Source of article: Channel News Asia

In summary:

Every Singapore incorporated company needs to have at least one local director under our laws. Singapore being an open economy attracting many foreign companies, the provision of nominee directors has grown to be a thriving business for the corporate services industry evolving from this legal requirement. It is not unusual for an employee of a corporate service provider to be a director of multiple companies.

Although nominee directors have no executive roles or powers, they have the same legal obligations as all other directors, and are required by law to discharge their statutory and fiduciary duties jointly and severally with the other members of the Board. Failing to do so can mean possible civil liabilities and criminal penalties.

It is important to raise the awareness of potential abuse by bad actors, and consequently, a compelling need to set high standards for corporate service providers and their employees who serve as nominee directors.

There is a need for the authorities to set prescriptive standards and requirements on due diligence when corporate service providers take on new clients. Nominee directors need to be aware of the things that they need to verify before signing off any document. This is cardinal to raise the defence of due diligence when the company (where a nominee director sits on the Board) is investigated for any wrongdoing.

After the money laundering dragnet in August 2023 where various nominee directors (who have been tardy or complicit in the incorporation of dodgy companies) have been taken to task, it is no longer business as usual.

The due diligence requirement needs to be a continuous process. A client could come to you and pass through the litmus test at the start, but along the way, it is your business as a director to know what is happening in the company during your watch and to ask questions and seek clarifications when in doubt.

Nominee directors must be well equipped with the right training to say: “Sorry, we cannot continue providing services to you because there are reasons for us to believe that your activities are something that we are no longer comfortable.”

I thank Ms Tang See Kit for the opportunity to share my views in the attached top story published by CNA Digital on 7 January 2024.

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