Published on:
28 Apr 2021
2
min read
On the perils of nominee directorship.
Singapore-incorporated companies must have at least 1 Singapore-resident director. Clients often engage local nominee directors for this purpose. But what happens to the company and the director if the client goes missing, and the director cannot file annual returns?
In this case, the applicant ("A") was a director of 35 companies, 3 of which did not file annual returns for at least 2 years. As a result, the 3 companies were struck off. Due to the striking-off, A was automatically disqualified from acting as a director for 5 years.
2 key takeaways:
(1) for almost all 35 companies, A was the sole director. I imagine that when he found out about the disqualification, there may have been a scramble to appointment replacement directors. If your company relies on a local nominee director, find out what measures they have in place to ensure that they are able to carry out their duties to all their client companies and avoid disqualification.
(2) if you're a nominee director, consider the risks of a client going MIA and leaving you holding the baby. Have you taken steps to mitigate such risks? Can you afford not to do so if this is your main livelihood?
(all views my own!)
Disclaimer:
The content of this article is intended for informational and educational purposes only and does not constitute legal advice.
A postscript, if you're wondering whether A sought to resist the disqualification.
A only found out about his disqualification more than a year later. He applied for leave to act as a director during the period of disqualification, but his application was dismissed.
In particular:
(a) A argued that he had not been negligent or lacked corporate governance knowledge. But the Judge held that the failure to file returns amounted to wrongdoing, and there was a pattern of non-compliance (including in respect of the other companies).
(b) A argued that he would face hardship if he was deprived of his main source of business and income. But the Judge held that such hardship was not relevant.
(c) A argued that there were circumstances beyond his control - his clients had gone missing and abandoned the companies. But the Judge held that directors can minimise such risk by (i) doing better due diligence on clients; (ii) applying to strike off the company voluntarily; or (iii) applying to wind up the company on just and equitable grounds.
[2021] SGHC 93 PDF
