Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

High Court examines scope and ambit of directors’ duties and reaffirms court’s reluctance to question the objective correctness or commercial merits of a management decision, in assessing whether that decision was made in the interest of a company.

The issue of directors’ duties was the focus of this judgment. The Defendant was the former CEO of the Plaintiff company, and later stepped down to become a non-executive director. He was also the CEO of Fu Yu Manufacturing, which was in the same industry as the Plaintiff. The allegations of misconduct revolved largely around the Defendant’s decision to employ two former executive directors (Ng and Chow) of the Plaintiff as advisors to the Plaintiff, but on the same remuneration packages as when they were directors.

The High Court held that the Defendant had breached his fiduciary duty to avoid conflicts of interest by personally deciding on the remuneration packages of Ng and Chow as the advisors of the Plaintiff. The High Court held that the Defendant was not in a position to act in a disinterested manner because the decision for Ng and Chow to step down as directors and be re-employed as advisors of the Plaintiff was made collectively by the Defendant, Ng and Chow. Accordingly, the Defendant had put himself in a position where he was the sole decision maker of the Plaintiff’s regarding Ng’s and Chow’s stepping down as directors and being re-appointed as advisors, thus giving rise to a reasonable perception of conflict of interest.

However, the Defendant did not breach his duty to act in the best interest of the Plaintiff merely by employing Ng and Chow as the Plaintiff’s advisors on the same remuneration packages as when they were directors. In assessing whether a decision was in the interest of the company, the Court would not sit in judgment of the objective correctness or commercial merits of a management decision. The Plaintiff failed to show that the Defendant had been motivated by a desire to promote the advisors’ interests, and also did not show that the remuneration had been inappropriate and unjustified.

For further information, please contact:

Francis Xavier SC, Partner, Rajah & Tann
[email protected]

 
Lai Yew Fei, Partner, Rajah & Tann
[email protected]

Rajah & Tann Dispute Resolution Practice Profile in Singapore

Homegrown Dispute Resolution Law Firms in Singapore