rectifying the accounts, returns and other necessary documents with ACRA. Under the same regulation, the director also must not have 3 or more orders from the High Court of Singapore made against him.
Companies are expected to report the disqualification to ACRA within 14 days the director is disqualified. Failure to notify ACRA will incur fine of up to $5000 or default penalty for offence continued after conviction per officer of the company found liable.
Directors’ duties can be very comprehensive. For a company to operate effectively, its directors must comply with all the statutory requirements outlined in the law. Directors will need to be more prudent as breach of duties can result in penalties and potential criminal prosecution and civil action. It is recommended for companies to engage a reputable corporate services firm to guide and assist the directors in executing their duties to ensure proper compliance with the law.