Breaches of the Companies Act by directors of Singapore Companies are, regrettably, commonplace. The Accounting and Corporate Regulatory Authority (ACRA)’s response to a breach will vary, depending upon its severity, the public interest and the harm done. In this article we look at the most common type of breaches, but specifically the failure to hold an Annual General Meeting (AGM) or to lodge the Annual Return (AR).
ACRA’S ‘Naughty Corner’
ACRA maintains a list of sections of the Companies Act which are more frequently honoured in the breach than the observance:
142(1) (failure of a company to have a registered office address);
143(1) (failure to notify the Registrar of Companies of any change in the situation of the registered office address and office hours);
144 (failure to publish a company’s name and registration number);
145(1) (requirement to have at least one director ordinarily resident in Singapore);
148(1), 154(1) and 155(1) (acting as director of a company whilst disqualified)
173A(1) (failure to notify the Registrar of Companies of changes in the register of directors, managers, secretaries and auditors);
175 (failure to hold an Annual General Meeting (AGM) within the stipulated timeframe;
197 (failure to lodge the Annual Return (AR) of the company within the stipulated timeframe;
401 (providing a false and misleading statement); and
405 (carrying on business without registering a corporation and for improper use of words Limited and Berhad).
AGMS and ARS
Sections 175 and 197 deserve particular mention, because of the severity of the fines which can be imposed. In August last year, for example, a director of several Singapore companies was convicted and fined SGD 16,800 after pleading guilty to 14 breaches of sections 175 and 197.
ACRA’s responses to breaches of the Companies Act range from imposing compulsory attendance at sessions aimed at educating the offender about their statutory duties, issuing a warning, offering a penalty or fee in lieu of prosecution (currently SGD 300 per breach with respect to sections 175 and 197), striking off a company, disqualifying or banning an offender from being a director, to prosecution.
In the example given above, the director’s conduct was sufficiently serious to merit prosecution, but the fine imposed was one that might be regarded as light in the circumstances, given that directors who fail to hold an AGM and/or file the AR can be fined up to SGD 5,000 per charge. Moreover, directors who are convicted of three or more filing related offences within a period of five years can be disqualified by ACRA and banned from being a director, or banned from taking part in the management, of a local or foreign incorporated company in Singapore, for five years. Disqualification or a ban can have serious consequences, particularly for small companies, where continuation of the business is typically reliant on the active participation of one or only a few directors.
Note that not all companies are required to hold an AGM. Section 175A(1) of the Companies Act lists the criteria that need to be fulfilled in order to be exempted, but care needs to be exercised because the exemptions themselves can be disapplied in certain circumstances. The best advice, if in doubt as to whether an exemption applies, is to check with your company secretary.
Liability For Past Failures
A question we are often asked is whether an individual who accepts an appointment as a director can be liable for breaches of the Companies Act which took place before he or she became a director. The short answer is yes: directors have a statutory duty to ensure that their company complies with the Companies Act, regardless of when in the past those breaches took place.
The easiest way to avoid inheriting compliance problems is to carry out some simple due diligence: check the company’s Bizfile profile before accepting an appointment. If delays are evident, their rectification should be insisted upon before an appointment is taken up. Compliance breaches are, in any event, often symptomatic of wider and deeper governance issues within a company, and should act as a warning sign to a prospective director that all may not be well at the company he or she is intending to join.
If you have any questions or concerns, please email us at firstname.lastname@example.org.