Can Directors be Liable for Company Debts in Singapore?

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Can Directors be Liable for Company Debts in Singapore?

When directors can be held personally responsible for company liabilities

If you're a director of a Singapore-incorporated private limited (Pte. Ltd.) or Limited Liability Partnership (LLP)  business, you probably won't face personal liability for the debts of your business. Incorporating a Pte. Ltd. Or LLP business is to avoid legal liabilities and protect yourself from lawsuits by limiting who can sue you personally.

There are some exceptions to this general rule.

Exceptional Situations Where Directors Can Be Responsible For Company Debts

You are the borrower or guarantor of the business loans

If you co-signed a loan or credit facility that was taken out by your company, then you could potentially be held personally liable for the repayment of the loan. In such cases, you might personally sign a loan guarantor for the credit facility took up. 

Where creditors make a court ruling against the directors/shareholders

If a creditor were ever to sue your business, they'd probably attempt to hold you personally liable for any debts your business owes. But suing someone isn't always an easy task, and it only happens under certain circumstances.

To pierce the corporate veil, the creditor usually has to either:

  • Prove that you've misused your corporation to show that you've committed fraud against your creditors. There needs a demonstration that you've taken advantage of the limited liability protections afforded by your corporation in order for the creditors to be able to sue you personally.

  • Treat the company’s assets like your own, breaching his fiduciary duty to the company. Withdrawing cash from the company’ s bank accounts for your personal uses whenever you want without any authorisation by the company’s governing body or any claim to be personally entitled to its receivables.

Non-compliance with the Companies Act 1967

Limited statutory protections exist that specify certain situations where directors or shareholders may be held personally responsible for their companies' debts.


Section 145(10)(a) of Singapore's Companies Act states that if a corporation (private company) operates for 6 months or longer without having a resident director, then anyone who knows about it must be jointly and severally responsible for its debts.


Under Section 144(2), any director or shareholder who signs a bill of exchange or promissory note on behalf of the company becomes personally liable for the payment obligation of such documents if payment is not ultimately made by the company. This applies even if the names of the company and the individual signing the document do not appear together in the document.

Comparing Liabilities and Debt

The terms ‘liabilities’ and ‘debt’ have similar definitions, but there is a fundamental difference between the two. Liabilities are a broader term that includes debt.

Debt refers to money that is borrowed and is to be paid back at some future date. Bank loans are a form of debt. Debt only arises out of borrowing activities. Whereas, liabilities arising out of other business activities as well. For example, accrued wages are payments to employees that have not been paid yet. These wages are obligations on the company’s part and are categorized as a liability.

Liability includes all kinds of short-term and long term obligations, as mentioned above, like accrued wages, income tax, etc. However, debt does not include all short term and long term obligations. Only obligations that arise out of borrowing like bank loans or bonds payable.



Director's Duties And Liabilities


The duties of a director include general duties, fiduciary duties, statutory duties, and common law duties.

Non-executive and independent Directors are subject to the same obligations and liabilities as executive directors, including the duty to exercise due diligence in relation to the company’s affairs. This includes making reasonable inquiries into matters affecting the company’s performance and taking appropriate action where necessary. A company director must discharge his/her functions honestly and fairly, and without bias or prejudice. He/she must perform his/her functions diligently and in good faith, and he/she cannot use his/her position to obtain personal advantage.


A director who holds executive office must exercise reasonable skill and diligence in discharging his duties. He is responsible for the quality of his own conduct and shall not use his position to obtain any advantage for himself at the expense of the company.


Non-Executive Directors are not expected to possess any particular skill set. However, they must be able to take reasonable measures to familiarize themselves with the affairs of the company and the requirements of Singapore Law in general.

When You Are Personally Liable For Your Company's Debts, Be Prepared For The Consequences

In general, if a creditor sues you for your company's debts, you should immediately engage a lawyer to enter an appearance and defend the suit. This is because it can be quite difficult to pierce the corporate veil and it is impossible at the very beginning of a suit to predict the outcome.


Therefore, if you have a lawyer, they may be able to help you beat the claim or negotiate with the creditor in order to settle for a smaller sum. If the people who are trying to collect your debt start harassing you at your home, tell your lawyer so that they can apply for a protection order or file harassment charges against them.


What Could Happen After Losing the Lawsuit Against your Creditors


If you lose the lawsuit against the creditor and have to pay the company's debts, the creditor may have asked for an “execution” at the end of your case. If they get an execution from the judge, they can “levy on the execution.” This means it is legal for them to take your property. They will hire a sheriff. The sheriff will bring you a copy of the execution and take your car or put a lien on your house.

For some instances, the plaintiff and the judge will likely ask you questions regarding your ability to pay back any debt owed multiple times. They may also inquire if you're amenable to creating a repayment plan.

A repayment plan is an understanding between you and the creditor that entails returning the debt through monthly installments. This agreement can become a court order called an “agreement for judgment,” with which comes legal repercussions if not followed through properly.



Summary


Directors of Singapore-based corporations (Pte. Ltd. or LLP) cannot be sued personally for their company's debts. However, there are certain circumstances under which directors may be liable for their company's debts, including if they knowingly sign off on fraudulent financial statements (breach of duty).


If you're a business owner and a creditor has filed suit against you personally for your business' debts, the best thing you can do is to contact an attorney right away. He or she will be able to help you navigate the legal system.

Frequently Asked Questions (FAQ)

What is an Asset?

An asset is anything owned by an individual or company. Assets include cash, inventory, equipment, real estate, etc.


How do I remove/employ a director from a company?

A removal of a director is usually done through an ordinary vote of the shareholders. However, a public limited company can remove a director without shareholder approval if they give special written notification of at least 28 consecutive business days to the director.

Executive directors usually have a contractual relationship with the companies they serve as directors. Non-executive directors typically don't have any kind of employment agreement with the companies they serve.



How many types of director are there?

There are three main categories of directors: executive directors, non-executive directors and independent directors. Executive directors are those who hold positions like CEO or chairman.


Non-executive directores are those who hold positions such as secretary or treasurer. Independent directors are those who are not employed by the company. They are often appointed by the board of directors to ensure that all sides of a particular issue are represented.


What is the difference between a private and a public limited company?


Limited Liability Partnership (LLP) is a partnership in which some of the partners have limited liabilities. A limited liability partnership structure is a cross hybrid between a partnership and a private limited company. The structure is highly suitable for individuals engaged in professional services. Non-resident individuals and foreign entities may also register an “LLP” but must appoint a local resident manager.

Private Limited Company is the most popular business entity in Singapore. Unlike business entities such as a Sole Proprietorship and Partnership, it has a separate legal status from its shareholders and directors who have limited liabilities for the debts and losses of the company.

It has the rights to own properties. It usually has the words ‘Pte Ltd‘ or ‘Ltd‘ as part of its name. .


What does it mean by civil liability?

Civil liability usually takes one of two forms: (1) financial penalties, or (2) lawsuits against individuals who were involved in the company’s operations.

UPDATED AS OF 03 Dec 2022
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