Directors' Statutory and Fiduciary Duties
25 September 2002
Directors' Statutory Duties Under The Companies Act ("the Act")
Section 157 of the Act sets out the statutory duties of directors. Firstly, directors in discharging their duties, have a statutory duty at all times to (a) act honestly and (b) use reasonable diligence. Secondly, officers and agents of the company cannot make improper use of any information acquired by virtue of their position to gain, directly or indirectly, (a) an advantage for himself or for any person, or (b) to cause detriment to the company. This is often referred to as a fiduciary duty. A director is an officer of the company. The extensive application of this statutory fiduciary duty to anyone who is deemed to be an officer or agent of the company has significant implications for the corporate governance responsibilities of those persons.
The statutory duties of a director, officer or agent under section 157 are in addition to, and not in derogation of, any other written law or rule of law relating to the duty or liability of directors or officers of a company. A director’s breach of this statutory duty can be a civil breach rendering the director liable to the company for any profit made by him or for any damage suffered by the company. The breach can also be a criminal offence.
Directors' Fiduciary Duties Under The Common Law
director is regarded as a fiduciary both at common law and under the
Act. A fiduciary relationship arises when one party (the company) is
entitled to expect that the other party (the director) will act in the
first party’s interests to the exclusion of the second party’s
separate interests. Of all the duties of a director, his fiduciary duty
is conceptually the most demanding. It is an all encompassing duty.
A director’s duty is not merely to serve the company’s interests.
He must avoid placing himself in a position where he prefers his own
interests, or the interests of a third party, instead of or to the detriment
of the company’s interests. This fiduciary duty is also a statutory
duty under section 157(2) of the Act. As the application of the fiduciary
duty is very broad, this duty may be recognised under the following
rules under the common law :
The Singapore Corporate Governance Environment
Singapore, shareholders have the right to ensure that a company is properly
run. This right is enforced via the derivative action. In fact any person
whose interests have been, are or would be affected by the conduct or
likely conduct of another person in contravention of the Singapore Companies
Act (“the Act”) can apply for an injunction. Similarly that
same aggrieved person may apply for an injunction to require a person
to do an act or thing that he is required to do by the Act.
Are Directors' Duties Owed To The Company Or To The Shareholders?
must exercise the powers vested in them collectively as a board and
not individually. The directors are duty-bound to remain impartial as
between groups of shareholders in the company. The SGX Listing Manual
recognises this principle when its rules require that an independent
financial adviser be retained to advise minority shareholders on a material
interested person transaction. The directors’ duty is owed to
the body of shareholders as a whole. However, in the governing and management
of the company, the classic view, decided in 1902 in Percival v Wright,
is that fiduciary duties of the directors are owed to the company only.
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