4. Interpretations Flashcards
Accounts
Accounts
[4.02] “true accounts” and “books of account” are interchangeable, and they comprise more than mere financial statements which can be purchased from ACRA. They refer to ledgers, whereas the word “records” has a broader meaning and ordinarily encompasses the underlying source documents. The precise scope of “records” is determined by its context, i.e. where certain classes of economic events or documents are particularised or where the purpose of a particular provision is made explicit: Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd [2016] 2 SLR 366; [2016] SGHC 19.
Branch register
Branch register
[4.04] The Companies (Amendment) Act 2017 (No 15 of 2017) (“Act No 15 of 2017”) amended the definition of “branch register” by deleting paragraph (b). In other words, branch registers apply to companies incorporated in Singapore only. Branch registers may refer to the register of members (see s 196) or to the register of holders of debentures (see s 93) that are kept by the company. The branch register of foreign companies are dealt with under s 379.
Company
Company
[4.05] Means a company incorporated in Singapore pursuant to the Act or any corresponding previous written law, i.e. any predecessor legislations of the Act. On the other hand, a corporation has a wider meaning and includes “any body corporate formed or incorporated or existing in Singapore or outside Singapore”. This would include a foreign company. It is to be noted that a corporation does not include any body corporate that is incorporated in Singapore and declared to be a public authority or an agency of the government or any body corporate which is not incorporated for commercial purposes.
[4.06] It does not include a corporation sole which is a public office (created usually by an act of Parliament) or ecclesiastical office (usually the owner of church land) that has a separate and continuing legal existence, and only one member (the sole officeholder). For example, the Secretary of the Synod of the Diocese of Singapore Ordinance (Cap 379) which created the ecclesiastical office is a body corporate and has a separate legal existence.
[4.07] In addition, a corporation does not include a co-operative society, a registered trade union or a limited liability partnership.
Types of coys
Types of companies
[4.08] Briefly, the types of companies under the Act are:
(a) an exempt private company with less than 20 members and whose members do not include a corporation;
(b) a private company where the number of members shall not exceed 50 and whose constitution contains a restriction as to the transfer of shares; and
(c) a public company which is any company that is not a private company.
[4.09] Generally, there are private companies including exempt private companies having a share capital, private companies that are limited by guarantee, unlimited companies and public companies: see ss 18, 22, 30, 31, 36 and 38.
EPC
Exempt private company
[4.10] Means a private company in which the shares are not beneficially held, directly or indirectly by any corporation and which has no more than 20 members. In addition, any company wholly owned by the government and which is gazetted as such shall be an exempt private company.
[4.11] Currently, more than 75% of all Singapore-incorporated companies are exempt private companies: see the Report of the Company Legislation and Regulatory Framework Committee, Singapore, October 2002 (“CLRFC”). These are small, closely-held companies whose shareholders are also the directors. Hence, they are exempted from filing audited accounts with ACRA if their revenue is $5 million or less. However, they need to file a declaration of solvency to be signed by one director (who is authorised to sign on behalf of the whole board) and confirm that audited accounts have been distributed to the company’s shareholders. The auditor’s signature would not be required. Should the exempt private company be unable to file the declaration of solvency, it has to prepare unaudited accounts for filing with ACRA.
[4.12] In addition, solvent exempt private companies are exempted from certain prohibitions involving the grant of loans, quasi-loans, credit transactions, and related arrangements to the company’s directors or persons related to them under s 163.
FY
Financial year
[4.13] In view of the fact that the financials of a company include more than just the profit and loss statement, the definition of “financial year” is amended by reflecting the prevailing accounting practice. In relation to a corporation, it means the period, whether that period is a year or not, that the financial statements of the corporation are made up; and in relation to a company, it is to be determined pursuant to s 198 [Act No 15 of 2017]. To
Small coys
Small companies
[4.14] A new category of private companies called “small companies” was introduced by Act No 36 of 2014. Generally, they are exempted from audit requirements under s 205C. Small companies that are either holding companies or subsidiaries in a group of companies will only qualify for this exemption if they are part of a “small group”. The criteria to qualify as a “small company” are contained in the Thirteenth Schedule to the Act see: s 205C.
Director
Director
[4.15] The definition of a director is to be contrasted with the definition of an officer. An “officer” would include a director or secretary of a corporation or a person employed in an executive capacity by the corporation. It also includes a receiver and manager appointed under an instrument and a liquidator appointed in a voluntary winding up. However, it does not include any receiver who is not a manager, a receiver and manager appointed by the court or any liquidator appointed by the court or creditors and a judicial manager appointed by the court under Part VIIIA.
[4.16] The new definition includes a majority of the directors after the word “directors” in the original definition. The result is that a “director” includes any person who occupies the position of a director of a corporation and includes a person in accordance with whose directions and instructions the directors or a majority of the directors of a corporation are accustomed to act and an alternate or substitute director. In other words, it includes the shadow director who is controlling the whole board or the majority of the board. The CLRFC’s policy of including the “majority of directors” was to make a person who effectively controlled the activities of a company subject to the same statutory liabilities and duties as a de jure director. The CLRFC adopted the Companies Ordinance (Cap 32) (Hong Kong)’s definition of a shadow director. If a person controls only one director or a minority of directors, he is not a shadow director: see the Report of the Steering Committee for Review of the Companies Act, Chapter 1 at paras 4–11, issued by the Ministry of Finance, April 2011. Section 4(2) excludes a person who gives advice in his professional capacity to the director or a majority of the directors from being a shadow director.
De facto director
De facto director
[4.17] In Re Lo-Line Electric Motors Ltd [1988] Ch 477 at 489 , Sir Nicolas Browne-Wilkinson V-C, noting that this definition was inclusive and not exhaustive, said that its meaning had to be derived from the words of the Act as whole. A shadow director is to be contrasted with a de facto director. The terms do not overlap. They are alternatives, and in most and perhaps all cases are mutually exclusive. A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level. A de facto director is one who claims to act and purports to act as director, although not validly appointed as such. A shadow director, by contrast, does not claim or purport to act as director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company: Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180, per Millet J ; Revenue and Customs Commissioners v Holland & Anor (Re Paycheck Services 3 Ltd) [2010] UKSC 51 ; Raffles Town Club Pte Ltd v Lim Eng Hock Peter & Ors (Tung Yu-Lien Margaret & Ors, third parties) [2010] SGHC 163.
[4.18] Hence, a de facto director is not formerly appointed as a director by the company but simply acted as a director on occasions (when he might be a de facto director or director “in fact”) or if he has persuaded the directors to act in a particular way (when he might be a “shadow” director): see Smithton Ltd (formerly Hobart Capitals Market Ltd) v Naggar [2014] EWCA Civ 939 , per Lord Collins of Mapesbury JSC who held that: to determine if a director is a de facto director, it was necessary to examine the governance system of the company in order to assess whether he acted as a director. For earlier cases, see Gibson v Barton (1875) LR 10 QB 329 ; Re Canadian Land Reclaiming and Colonizing Co (Coventry and Dixon’s Case) (1880) 14 Ch D 660 (where the basis of liability was the assumption of responsibility).
[4.19] It is also important to look at the acts in their context. A single act might lead to liability in an exceptional case. Relevant factors include: (i) whether the company considered him to be a director and held him out as such; and (ii) whether third parties considered that he was a director: see Smithton Ltd (formerly Hobart Capitals Market Ltd) v Naggar (above).
Shadow director
Shadow director
[4.20] To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is first, a board of directors claiming and purporting to act as such; and secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others: see Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 at 183 ; Tong Tien See Construction Pte Ltd (in liquidation) v Tong Tien See & Ors [2001] 3 SLR(R) 887; [2001] SGHC 381 ; Heap Huat Rubber Co Sdn Bhd & Ors v Kong Choot Sian & Ors [2004] SGCA 12 ; Raffles Town Club Pte Ltd v Lim Eng Hock Peter & Ors (Tung Yu-Lien Margaret & Ors, third parties) [2010] SGHC 163 ; Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 .
[4.21] The key words are “accustomed to act”, so that the occasional exercise of independent judgment by the board should not excuse the alleged shadow director: see Pearlie Koh, “Shadow Director, Shadow Director, Who Art Thou?” (1994) 14 C&SLJ 340. Whether the board has exercised its decision independently or otherwise is irrelevant and has to be so; otherwise, the rationale underpinning the “shadow director” concept would be subverted. It follows, therefore, that the shadow director is not necessarily a sinister puppeteer who is manipulating the board from the wings of a stage as our imaginations would have us believe: see Tong Tien See Construction Pte Ltd (in liquidation) (above).
[4.22] It is not necessary to the recognition of a shadow director that he should lurk in the shadows, though frequently he may, for example, in the case of a person resident abroad who owns all the shares in a company but chooses to operate it through a local board of directors: see Secretary of State for Trade and Industry v Deverell & Anor [2001] Ch 340 at 354–355 . A director who resigned after being adjudicated a bankrupt but remained engaged as a senior administration officer of the company and a consultant of the subsidiary companies was held to be a shadow director: see Heap Huat Rubber Co Sdn Bhd & Ors v Kong Choot Sian & Ors (above). A manager of various trust companies was held to be a shadow director: see Australian Securities Commission v AS Nominees Ltd (above).
Disqualification
Disqualification
[4.23] Shadow directors and de facto directors are subject to disqualification proceedings under ss 149, 154 and 155: see Secretary of State for Trade and Industry v Deverell & Anor [2001] Ch 340 .
Corp directors
Corporate directors
[4.25] Section 145(2) provides that a director has to be a natural person of full age and capacity. Further, s 145(4) provides that any provision in the memorandum of association and articles of association of a company immediately before December 29, 1967 which constituted a corporate director shall be read as if it authorised that corporation to appoint a natural person to be a director of that company.
[4.26] Corporate directorship is not allowed in Australia, Canada, New Zealand, Malaysia and the US. It is allowed in the UK, only in a restricted form, where a company must have at least one director who is a natural person: s 155(1) of the Companies Act 2006 (UK). Currently, the Companies Ordinance (Cap 32) (Hong Kong) permits corporate directorships in private companies with shares not listed in a recognised stock market, by requiring every private company to have at least one director who is a natural person: see the Report of the Steering Committee for Review of the Companies Act, Chapter 1 at paras 23–27, issued by the Ministry of Finance, April 2011. For the question whether a director of a corporate director could be a de facto director of the company, see Revenue and Customs Commissioners v Holland & Anor (Re Paycheck Services 3 Ltd) [2010] UKSC 51; [2010] 1 WLR 2793, SC ; Smithton Ltd (formerly Hobart Capitals Market Ltd) v Naggar [2014] EWCA Civ 939.
Holding coys being shadow directors
Holding companies being shadow directors
[4.27] The CLRFC has decided to leave this question for the courts to decide. However, in England, s 251(3) of the Companies Act 2006 (UK) contains an exception which prevents holding companies from becoming shadow directors of their subsidiaries:
A body corporate is not to be regarded as a shadow director of any of its subsidiary companies for the purposes of—Chapter 2 (general duties of directors), Chapter 4 (transactions requiring members’ approval), or Chapter 6 (contract with sole member who is also a director), by reason only that the directors of the subsidiary are accustomed to act in accordance with its directions or instructions.
Foreign coy
Foreign company
[4.28] A company, corporation, society, association or other body incorporated outside Singapore; or an unincorporated society, association or other body which under the law of its place of origin may sue or be sued, or hold property and which does not have its head office or principal place of business in Singapore. From this definition, incorporation in a foreign country creates a foreign company in the eyes of Singapore law. More noteworthy is that any unincorporated entity such as a partnership registered in England or Malaysia may possibly be considered a foreign company in Singapore. For the registration requirements of a foreign company, see s 365 of the Act.
Accounting corporation and accounting firm
“Accounting corporation” and “accounting firm” are housekeeping amendments to shift their definitions in s 10(14) to the main interpretation provision in s 4. The term “accounting limited liability partnership” was introduced to recognise accountants practicing as limited liability partnerships when the Limited Liability Partnerships Act (Cap 163A) came into effect on April 11, 2005. Lastly, the term “accounting entity” captures the four kinds of professional entities that accountants have registered themselves under the Accountants Act (Cap 2).
