Functions and Duties of Nominee Directors
It is trite law that Directors of company owe a fiduciary duty or obligation to their company. However, it begs the question what of the Nominee Director? What is the function of the Nominee Director and what are his duties under the Singapore Companies Act?
A nominee director is someone in layman's terms who is renting his or her name to the company. In other words, the name of this person is used for the incorporation documents. They are also taking the position on paper of the company's directors. The term "front man" has been used to describe someone who is acting as the nominee. In essence his function is to shield working executives of limited and other companies from the public disclosure requirements that exist in Singapore .It is a perfectly legal device which preserves the privacy of an individual designed to help a person who would rather not disclose their interest or association with a given corporate body. Anyone performing a company search on a company with a nominee director would be unable to discover in whose name the nominee director was registered.
The Nominee director is appointed to the board much like any other director. The difference is that he or she is appointed quite openly , usually at the request of a third party to look after its interests. The person who appoints could be a creditor, or an equity investor – a venture capitalist or possible even the majority owner. The company could be dealing with pharmaceuticals, garden centers, import/export of food stuff or financial services.
Obviously the question is to whom does a nominee director appointed for example by Mr X to sit on the board of a company -Y Pte Ltd owe his duties to? To Mr X or to Y Pte Ltd? There is clarity on this from a legal point of view from case law that the nominee director owes his duty to the company -Y Pte Ltd. It is wrong for the nominee to simply assume that since everyone knows he was appointed by Mr X to look after his interest that he can proceed to do just that. Being a nominee director comes with it a bigger responsibility and a paramount duty which is to the company. By being a nominee director he comes within the ambit of assuming all the fiduciary duties owed by any director of the company. He is in a position of trust and confidence and what comes immediately to mind is his duty to exercise independent judgment, the duty to avoid conflict of interest and the duty to promote the success and best interest of the company as opposed to the appointer .
Section 157 of the Singapore's Companies Act Chapter 50 provides the duties and liabilities of the company and a nominee director comes well within this ambit. A case that endorses point is W&P PILLING PTE LTD (in liquidation) VCHEW YIN WHAT &ORS (2007)4 SLR 218 (2007 7SGHC 24. The Court explained that he law makes no distinction between a fiduciary duties owed by different categories of directors. A nominee director owes the same duties to a company as any other director. A defense for the breach is provided under Section 39(1) of the Companies Act. In summary the act provides a defense for any default of breach of duty if the director had acted honestly, reasonably and had acted so having regard to all the circumstances of the case then the Court may excuse or relieve the director wholly or partly as the Court thinks fit.
In Singapore, all Singapore Private Limited Companies must have at least one director to be ordinarily resident in Singapore which includes
- Singapore Citizens
- Singapore Permanent Residents
- Singapore Employment Pass/EntrePass/Dependant pass holder
It is interesting to note when foreigners incorporate a company in Singapore and need a local ordinarily resident nominee director for incorporation of the company in Singapore the nominee director is in relationship of trust with the company and not with the person who authorizes him. By virtue of the Singapore's Company's Act CAP 50 the nominee director takes on the responsibilities of owning all his fiduciary duties to the company in question which requires him to act in the best interest of the company. Once the nominee director is removed his function and duties end there and then. Usually it is when he authorizer has had his immigration requirements met by the Singapore authorities.