Directors: Indemnity and Release of Duties

Relief given by company

• Under corporate law in Singapore, any provision (whether in the articles of association or in a contract or otherwise) indemnifying a director against any liability for negligence, default, breach of duty or breach of trust is void (section 172(1) of the Companies Act).
  1. However, the company may purchase D&O liability insurance (section 172(2)(a)).
  2. Company may also indemnify for legal costs if the officer or auditor is successful in court (section 172(2)(b)).
• In certain instances, it is possible for a majority of members of a company to ratify an action of a director that would otherwise be a breach of duty by the director.

Relief given by court

• Section 391 of the Companies Act provides the court with the power to relieve an officer of the consequences of their breach of duty, negligence, default, or breach of trust.
  1. The court’s power to relieve a director from liability only applies where the company is suing him; it does not apply in actions brought by a third party against the director to enforce a civil liability.
  2. Under Singapore business law, this section does not apply to criminal liability.
• In order for relief under section 391 to be obtained, 3 elements must be proven by the officer:
  1. The person has acted honestly
  2. The person acted reasonably and
  3. It is fair to excuse him having regard to all the circumstances of the case.

All three elements must be shown. It is only after it has been shown that the director acted honestly and reasonably that the question of whether it is fair to excurse him arises.