A director’s baseline duties
Even in good times, a director owes the company core duties. Under section 157 of the Companies Act 1967, a director must act honestly and use reasonable diligence in discharging the duties of the office, and must not make improper use of position or information. Alongside these statutory duties sit the general fiduciary duties: to act in good faith in the company’s interests, for proper purposes, and to avoid undue conflicts.
What changes as insolvency approaches
The important shift is in whose interests a director must weigh. As a company nears insolvency, the interests of creditors become increasingly significant in directors’ decision-making, because it is creditors whose money is now at risk. Continuing to trade, taking on new commitments, or preferring some creditors over others all carry more weight and more scrutiny in that zone.
This is the point at which many directors would benefit from advice, and often the point at which they avoid seeking it. Acting early, taking proper advice, and documenting the basis for decisions are among the best protections a director has.
Where personal liability arises
Singapore law provides specific routes to personal liability for directors whose conduct falls short:
Wrongful trading.
A company trades wrongfully if it incurs debts without a reasonable prospect of meeting them when it is insolvent, or becomes insolvent as a result. The court can declare a party to that trading personally liable for the company’s debts or liabilities.
Notably, this can be pursued as a civil matter, on the balance of probabilities, rather than requiring a criminal conviction first, which makes recovery against responsible directors more achievable.
Fraudulent trading.
Where a company’s business is carried on with intent to defraud creditors or for a fraudulent purpose, those knowingly party to it face liability.
Damages against delinquent officers.
In a winding-up or judicial management, the court can examine the conduct of officers and assess damages for breaches of duty.
Beyond these, breaches of fiduciary or statutory duty can themselves found claims, and improper conduct can lead to disqualification.
What directors should do when trouble looms
The practical guidance is consistent: recognise distress early, get advice before the position deteriorates, keep contemporaneous records of the reasoning behind key decisions, avoid steps that worsen creditors’ position, and weigh whether a restructuring or formal process is the responsible course. Directors who engage early almost always have more options and less exposure than those who wait.
How DHA+ pac approaches director conduct
DHA+ pac sees the director’s conduct from both sides: advising directors navigating distress and, in formal appointments, examining conduct as part of an investigation. That dual perspective informs candid, practical guidance. We have worked in Singapore’s insolvency environment since 1994.
Where we advise a director, we do so as their adviser. If a matter later calls for a liquidator or other office-holder and that would place us in conflict, we say so and step aside from the appointment.
FAQ
As a company approaches insolvency, creditors’ interests become increasingly important in directors’ decisions because their money is at risk. The healthier-times focus on shareholders gives way to creditors’ claims as solvency comes into question.
It is incurring debts or liabilities without a reasonable prospect of meeting them when the company is insolvent, or becoming insolvent as a result. A director found party to it can be made personally liable, and in Singapore this can be pursued as a civil claim.
By recognising distress early, taking advice before things worsen, documenting the reasoning behind key decisions, avoiding steps that prejudice creditors, and considering a restructuring or formal process where appropriate.
Legal references: Companies Act 1967 s.157 (duty and liability of officers); IRDA s.238 (fraudulent trading), s.239 (wrongful trading), s.240 (damages against delinquent officers).
Not sure where to start?
If you are a director worried about a company’s position or about your own exposure, an early, confidential conversation is the most useful first step.
Contact us for a confidential review.