Company and Partnership Law

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Company and Partnership Law

2015 Q2

Case Study

Submission Date: 29th May 2015

    Table of Contents





    Executive Summary






    Case Study

    • The main of Case
    • Fiduciary duty
    • Related Cases and Analysis
    • Judgement








    1. Executive Summary

    This report examined the case of the Lim Family of Food Build Pte Ltd. Looking at Section 157 (1) CA to assess the acceptable standard for 'reasonable diligence' and the degree of case and skill as required by the appellant.

    An examination is made to Section 157 157 (3) and Section 157 (3) with regards to the use of reasonable efforts and criminal violation of duties.

    2. Introduction

    There are many cases of small companies when the major shareholders and controlling board (usually from family businesses) act on their personal interest rather than for the objective of the company.

    Director should act in accordance to code spelled out in the memorandum and Association Articles. In addition, they must also fulfill their fiduciary duties. They must at all times act for the best interest for the company and bringing rewards to members on their investment.

    Contrary to popular belief, the company's management is not entirely attributable to just the CEO. Under Companies Act (CA) section 157A, a company is managed by a board of directors of which CEO is a member and although they have the rights to delegate or empower their task to professional managers, the ultimate responsibilities should remain with the Directors.

    In this report we will examine the judgement of cases related to that of Mrs. Lim, and to decide whether Mrs. Lim has breached the duties of a director.

    3. Case Study

    • The main of Case

    The Lim family incorporated Good Build Pte Ltd (‘Good Build’) as the vehicle for their renovation business. For many years, the business of Good Build was conducted with Mr and Mrs Lim and their son, Luke, as directors. Mr Lim died last year. Mrs Lim became managing director of Good Build because she had promised her husband she would take over his position as managing director.

    However, Mrs Lim was a shadow of her former self after her husband’s death and she lost interest in running Good Build. She signed whatever cheques and documents Luke asked her to sign and went along with all of Luke’s decisions. Luke, who was under pressure to settle his debts, subsequently perpetrated a fraud on Good Build. Good Build was wound up as an insolvent company and the liquidator wished to bring a civil action against Mrs Lim.

    • Fiduciary duty

    Fiduciary duty is trust and confidence because of the position in which they stood in relation to the responsibility of another certain people applied. Responsibility is more onerous than the general relations in contract or tort arises. It requires full disclosure of information held by the trustee, strict liability account the results of the relationship between received and has the responsibility to avoid any conflict of interest profits. (related case: Creanovate Pt Ltd and another v Firstlink Energy Pte Ltd and another appeal [2007] 4 SLR(R) 780)

    • Duty of care, skill and diligence

    Under both common law and statutory law in the management of the company directors must exercise reasonable care, skill and diligence. Section 157 of the Act emphasized that directors must act honestly and in a reasonable due diligence duties.

    • Offences & Effects of Breach

    If the director against his duties, he may be subject to civil or criminal liability, or both. As there is between the common law and statutory duties of responsibility there is considerable overlap in breach of common law duty may also result in a breach of statutory duty. Statutory duties are performed by the regulatory agencies, and the common law duty to enforce by the company.

    Breach of duty to act honestly and with reasonable efforts (section 157 (1))

    If the Director fails to act honestly and use reasonable efforts, he would be a violation of common law and the Act 157.

    • Related Cases and Analysis

    Section 157(1) Companies Act (Cap 50) requires the application of honesty and discharge of reasonable skills and diligence by directors. Yong Pung How CJ observed in Lim Weng Kee v PP [2002] that: ‘... Standards of care and diligence expected civilian director is objective, that is, whether he has examined the same level of care and diligence in his position found a reasonable director. The standard is not fixed, but a continuum depending on various factors, such as personal role in the company's decision is the type, size, and the company's business....’ (accessed 18th May 2015)

    The Singapore High Court in Vita Health Laboratories Pte Ltd and others v Pang Seng Meng [2004] has approved the principles laid down by Jonathan Parker J in Re Barings plc (No 5) [1999] that: (accessed 18th May 2015)

    As directors, both collectively and individually, have a carrying on duty to obtain and maintain a sufficient understanding and knowledge of the company’s business, in order to discharge their duties properly.

    Although the directors have the right, subjected to the Articles of Association, those specific functions entrusted to them under the management of the chain, and believe in their ability and integrity within reasonable limits, to exercise the power of delegation does not relieve the functions entrusted to the directors from responsibility for oversight fulfilled.

    General application does not rule can be formulated as responsibilities (b) referred to in item. The extent of the obligation, if the problem has been discharged, must rely on the facts of each relating case, including the role of managing director of the company. "

    As an appointed managing Director, Mrs. Lim is obliged by the law to discharge her responsibilities. According to Lim Weng Kee V PP [2002], care and diligence standards expected of civil and criminal director are the same, that is, whether he exercise the same degree of care and diligence, reasonable director in his position would have. Thus as managing director, Mrs Lim is expected to supervise and closely monitor the company's operations. This is expected of her as a reasonable managing director in her position.

    According to s.157C(1) Companies Act: In addition to the first (2) Directors may exercise the powers or perform their duties, which is relying on reports, financial data, statements and other information prepared or provided expert advice and professional or given by any of the following persons:

    Who is the director has reasonable grounds to believe to be reliable and competent in relation to an employee of the company related matters; A professional adviser or a specialist director has reasonable grounds to believe that the matter is within the purview of professional or expert person; Any other director or directors play in the director did not involve the purview of other directors or designated by the Commission. "

    Section 157C (2) of Companies Act goes on to provide: ‘Subsection (1) shall apply to a director only if the director – acts honestly and in good faith; where is need, so that the case is instructed and appropriate inquiries; and there is no knowledge, this dependence is unfounded.

    • Judgement

    Mrs. Lim has violated her duty of care and diligence under s.157(1) to take action in accordance with the Act and General Liability A liability contained in s.157. Violation of the law s.157 (1) of the Companies Act will lead to Mrs. Lim to the following:

    Any damage is responsible for the company by her or suffered by the company in violation of any s.157 (1) Companies Act due to any profits made; and shall be guilty of an offense and liable upon conviction to a fine not exceeding $ 5,000 or to imprisonment for a term not exceeding 12 months.

    Breach of the obligation to act with caution and diligence Mrs Lim will lead the company for damages for any loss or damage suffered by the company.

    The liquidators may take action on Mrs. Lim violation due to her negligence to exercise duty of care and failure to take diligence responsibility.

    4. Conclusion

    In conclusion, Mrs. Lim should not abdicate her responsibilities as a director. She seems to have lost her mind due to her husband death and given all the right to her son, Luke for all decision making without supervise or check through. In section 157C can be act as her defense, but she will require making inquiry on the circumstances. However, if she continues to be lost control there will be difficulties in creating a proper inquiry.

    Under section 157(1) companies act and duty under general law, shows that Mrs. Lim has breached of her duty to act with care and diligence. As a result of breaching section 157(1) cause Mrs. Lim to suffer from: i). Liable for any profits in the company earn by her or damage suffered due to breach of this section. ii). Guilty of offence and will be fine not exceeding $5000 or to be imprisoned for not more than 12 months. Breach of duty to act with care and diligence cause Mrs. Lim to compensate for any loss or damage by the company. And liquidator may bring up civil action on behalf of the company against Mrs. Lim for her breach of duty with care and diligence.


    • Pung How CJ observed in Lim Weng Kee v PP [2002]


    Last accessed 18th May 2015

    • Health Laboratories Pte Ltd and others v Pang Seng Meng [2004]


    Last accessed 18th May 2015

    • Parker J in Re Barings plc (No 5) [1999]


    Last accessed 18th May 2015

    • In re Barings plc (No 5), CA, Appeal from, ([2000] 1 BCLC 523)
    • The Secretary of State for Trade and Industry -v- Mark Goldberg James Flannagan Mcavoy, ChD, Cited, ([2003] EWHC 2843 (Ch), Bailii, Times 02-Dec-03)
    • Walter Woon, Company Law, 3rd reprint 1993, Director's duties, Longman Singapore Publishers Pte Led. Pg 187
    • Julia Bailey and Lain McCallum, 2010, Company Law, stage 3, Company directors, British Library Cataloguing in publication Data. Pg 121
    • Alan Digman and John Lowry, 2009, Company Law, 5th edition, Directors' duties, Oxford University Press, Pg 298
    • Admin, (2012), Directors' Duties in Singapore.


    Last accessed 23th May 2015