154. Disqualification to act as director on conviction of certain offences Flashcards
- Disqualification to act as director on conviction of certain offences
General overview
[154.01] Section 154(1) and (2) provide for two more grounds to disqualify directors, namely (a) where they have been convicted of an offence involving fraud or dishonesty punishable with imprisonment for three months or more; and (b) where they have been convicted of an offence in connection with the formation or management of a corporation or under ss 157 and 339. The scope of this section is wide as it traverses the entire gamut of offences listed under the Penal Code (Cap 224) that involve fraud and dishonesty as well as the offences arising from fraud and dishonesty in the capital markets, not to mention the multitude of offences that arise from the formation or management of the company under Parts III–VII of the Act.
Fraud and dishonesty
[154.02] Section 154(1) automatically disqualifies a person who has been convicted (in Singapore or elsewhere) of any offence involving fraud and dishonesty punishable for three months or more. 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 that the scope of s 154(1) was protective and not punitive. Offences of fraud and dishonesty would include market manipulation offences under the Securities and Futures Act (Cap 289). In PP v Foo Jong Kan [2005] SGDC 248 , the sentencing judge highlighted the difficulty surrounding the automatic disqualification regime as opposed to a disqualification order under s 154(2) where a director would be unclear if he was automatically disqualified because it was uncertain whether the offence he was convicted of was one involving fraud and dishonesty. The Steering Committee considered this problem in the Report of the Steering Committee of for Review of the Companies Act, April 2011 at paras 37–50 and recommended the retention of the present automatic disqualification regime but with a caveat that directors who are so disqualified be allowed to apply to the High Court for leave to act as a director or take part in the management of the company, effectively overturning Lee Huay Kok v AG (above). Act No 36 of 2014 adopted this recommendation and enacted the right to apply for leave under s 154(6). Furthermore, Act No 36 of 2014 added the offences under Part XII of the Securities and Futures Act (Cap 289) and the imposition of a civil penalty under s 232 of the Securities and Futures Act (Cap 289) as grounds for which a person may be disqualified: s 154(1)(a)(ii) and (1)(b). Note: the offence under the Securities and Futures Act (Cap 289) shall have been committed on or after July 1, 2015. Act No 15 of 2017 further provides that where civil penalties are imposed on such a director under s 232, the disqualification shall take effect for five years upon the date of imposition of the civil penalty.
Formation or management of company
[154.03] The sections concerning the formation and management of the company can be found in Parts II, III, V and VI of the Act. In this instance, the court will make a disqualification order against the person concerned in addition to any other sentence imposed. Where directors were convicted of offering shares to the public without complying with the prospectus requirements under the Act, their application to court for an order to be at liberty to be a director of and/or be concerned in or take part in the management of the companies named in their respective applications was dismissed. The court held that the prohibition in s 130 (now s 154) was not punitive but protective. A person convicted of an offence falling within the section was deemed for a period of five years to be an unsuitable person to be involved in company affairs where the Secretary of Trade and Industry successfully applied for the disqualification of the directors of an insolvent company who had not kept proper accounting records and also engaged in making preferential payments contrary to the Insolvency Act 1986 (UK).
Breach of s 157 or s 339
[154.04] See s 157 (directors’ duties) and s 339(3) (wrongful trading) and cases cited therein. A director who, believing there was no reasonable prospect of avoiding an insolvent liquidation, protested against further trading and used such influence as he had to bring it to an end, was not necessarily a person whose failure to resign had to lead to his disqualification; and that the district judge, having correctly addressed the question as to how far the director personally was responsible for the company’s insolvency and for its continuing to trade whilst insolvent, had been entitled to decline to disqualify him pursuant to s 6 of the Company Directors Disqualification Act 1986 (UK)
