Company Director Cannot Delegate Due Diligence to Lawyers on the Board Says Singapore High Court

In an important corporate governance ruling, the Singapore High Court held that a company director abdicated his responsibilities by never asking to see a significant draft corporate announcement before it was released to the public and was quite content to delegate his responsibilities to another director. Moreover, he was either indifferent to his wider responsibilities or failed to appreciate them. The court ordered that the director be disqualified from taking part in the management of any company for a period of two years. It would never be sufficient or acceptable for a director to say that he expected his co-directors to do "right" by the company, said the court. Every director has to ensure that he discharges his responsibilities with due diligence in all pertinent matters. Therefore, any reliance on professionals or any reliance placed on "specialized" directors must be balanced against the responsibility that the law placed upon every individual director to bring to bear their own judgment in evaluating the advice received. Directors cannot adopt a silo approach and invariably seek shelter behind other "specialized" directors on the notion of reliance. How this responsibility ought to be discharged in any particular case would be a question of fact. The court said that the disqualification regime is predominantly protective in nature. The statutory policy therefore appears to be that disqualification orders ought to be generally imposed to protect the public from individuals who are shown to be unworthy of being privileged with the protective shield of corporate autonomy. In other words, the disqualification regime serves to protect the public from abuses of the limited liability privilege. The court emphasized that all directors must discharge an obligation of utmost candor to the shareholders and other stakeholders. It would have been imprudent. said the court, to accept the director's contention that he relied on another director's responsibility of handling the public announcement. The director contended that his breach of statutory duty could be mitigated by the fact that the making of the public announcement was a legal issue to be handled by the lawyers sitting on the Board. While the court accepted that there are of course limits to the extent of knowledge and expertise a director may be expected to have, and that some reliance may be placed on the advice given by professionals, each director of a listed company has a solemn and non-delegable duty of due diligence to ensure compliance with market rules and practices.

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