149. Disqualification of unfit directors of insolvent companies Flashcards
- Disqualification of unfit directors of insolvent companies
General overview
[149.01] This section is not aimed at the fraudster or crook but rather the incompetent or inept persons who appear to manage companies into insolvency. It is felt that the public should be protected against these persons who seem not able to manage companies successfully. Such disqualification is not automatic and is subject to the court’s discretion.
Unfit directors
[149.02] A presumption arises where a person who is or has been a director of a company that has gone into liquidation (whilst he was a director or within three years of his ceasing to be a director) and was insolvent at that time, that he is an unfit person to be a director or involved in the management of a company
Conduct which makes director “unfit”
[149.03] Section 149(6) enumerates the conduct and factors that would amount to “unfitness” and disqualify a person from being a director
Disqualification order
[149.04] Section 149(1) provides that the court may order a period of disqualification not exceeding five years after the date of the order. Directors may be disqualified for conviction of insider trading under the relevant sections of the Securities and Futures Act (Cap 289) and rules under the Singapore Exchange Trading Limited Listing Manual – Rule 703(1)(b) Singapore Exchange Trading Limited Listing Manual: Madhavan Peter v PP and Other Appeals [2012] 4 SLR 613; [2012] SGHC 153, HC. In the UK, the disqualification regime has been used successfully in developing the law on directors’ duties of care, skill and diligence: Re Barings plc (No 5) [1999] 1 BCLC 433; [2000] 1 BCLC 523 . The maximum disqualification would only be appropriate in the most serious of cases: Re Civica Investments Ltd [1983] BCLC 456, HC. The notice period to be given to the defendant by the Secretary of State of Trade and Industry for an application for disqualification against him is directory in nature and not mandatory: Secretary of State for Trade and Industry v Langridge [1991] 1 Ch 402, CA. Where disqualification proceedings were commenced on the day before the expiry of the two-year limitation period for the bringing of such proceedings and thereafter were not advanced during a period of 17 months, and thereafter, the official receiver did not serve his evidence in support of the proceedings for another 15 months, the court held that the delay in prosecuting the proceedings was inordinate and inexcusable and, the prejudice inherent in having disqualification proceedings pending over such a period coupled with the effect of delay on the memories of witnesses, outweighed the public interest in obtaining the order and justified the dismissal of the proceedings: Re Manlon Trading Ltd [1996] 1 Ch 137, CA. The company is required by law to file notification of the resignation or disqualification within one month from the date of resignation or disqualification. This would enable ACRA to update its records of the director’s status: “Resignation and Disqualification of Directors”, www.acra.gov.sg, (accessed June 7, 2017).
Effect of disqualification orders
[149.05] Upon such an order being made, the director does not automatically vacate his office. His actual and apparent authority to bind the company still continues. Section 151 protects third parties in such situations where the director is disqualified for some reason under the Act. Further, see reg 76 of the Companies (Model Constitutions) Regulations 2015.
Inspection of book and records
[149.06] The Minister may require the official receiver or liquidator or former liquidator of a company to produce books and records relevant to the conduct of the person to be disqualified; and upon default in compliance with such request, the Minister may apply to court for an order to make good such default: s 149(4). In Re Baring Futures (Singapore) Pte Ltd, Director of the Serious Fraud Office v Judicial Managers of Baring Futures (Singapore) Pte Ltd [1995] 2 SLR(R) 757; [1995] SGHC 183 , the court made no order for an application by the UK Serious Fraud Office against the judicial manager and the Commercial Affairs Department for documents to ascertain if an offence has been committed. The court held that the decision whether to exchange any information or documents rested with the regulators of the Singapore financial industry and had not been entrusted to the courts. The English Court has held that evidence put forward by a Department of Trade and Industry examiner on the basis of information obtained by him in the course of his investigations under s 447 of the Companies Act 1985 (UK) was not to be treated as ordinary hearsay, since he had been statutorily appointed for the investigation and regulation of companies and was acting in a fact-finding capacity to produce a report which Parliament must have intended to be used by the Secretary of State when applying for a disqualification order; that it was for the court to decide on the proper weight to be given to such evidence, including any inferences drawn by the examiner; that draft documents found in the company records which had not been finalised or acted on were admissible, subject to any challenge as to their evidential significance at the hearing of the summons
Leave of court
[149.07] It is well-settled law that the onus lies upon the applicant for the lifting of the disqualification order to satisfy the court that he is possessed of the high degree of commercial integrity which those exercising influential managerial functions in limited liability companies should be endowed if the public is to be given adequate financial protection: Quek Leng Chye & Anor v AG [1985–1986] SLR(R) 282; [1985] SGPC 2, PC. Section 148(13) provides that the disqualified director may apply to court for leave to be concerned in or take part in the management of the company: Lim Tech Cheng v AG [1995] 3 SLR 821, HC. However, the court does not have jurisdiction to grant leave where the disqualification applies automatically under s 154(1) based on conviction of an offence involving fraud and dishonesty: Lee Huay Kok v AG [2001] 4 SLR 248; [2001] SGHC 291, HC ; distinguished Re Altim Pty Ltd [1968] 2 NSWR 762, SC that the scope of s 154(1) was protective and not punitive. Directors of an insolvent company which sold its assets to a new company were granted leave to manage the new company since there was no risk to the creditors of the old company nor was there any risk to creditors of the new company beyond that which was permitted under the law relating to the incorporation of limited liability companies: Penrose & Anor v Secretary of State for Trade and Industry [1996] 1 WLR 482, Ch D . An application to disqualify a director of a holding company was based on his acts as a director of the subsidiary
