CORPORATE MANAGEMENT

SEMINAR 3
BSP 1702/1004 – LEGAL ENVORONMENT OF
BUSINESS
SEMESTER 2, 2018/19
 CONTENTS

1 Objectives
2 Types of Directors. Management of company. Division of
Powers. Minority Oppression
3 Director’s duties and Responsibilities. Director’s Statutory
Duties. Director’s Liabilities. Insider Trading. Case Studies
4 Learning Outcomes
5 Readings
1

 UNDERSTAND CORPORATE MANAGEMENT

RESPONSIBILITIES
 2. TYPES OF DIRECTORS

• MANAGING DIRECTOR (MD) • NON-EXECUTIVE DIRECTOR

= CEO. MAY SIT AS CHAIRMAN
OF BOARD OF DIRECTORS
• EXECUTIVE DIRECTOR – DAY
TO DAY RUNNING OF
COMPANY E.G. FINANCE
DIRECTOR, MARKETING
DIRECTOR, DIRECTOR OF
SUPPLY CHAIN
– NO EXECUTIVE FUNCTIONS.
MAY BE DIRECTOR OF OTHER
COMPANIES BUT AVOID
CONFLICTS OF INTEREST. MAY
BE APPOINTED FOR BUSINESS
EXPERIENCE
 TYPES OF DIRECTORS

• INDEPENDENT DIRECTOR – • NOMINEE DIRECTOR -

NON-EXECUTIVE. NO
RELATIONSHIP WITH
COMPANY, RELATED
COMPANIES OR OFFICERS
THAT WOULD INTERFERE WITH
HIS INDEPENDENT BUSINESS
JUDGMENT
APPOINTED BY MAJORITY
SHAREHOLDER E.G.
CORPORATE SHAREHOLDER
TO LOOK AFTER ITS
INTERESTS. “DIRECTOR” IN
LAW
 TYPES OF DIRECTORS

• ALTERNATE OR SUBSTITUTE • SHADOW DIRECTOR NOT

DIRECTOR - TO ACT IN THE OFFICIALLY APPOINTED BUT
PLACE OF A DIRECTOR WHO IS PULLS THE “PUPPET STRINGS”
OVERSEAS FOR A SPECIFIED – “DIRECTOR” IN LAW
TIME • DE FACTO DIRECTOR – NOT
PROPERLY APPOINTED BUT
ACTS AS DIRECTOR.
“DIRECTOR” IN LAW
 2.1 MANAGEMENT OF COMPANY
• AT LEAST ONE DIRECTOR ORDINARILY RESIDENT IN SINGAPORE
• WHO MANAGES A COMPANY?
• CAN THE GENERAL MEETING OF SHAREHOLDERS INTERFERE
WITH THE EXERCISE OF DIRECTORS’ POWERS?
• NO, UNLESS ACTING CONTRARY TO THE CONSTITUTION OR THE
COMPANIES ACT
• WHAT CAN THE GENERAL MEETING DO?
• REMOVE DIRECTORS, NOT RE-ELECT OR AMEND CONSTITUTION
 DIVISION OF POWERS
Shareholders Directors
Right to attend company meetings and To manage and direct company
vote
Right to sell and transfer shares Appoint officers and agents and
delegate authority to act
Right to receive declared dividends
Right to inspect company register
Right to inspect books of account or
published accounts?
Minority shareholder’s action
 S.216 COMPANIES ACT
• ACTION BY MINORITY SHAREHOLDERS FOR
OPPRESSION, DISREGARD, UNFAIR
DISCRIMINATION OR PREJUDICE
3. DIRECTOR’S DUTIES &
RESPONSIBILITIES
 3.1 DIRECTOR’S DUTIES

1. FIDUCIARY DUTIES OF GOOD FAITH

• ACT HONESTLY IN THE INTERESTS OF THE COMPANY
• AVOID CONFLICTS OF DUTIES & INTERESTS: INSIDER TRADING,
SECRET PROFITS, CONTRACT WITH COMPANY, ABUSE OF
CONFIDENCE

2. DUTIES OF CARE AND SKILL

• EXECUTIVE AND NON-EXECUTIVE DIRECTORS

3. STATUTORY DUTIES – SEE BELOW

 CASE ON CONFLICTS OF INTEREST

CANADIAN AERO SERVICE LTD V O’MALLEY

• C NEGOTIATING FOR PROJECT IN GUYANA.
• O (PRESIDENT OF C) INVOLVED IN NEGOTIATIONS.
• O INCORPORATED OWN CO (T) AND RESIGNED FROM C
• T LATER WON THE CONTRACT
• CONFLICT OF INTEREST? BREACH OF FIDUCIARY DUTY?
 CASE ON CONTRACTS WITH THE COMPANY
ABERDEEN RAILWAY CO V BLAIKIE BROS
• RAILWAY CO ENTERED INTO A CONTRACT WITH PARTNERSHIP
BLAIKIE BROS
• DIRECTOR OF RAILWAY CO DID NOT TELL COMPANY THAT HE WAS
ALSO A PARTNER IN BLAIKIE BROS
• ANY CONFLICT OF INTEREST?
• WHAT HAPPENS TO THE CONTRACT?
• WHAT SHOULD THE DIRECTOR HAVE DONE?
3.2 DIRECTOR’S STATUTORY DUTIES
 DIRECTOR’S STATUTORY DUTIES

• S. 156 COMPANIES ACT

• TO DECLARE INTEREST IN TRANSACTION (DIRECT OR INDIRECT
E.G. INTEREST OF FAMILY) TO A MEETING OF DIRECTORS
DIRECTOR’S DUTY UNDER S.157 COMPANIES ACT

• ACT HONESTLY AND USE REASONABLE DILIGENCE IN THE

DISCHARGE OF DUTIES
• SHALL NOT MAKE IMPROPER USE OF INFORMATION ACQUIRED BY
VIRTUE OF POSITION TO MAKE PROFIT FOR HIMSELF OR ANY
PERSON OR CAUSE LOSS TO COMPANY
 CASE ON S.157
• CHANG ALTERNATE DIRECTOR OF ST MARINE LTD
• DURING HIS TERM IN OFFICE, BRIBES AT LEAST $6.5 M IN BRIBES PAID TO
AGENTS OF ST MARINE’S CUSTOMERS, OF WHICH CHANG WAS NOT AWARE
• CHARGED UNDER S.157 FOR FAILING TO USE REASONABLE DUE DILIGENCE
IN HIS CAPACITY AS ALTERNATE DIRECTOR OF ST MARINE
• A MONTH AFTER CHANG JOINED THE COMPANY, FINANCIAL CONTROLLER
INFORMED HIM THAT MORE THAN $3M CASH PAYMENTS WERE MADE
• CHANG BELIEVED SUMS PAID FOR ENTERTAINMENT OR AS LEGITIMATE
AGENCY COMMISSIONS AND SO FAILED TO ASK ABOUT THE LEGALITY OF
SUCH PAYMENTS
• CHANG SHOULD HAVE SUSPECTED THERE WERE ILLEGAL
PRACTICES GOING ON
• IN MITIGATION – CHANG HAD MADE CERTAIN MISTAKEN
ASSUMPTIONS AND WOULD HAVE TAKEN ACTION HAD HE
KNOWN OF THE ILLEGAL PRACTICES
• ON 5 JANUARY 2017, STATE COURT ORDERED CHANG TO SERVE
A COMMUNITY SERVICE ORDER OF 14 DAYS
• CRIMINAL RECORD UPON SERVING COMMUNITY SENTENCE?
• RECORD OF COMMUNITY SENTENCE SPENT ON DATE THE
SENTENCE IS COMPLETED: 7DA REGISTRATION OF CRIMINALS
ACT
 IMPLICATIONS
• FIRST CASE WHERE COMMUNITY SERVICE SENTENCE IMPOSED FOR
S.157 OFFENCE
COMMUNITY BASED SENTENCES MEANT FOR REGULATORY OFFENCES,
YOUNGER OFFENDERS OR THOSE WITH SPECIFIC AND MINOR MENTAL
CONDITIONS
“TO PREVENT OFFENDER FROM BEING DISLODGED FROM FAMILY,
EMPLOYMENT AND SOCIETY AND TO ASSIST HIS REHABILITATION”
(SINGAPORE PARLIAMENTARY DEBATES, OFFICIAL REPORT (19 MAY 2010
VOL 87 AT COLUMN 568)
ALTERNATIVE FORM OF PUNISHMENT INSTEAD OF FINE/IMPRISONMENT
 3.3 DIRECTORS’ LIABILITIES
• S.162 CA: NO LOANS OR GUARANTEES TO DIRECTOR
OR FAMILY OR ANOTHER COMPANY IN WHICH DIRECTOR HAS
MATERIAL INTEREST EXCEPT:
HOUSING LOAN UNDER SCHEME FOR EMPLOYEES
REIMBURSEMENT OF EXPENSES
• NO COMPENSATION FOR LOSS OF OFFICE UNLESS APPROVED BY
MEMBERS OR STATED IN CONTRACT
 3.4 DISQUALIFICATION OF DIRECTOR

• S.148 CA: UNDISCHARGED BANKRUPT AUTOMATICALLY

DISQUALIFIED
• S.149 CA: DISQUALIFICATION ORDER FOR “UNFITNESS TO ACT”
UP TO 5 YEARS
• S.154 CA: CONVICTED OF FRAUD (3 MONTHS OR MORE) OR ANY
OFFENCE UNDER S.157, S.339 (FAILURE TO KEEP PROPER
ACCOUNTS) OR UNDER PART X11 SECURITIES & FUTURES ACT OR
SUBJECT TO CIVIL PENALTY UNDER S.232 SFA – AUTOMATICALLY
DISQUALIFIED FOR 5 YEARS
• S.155 CA: PERSISTENT DEFAULT RELATING TO RETURNS,
ACCOUNTS, NOTICES OR DOCUMENTS
• PERSISTENT DEFAULT = GUILTY OF 3 OR MORE OFFENCES OR
HAD 3 OR MORE ORDERS MADE AGAINST THE DIRECTOR WITHIN
LAST 5 YEARS
• AUTOMATICALLY DISQUALIFIED FOR 5 YEARS
3.5

SECURITIES & FUTURES ACT

 INSIDER TRADING – SECTION 218
• TO PREVENT CONNECTED PERSON (INSIDER) FROM TAKING
UNFAIR ADVANTAGE OF INFORMATION THAT IS NOT GENERALLY
AVAILABLE
• INFO MUST BE PRICE-SENSITIVE I.E. HAVE A MATERIAL EFFECT ON
PRICE OR VALUE OF SHARES
• INSIDER KNOWS OR OUGHT TO KNOW THAT INFO IS
CONFIDENTIAL AND PRICE-SENSITIVE
• CONNECTED PERSON INCLUDES OFFICER , DIRECTOR,
SECRETARY AND EMPLOYEE OF A CORPORATION
 INSIDER CANNOT
• TRADE IN SHARES
• PROCURE ANOTHER PERSON TO DO SO
• COMMUNICATE CONFIDENTIAL INFO TO THIRD PARTY (T) OR CAUSE
INFO TO BE COMMUNICATED, KNOWING OR OUGHT TO KNOW THAT
THIRD PARTY WOULD TRADE IN SHARES OR PROCURE ANOTHER (U)
TO DO THE SAME
• T AND U WILL ALSO BE LIABLE UNDER SECTION 219
 CONSEQUENCES FOR INSIDER TRADING
• PROSECUTED BY THE STATE AND PUNISHED BY THE COURT
• CASE REFERRED BY THE MONETARY AUTHORITY OF SINGAPORE
(MAS). COURT ORDERS CIVIL PENALTY. CAN’T BE CHARGED
• AGREEMENT WITH MAS TO PAY CIVIL PENALTY. CAN’T BE
CHARGED
 BREACH OF S.218 OR 219

Civil liability
to
compensate
victim for loss
suffered
Whichever
greater
 INSIDER TRADING: PP V KOH SOE KHOON (2006)
• MD AND EXECUTIVE CHAIRMAN OF • MD MADE A PAPER PROFIT OF $40,000
BML, LISTED COMPANY FROM EARLIER PURCHASE
• HE KNEW OF HIGHER NET PROFIT • PLEADED GUILTY. FOR EACH CHARGE,
AND DIVIDEND RATES FOR BML FINED $160,000. IN DEFAULT, 16
MONTHS’ IMPRISONMENT
• USING SON’S STOCKBROKING
ACCOUNT, HE BOUGHT 350,000
BML SHARES AT PRICES FROM 57
TO 60 CENTS PER SHARE
• WHEN CONFIDENTIAL
INFORMATION WAS MADE PUBLIC,
BML SHARE PRICES WENT UP TO
72 CENTS PER SHARE
 4. LEARNING OUTCOMES

• KNOWING THE DUTIES AND OBLIGATIONS IMPOSED ON

CORPORATE MANAGERS
• AN AWARENESS THAT MANAGEMENT CARRIES LEGAL
RESPONSIBILITIES
 5. READINGS
• READ ONLY RELEVANT TOPICS
COVERED IN THE SEMINAR IN
CHAPTER 10 & 11 OF RAVI
CHANDRAN “INTRODUCTION
TO BUSINESS LAW IN
SINGAPORE” (5TH EDITION)
AND/OR CHAPTER 9, 10 & 11
OF TABALUJAN “SINGAPORE
BUSINESS LAW” (7TH EDITION).