LAW 2629:

Singapore Company and

Finance Law

Alex Wong
 Week 3:

Management of
Companies
 Overview of Topic Five:
Management of Companies
a. Decision-making and company management
b. Division of powers between members and
directors
c. The board’s power of management
d. Members’ decision-making powers
e. The role of company officers
f. Corporate Governance
g. Proceedings of the Board
a. Decision-making and
company management
 Decision-making and company
management: I
• Management of company = decision-making
• Company law concerned with the regulation of
decision-making (substantive and procedural)
• Decision-making is divided between the directors and
the members (acting collectively)
• Nature of the division depends on the constitution
• Management practices of companies vary according to
their culture and corporate governance practices
• Sometimes decisions are made by those who are
external to the company i.e. external administrator
 Decision-making and company
management II: Types of Decision
Enterprise decisions
• Relate to the business / operation of the company
• E.g. Hiring of employees, purchasing of assets, R&D required etc.

Capital decisions
• Funding decision: equity / debt
• Decisions relate to sourcing of funding / mix of debt and equity /
terms

Constitutional decisions
• Relate to the way company is constituted, internal relationships and
administration of the company
• Who should be a director / attaching rights to new share issues /
amendment of constitutional provisions
b. Division of powers between
members and directors
 Division of powers between
members and directors: I
• Members and directors are the organs of the company
• “Organic theory of law” members and board act as the
company:

• Members act collectively through voting at general

meetings
• Board of Directors

• Manner in which powers are divided is dependent on

companies legislation and constitution
• No hierarchy between Board and members, rather they are
sovereign in different areas (according to the constitution
and company law)
c. The board’s power of
management
 Board’s power of
management I: s. 157A(1)
Directors have general power of management

Section 157A

(1) The business of a company shall be managed by, or

under the direction or supervision of, the directors.

(2) The directors may exercise all the powers of a

company except any power that this Act or the
constitution of the company requires the company to
exercise in general meeting.
Board’s power of management
II: Restrictions
• Company’s constitution / Companies Act may restrict
the board’s general powers of management
• Most constitutions have provisions incorporating the
relevant SCA provisions.
• Some constitutions may have specific provisions
restricting director power (e.g. General meeting
required in order to sell company’s main business)
• Effect is to vest power to make decision on all matters
in the board except those expressly reserved to the
general meeting by the Act or by the constitution.
• However, SCA may require an extension of scope of
decisions requiring general meeting (see “residual
powers on later slide)
Board’s power of management
III: Member Override
General principle:
• Both organs are sovereign with respect to their
decision-making powers:
– Automatic Self-Cleansing Filter Syndicate Co Ltd v
Cunninghame [1906] 2 Ch 34
– John Shaw & Sons (Salford) Ltd v Shaw [1935]2
KB 113
• Doubtful that the constitution can have a clause
that gives the shareholders in general meeting to
override decisions of the board if they disagree
Automatic Self-Cleansing Filter Syndicate Co
v Cunningham (1906)
FACTS
•Co constitution provided directors with a general power of
management subject to members passing a special resolution
•One of members arranged for the sale of some of the
company’s property and arranged for a member meeting to
pass a special resolution requiring the board to sell the
property
•The members voted and obtained a simple majority (i.e.
ordinary resolution)
•The directors refused to sell the property as it was not in the
best interests of the company
•The members argued the constitution was subject to the rule
that agents were bound to follow the principal
Automatic Self-Cleansing Filter
Syndicate Co : HELD
• The directions of the members could not
be enforced.
• The constitution gave management
powers to the board of directors which
included the power to sell the property.
• Therefore it was a management decision.
• Only a simple majority was achieved at the
vote and therefore the directors were within
their powers (i.e. no special resolution).
 John Shaw and Sons (Salford) Ltd v
Shaw (1935)
FACTS
•The majority of the board of directors resolved that
the company commence legal action against some of
the directors.
•The members in general meeting wanted the
litigation to be withdrawn.
HELD
•The decision to commence legal proceedings was in
the Board’s general powers of management and
the members could not override it.
 John Shaw and Sons (Salford)
Ltd v Shaw : Greer LJ
A company is an entity distinct from its shareholders and its
directors. Some of its powers may according to its articles of
association be exercised by directors certain other powers may be
exercised in general meeting. If powers of management are vested
in the directors then only they can exercise these powers. The only
way the general body of shareholders can control the exercise of
the powers vested is by the altering their articles or if the
opportunity arises under the articles refusing to re-elect the
directors of whose actions they disapprove.
They cannot themselves usurp the powers which by the articles
are vested in the directors any more than the directors can usurp
the powers which by the articles are vested in the general body of
shareholders.
 Australasian Centre for Corporate
Responsibility v Commonwealth Bank of
Australia (2016): FACTS
• : over 100 shareholders in the CBA.
Shareholder activist group ACCR, represented

• ACCR notified CBA that it proposed to move one of three alternate resolutions
at CBA's next AGM:
1. CBA's directors should provide a report to shareholders outlining
environmental issues including the greenhouse gas emissions
attributable to the bank's lending activity,
2. expressing shareholders' concern that such a report was not included in
CBA's annual directors' report.
3. a special resolution to amend CBA's constitution to include a
requirement that CBA's annual report would disclose the amount of
greenhouse gas emissions it was responsible for financing.
• CBA did not include the resolutions 1 and 2 on the AGM notice, and ACCR applied
to the court for declaratory relief.
• CBA did include 3 in the AGM and advised shareholders it was not in the
shareholders interests and recommended they vote against 3.
 Australasian Centre for Corporate
Responsibility v Commonwealth Bank of
Australia: HELD

• The CBA was not required to put the first

or second proposed resolutions to its
AGM.

• Court affirmed that shareholders may not

control, usurp or exercise the powers of
the directors
 Board’s power of management:
Options for Unhappy Members
Public companies and many private companies:

– Option of removing directors and replacing them:

s 152(9) and s 149B

– Alter constitution to restrict directors’ powers s 37

- Effective for future actions and cannot be used to

reverse earlier decisions

– Possible “oppression remedy” – see members’

remedies topic

– Sell your shares ( but be aware of restrictive clause

in private companies)
d. Members’ decision-
making powers
Members’ decision-making
powers II: Reserved by SCA

– Power to adopt, modify and repeal provisions of the

constitution

– Veto certain reductions in capital

– Public companies, to remove directors and

approve auditors
 Members’ decision-making
powers: I
s 157A provides directors with very broad
powers of management (most capital and
enterprise decisions)

Default power lies with directors

Exception is that members have reserved

powers in SCA or the constitution – narrow
set of powers TYC Investment Case [2014] 4 SLR 1149
 Members’ decision-making
powers: III
1. Where board is unable to act and member action is
limited to whatever is necessary to resolve situation
(e.g. directors deadlocked and members allowed to
appoint director) Barron v Potter [1914] 1 Ch 895

1. To commence litigation - same conditions as above

i.e. Action against a director. (derivative action under
s 216A is not an implied reserve power of member but
a separate action, see later topics)

1. Ratification of breach of directors’ duties – members

can bind the company in relation to wrongful.
e. The role of company officers:
board of directors, directors
and company secretaries
Board of Directors
 Boards of directors I
• Average number of directors on boards of Singapore
listed companies is between 6 to 7

• On average, boards comprise 2–3 executive and 3–6 non-

executive directors

• Majority of directors of companies listed in Singapore

hold only one directorship in a listed company

• Code of corporate governance recommends boards to

have strong independent element with one-third being
made up of independent directors

• 9.7% of directors are women

 Board of directors II
• Every unlisted company must have at least one director
who must be ordinarily resident – citizen / PR /
employment pass s 145
• Every listed company must have at least three directors
(implied from s 201B – need an Audit Committee that
consists of min. three directors)
• Function varies according to size and type of company
• Decisions of board must be reached collectively:
• Often, board delegates all its decision making power to
Managing Director (the can act on behalf of board)
• Some board decisions are delegated to board committees
Directors:
- types
- appointment
- removal
- remuneration
 Types of Directors:
Executive Director
• Employees and also director of the company
• CEO: (or MD): principally responsible for the
management and conduct of the business. s 4(1)
• Exec Directors: senior part of management,
responsibility for financial aspects, member of
BOD and attend meetings.
• In order to check whether someone is actually a
director there is a need to check the company’s
register.
 Non executive directors
• Just directors

• Not employees

• Not involved in day to day management

• Have specific expertise (yourselves as
accountants)
• Attend BOD meetings and committee meetings if
appointed to those
 Independent Directors
• Being “independent is a state of mind”
• Code of Corporate Governance 2018 provides
situations where there would be no independence,
e.g.:
• Director employed by the company/
related co in current or previous 3 years
• Directors with 10% + shareholding or
family member of theirs with 10% +
• In spite of above, it may be possible to rebut
presumption of non-independence see
Guideline 2.3 issued by ACRA
 Managing Directors
• Chief executive
• Formally appointment into position
• Not subject to retirement / rotation
provisions
• Board can determine that in MD vests all
MD power (via terms of constitution)
 Nominee Director
Generally appointed to the board by a group
(e.g. Employees) to represent their interests
vis-a-vis the company.
Who do they owe their duty to?

Companies need to maintain a list of

nominee directors s 386 AL (4).
 De Facto Director
Acts as if a D (key distinguishing feature
between De Facto D and Shadow D (see over).
Example:
Subject to director duties.

Must disclose conflicts of interest s156

Must disclose change in own shareholding

in co. s 165
 Shadow Director why would
they arise?
Effectively commands the directors to act.

To prove someone is a SD, need to demonstrate that

the directors (or a majority of ds) are accustomed to
following SD’s instructions.

General director duties attach to SD in spite of them

not being formally appointed as a D.

See Standard Chartered Bank of Australia v Antico

[1995] 13 ACLC 1,381
Appointment of Directors
 Appointment of directors:
s. 145
• Be an individual

• Be at least 18 and in full legal capacity

• File consent to be a director and stating that not

disqualified (e.g. Bankrupt, persistent non-compliance
with SCA)

• If required to take up shares must do so within 2

months of appointment

• No upper limits on age used to require directors of

public companies over 70 to be voted on each year but
now removed.
 Appointment of Directors
New companies, first director(s) named in
application to register company lodged with
ACRA

Existing companies
• Members appoint by ordinary resolution at
general meeting unless constitution (subject
to the constitution) provides otherwise s 149B
 Appointment and removal of
directors
Duration of appointment:
• Decided by members
• Term usually specified in constitution
• Listed companies
• No director except MD can hold office for more than 3
years without having to stand for re-election

How is a director’s position vacated?

• By giving proper notice and resigning
• Voted off
• Disqualified
• Passing away
Removal of Directors
 Removal of directors
Removal of directors by other directors:

• Section 152(8) prohibits this for public companies

• Private companies possible if constitution allows it

Removal of directors by members:

• Public company, members may remove director by

ordinary resolution regardless of provisions in constitution

• Private company: look at constitution

 Disqualification of Director:
ss. 148–155
• Automatic Disqualification
• Disqualification by Court Order

Automatic
• Bankruptcy for the period and worldwide
• Conviction of offences involving fraud or dishonesty punishable
with imprisonment for 3 months or more
• No need to be sent to jail but being convicted of offence with this punishment is
enough
• Disqualified period is 5 years after conviction or after release from jail
• Subject to civil penalty under s 232 of Securities Futures Act
• Persistent default in relation to specified administrative
requirements under the Act
• Period is 5 years
• Involved with at least three companies over 5 years period that
have been struck off
• Period is 5 years from last company being struck off
Disqualification by court order
• Convicted for offences re the formation or
specified offences under Companies Act s154

• Director of a company wound up that has been

used against national security interest s149A

• Involved in company that has gone into

liquidation

• Behaviour of director as such he should not be a

director s 149
Directors’ Remuneration
 Director’s remuneration I
The right to be remunerated as a director must be
expressed in the company’s constitution

In listed companies:

The fees for non-executive directors and salaries of executive

directors must be by fixed sum and cannot be commission
based or on a percentage of turnover

The Code of Corporate Governance recommends that companies

set up a Remuneration Committee to ensure that there is a formal
and transparent procedure for fixing the salary of individual directors
and that no director be involved in deciding their own remuneration
 Director’s remuneration II:
Shareholder approval
A company is not, at any meeting or otherwise, to provide
emoluments or to improve emoluments for its directors in
respect of their office as such unless approved by a company
resolution: s. 169(1)

Only applies to emoluments for directors in respect of their

office as such

Does not apply to remuneration paid pursuant to the

directors’ executive contracts of service with the company
 Director’s remuneration III:
Disclosure of Director’s
Remuneration
• At the meeting at which the resolution under s.
169 has to be passed
• Minimum of 10% of a company’s members or
a member with at least 5% of the total
number of issued shares of the company may
send a notice requiring that emoluments
and other benefits received by the directors
of the company or of a subsidiary to be
disclosed: s. 164A
 Directors’ Remuneration:
Loss of Office (general)
S 168(1)
• Lawful to compensate director for loss of office
• Need to clearly identify whether payment is for
loss of office or just part of severance package (e.g.
not compete payment)
• Compensatory payment must be agreed to by
members at a general meeting
• Compensatory payment must be disclosed to
members
• Non-compliance = director holds $ on trust
 Loss of Office (exceptions to needing
member approval) s 168(5) and s 168(1A)
s 168(5)
•Payment entered into pre 1967
•Any payment agreed and disclosed by special resolution
•Any bona fide agreement for loss of damages
•Any bona fide agreement for loss of pension
•Any amount referenced in agreement made before
becoming a director
s 168(1A)
•Where salaried director, where amount does not exceed
one year’s salary and has been disclosed to members prior
to being paid
Company Secretary
 Role of company officers II:
Company secretary I:
• Every company required to have at least one secretary -
principal / only place of residence s 171

• Cannot be debarred from being a secretary

• Secretary should be appointed by Directors

• Directors duty to appoint secretary with requisite

knowledge and experience s 171(1A)

• Possible for director to be company’s secretary except

where company has one director s 171(1E)
 Role of company officers II:
Company secretary II:
• Public companies further duty:
• Account registered with ISCA (Institute of Singapore
Chartered Accountants) , member of CSIS (Chartered
Secretaries Institute of Singapore) or other professional
body
• Has requisite experience and membership of
professional bodies
• Registrar may require private companies to appoint
someone with the public company level of experience
where the existing secretary of private company has
failed to comply with the SCA
• Terms and conditions determined by the constitution
 Role of company officers III:
Functions of Company secretary
III
• Main officer given responsibility for administrative
regulatory compliance
• Ensures company meets obligations in relation to
registered office
• Lodging and filing documents with ACRA
• Arranging for allotment and issue of shares
• Acting as intermediary between directors and other
officers
• Responsible for custody of legal documents
• As an officer, duties imposed e.g. duty not to make
improper use of position / any information acquired s
157(2)
f. Corporate
Governance
 Corporate Governance
Concerned with the way in which companies are directed and controlled.

Listed companies must disclose information on corporate governance

practices in their annual report

Singapore Code of Corporate Governance 2012, Rule 710

– 17 key principles with guidance notes (available on SGX website)
– Compliance is not mandatory but listed companies must disclose if
they have complied and explain any deviation
– Independence
– Division of responsibilities
– Assessment of board performance
– Access to information
– Disclosure of remuneration
– Audit committee
– Regular and effective communication with the shareholders
g. Proceedings of the Board
 Proceedings of the board
• How are directors’ meetings called and held?

Procedural rules contained in the constitution

• Who can call a directors’ meeting? Chairman

• What are notice requirements?

• Contained in the constitution

• Where there is no prescription, notice of board meetings should be given
to all directors

• What is a quorum requirement?

– Constitution specifies the number of directors who must be present
for there to be quorum see article 83
– Decisions can be invalid without a quorum but depends on
significance of issue decided upon
 Proceedings of the board

• How are decisions made?

• Majority vote at board meetings

• What if a tie? Casting vote held by chairman
• Each director entitled to one vote although articles
may provide for more
• Minutes of decisions must be kept

• Can board delegate their powers?

• Delegation to board committees

• Delegation to a CEO
• Delegation to others
Tutorial Questions:
Week Three
 Week Three:
Tutorial Question One

What do you understand by the phrase good

corporate governance?
 Week Three:
Tutorial Question Two

Explain the status of the following:

1.Executive Directors

2.Non executive directors

3.Independent directors
 Week Three:
Tutorial Question Three
Can the following persons be directors of a company incorporated in Singapore
(cite relevant legislation where applicable)?

–Resident of Australia
–Person under 18 years of age
–Another company
–Company secretary
–Undischarged bankrupt
–Person convicted four years previously for offences involving stolen credit
–cards
–Person who was previously a director of two insolvent companies which have
been wound up
–Company's auditor