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Shareholders may be able to sue errant directors; norms may ease for small companies
By JAMIE LEE
25 May 2011
More than 200 proposed changes to the Companies Act were submitted to the Finance Ministry last month - with the Act due for a thorough rewrite - said steering committee head Walter Woon yesterday.
The committee has also decided against codifying directors’ duties to prevent squeezing all directors into the same cast-iron mould.
‘The UK Companies Act 2006 has codified directors’ duties, and people have said, ‘the British have done it, we should do it too’. But we cut the apron strings a long time ago,’ said Professor Woon at a corporate summit.
‘You cannot have a one-size-fits-all duty for directors, except at the most general level, which is already there in Section 157. If you make it more specific, you’re going to have problems because there is no single species of director,’ said the former attorney-general.
Laws that define the statutory code of directors’ duty are also ‘scattered all over the Act’, which means they must be consolidated and tweaked to prevent contradictions, he added.
Currently, Section 157 of the Companies Act says that the statutory duties of directors include acting honestly and using reasonable diligence. By contrast, the UK lists out seven director’s duties, such as avoiding conflict of interest.
‘It’s consistent with our common law roots that we have decided not to have a codification of directors’ duties,’ said Joy Tan, joint head of WongPartnership’s corporate governance and compliance practice.
‘The common law allows for a subjective scope, such as the standard of care and skill, which can vary depending on the director. Whereas if you were to codify it, it can become very cut and dried, and inflexible.’
Prof Woon also put up a suggestion that was not in the official list of recommendations since this did not involve changes to the Companies Act: that since some parts of the Act, such as Section 157, apply only to Singapore companies, there should be a new Listing Corporations Act that would allow prosecution of foreign firms that are listed in Singapore.
‘It makes prosecution impossible,’ said Prof Woon, referring to the situation of errant foreign companies that are not liable under the Companies Act.
‘There can be a different and tighter regime for companies that seek a listing, and I would personally say that a stricter regime should not only apply to Singapore companies, but any company that seeks a listing in Singapore.’
Market watchers, however, noted that a chilling effect may hit the capital markets as a result.
‘Rather than having a new Act, we could consider revising the Securities and Futures Act instead, which applies to any corporation with securities traded here,’ said Mak Yuen Teen, associate professor at the NUS Business School.
‘For foreign corporations, there will still be the issue of enforceability if there is no extradition treaty between Singapore and the other countries.’
Sin Boon Ann, deputy managing director of corporate and finance practice group at Drew & Napier, said: ‘The intention is very noble but there are great challenges in enforcing this.’
Another change proposed was to extend the use of statutory derivative action to listed companies. This effectively allows shareholders to sue directors for a breach of duty - something they cannot do under the current Act.
‘If the whole board of directors is merrily plundering the company, the shareholder can go forward and say, ‘I can’t trust these directors to sue themselves, so let me do it on behalf of the company’,’ said Prof Woon.
He added that this would not bring more litigation or frivolous suits.
The committee has also proposed that custodian banks and nominee companies which hold shares on behalf of CPF or institutional investors be able to grant more than two AGM proxies - the current limit.
Another proposed change is to exempt ‘small companies’ from accounts filing, currently only provided for firms known as exempt private companies that include property giant Far East Organization.
This reform - which would affect about half of all companies here - defines a small firm as one that fulfils two out of three requirements: its revenue and gross assets must not exceed $10 million, and it must not hire more than 50 employees.
Prof Woon expects the new Companies Act to take shape over the next few years.