A director owes fiduciary duties to his principal, i.e., his company. What this means is that the director has a duty of loyalty and fidelity to the company. This can be summarised by two rules, namely the no conflict and no profit rule. Therefore, when a director diverts business away from his company and the company loses out on earning profits on that business, that act is in contravention of the no conflict and no profit rule. The law recognises a fiduciary as someone who has undertaken to act for or on behalf of another and hence there forms a circumstance which gives rise to a relationship of trust and confidence. The law also recognises that company directors are presumed to have fiduciary obligations to their company unless this presumption can be displaced.
What this means is that, more often than not, so long as you are a director of a company, you owe fiduciary duties to your company.
When a director breaches this duty, the company can have remedies against the director. For example, if the director has diverted the profits away from the company to say another company which he owns, he is in breach of the no conflict and no profit rule. Therefore, the company can claim against those profits.
The question is, under what circumstances can the company make such a claim? What must be proven?
Before 2020, the law to such a matter was unsettled. However, in 2020, Singapore’s highest court, the Court of Appeal, settled the issue in the case of Sim Poh Ping v Winsta Holdings Pte Ltd [2020] 1 SLR.
This is the test that a company needs to clear to be allowed to claim against a director who has breached his fiduciary duties.
The test:
Step a) The Principal (the company) needs to establish its claim that there was a breach by the fiduciary that led to a loss
Step b) Once the claim is established, a rebuttable presumption arises.
The presumption is that the fiduciary’s (director’s) breach caused the loss
(it is presumed that there is “but for” causation)
Step c) and d): The fiduciary needs to rebut the presumption by showing that
the loss would have been sustained by the principal even if the fiduciary had not breached his or her fiduciary
If he can rebut the presumption: No equitable compensation can be claimed in respect of that loss
If he is unable to rebut the presumption: The upper limit of equitable compensation is to be assessed by reference to the position the principal would have been in had there been no breach.
Equitable compensation is compensation for loss suffered.
As can be seen, all the company needs to prove is that the director breached his fiduciary duty and that the company suffered a loss. The director will have to show how that loss would have been suffered even if there was no breach. This places a very heavy burden on the director. This is in line with Singapore’s stance to give legal effect to stringent duties placed on directors and the need to deter directors from breaching their duties. Such a stance is important in making Singapore a place for businesses to flourish.
Please note that this article should not constitute legal advice.
If you have any company-related queries, you may email us at [email protected]. When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
Yours Sincerely,
The editorial team at Singapore Secretary Services
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Directors’ Resolutions in Singapore
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