Section 168 of the Companies Act 1967 is the provision that stops directors from quietly voting themselves large “compensation for loss of office” or exit payments on the way out the door. It requires payments made to a director in connection with the loss of office, or in connection with the transfer of the whole or part of the undertaking or property of the company, to be disclosed to shareholders and approved by them. Without that approval, the payment is held on trust for the company and is recoverable from the director.
The rule sounds narrow, but in practice it catches golden handshakes, non-compete payments dressed up as compensation, ex gratia leaving gifts, and even certain M&A closing bonuses to selling directors. This 2026 guide unpacks section 168, what “loss of office” means, when disclosure is required, and how a well-run board handles it.
The Core Rule of Section 168
Section 168(1) states that a company shall not make a payment to a director “by way of compensation for loss of office as an officer of the company or of a subsidiary of the company, or as consideration for or in connection with retirement from any such office”, unless the payment has been disclosed to the members of the company and approved by the company in general meeting.
The corresponding rule in section 168(3) applies when there is a transfer of the whole or part of the undertaking or property of the company. Payments to a director in connection with that transfer must be approved before the transfer or the payment.
Under section 168(5), if a payment is made without the required approval, it is deemed to have been received by the director on trust for the company. The company can sue to recover it, and other directors who were parties to the payment can also be liable.
What Is a “Payment for Loss of Office”?
The term is broad. It captures any payment (in cash, shares, or benefits) made because the director is leaving, or retiring, or being asked to step down. Typical examples:
- Termination payments or “golden handshakes” to a departing CEO/director.
- Ex gratia payments made “in recognition of services”.
- Non-compete or restrictive-covenant payments made at the time of departure.
- Enhanced pension or gratuity payments beyond the contractual entitlement.
- Buy-outs of unvested share options at above-market value.
Payments explicitly excluded by section 168(6) include:
- Bona fide payments by way of damages for breach of contract.
- Bona fide payments by way of pension in respect of past services.
- Payments provided for under a service contract that was itself lawfully approved.
The key is substance over form. Labelling a payment “damages” does not save it if the payment is really a gift.
Section 168 and Change-of-Control Transactions
Section 168 has real teeth in M&A. When a Singapore company is being sold or its business is being transferred, exit payments to directors are typical. The section requires:
- Full disclosure of the payment in a shareholders’ notice.
- Approval by ordinary resolution of the shareholders.
- Approval before the payment is made.
In a share sale, this may involve calling a special general meeting to approve the deal-related payments to directors. In an asset sale, the same procedure applies. Practitioners typically build the section 168 approval into the same resolutions that approve the sale.
Board and Company Secretary Checklist
Before Approving Any Exit Payment
- Confirm whether the departing director is or was a director of the company or any subsidiary.
- Analyse whether the payment is compensation for loss of office, a pension, damages, or something else.
- If compensation for loss of office, prepare a shareholders’ notice with full details of the payment (amount, form, timing, and rationale).
- Circulate the notice with the notice of general meeting.
- Pass an ordinary resolution approving the payment.
- Only pay after the resolution is passed.
- File and retain evidence in the company’s statutory records.
Recording the Resolution
The resolution should specify:
- The name of the director.
- The amount and form of the payment.
- The reason for the payment.
- Confirmation that this is a payment for loss of office within section 168.
See our Section 184A written resolutions guide for the mechanics of shareholder resolutions in private companies. For a broader review of governance obligations, see our corporate secretarial health check guide.
Interaction With Section 156 and Section 165
Section 168 works alongside other governance rules:
- Section 156: The director being paid is interested in the transaction and must declare that interest at the board meeting where the payment is approved.
- Section 165: Substantial property transactions between the company and a director need separate shareholder approval.
- Section 162: Loans to directors are separately restricted.
A departing CEO’s exit package can trigger all four sections. Do not treat them in isolation.
Penalties for Non-Compliance
Civil
Under section 168(5), the payment is held on trust for the company. The company can recover it from the director. Other directors who were knowingly parties to the wrongful payment can be liable as trustees or under general breach-of-duty principles.
Criminal
Section 168(9) makes it an offence for a director who fails to comply with the disclosure requirements. On conviction, the director is liable to a fine not exceeding S$5,000.
Real-World Examples
Example 1: Founder exits. A three-founder Singapore SME sells to a strategic buyer. Two founders remain as employees; the third is paid S$500,000 to leave and sign a non-compete. Even though the payment is styled as a non-compete, the fact that it is paid on and by reason of leaving the board makes it caught by section 168. The company must obtain shareholder approval by ordinary resolution before paying.
Example 2: Retirement gift. The long-serving finance director of a private company retires at 65 with S$50,000 as “recognition of service”. Because this is beyond his contractual entitlement, it is caught by section 168.
Example 3: Contractual severance. A director’s service contract provides for six months’ salary in lieu of notice on termination. Because the service contract was itself properly approved and the payment is contractual, section 168(6) excludes it from the approval requirement, provided the payment is bona fide.
Section 168 in Wholly-Owned Subsidiaries
The rule applies with equal force to a Singapore company’s subsidiaries. If a parent company is paying a departing director of a subsidiary, the subsidiary’s shareholders (typically the parent itself) must approve the payment. For 100% subsidiaries, the parent’s board passes the required resolution, but the formality must not be skipped.
Frequently Asked Questions
Does Section 168 Apply to Public and Listed Companies?
Yes. In addition to section 168, listed companies must comply with SGX Listing Manual rules on director remuneration and interested-person transactions. Section 168 approval is typically obtained at the AGM or a specially convened EGM.
Can Shareholder Approval Be Given After the Payment?
No. Under section 168(1) and (3), approval must be given before the payment. Retrospective ratification does not cure the breach.
What Is the Voting Threshold?
An ordinary resolution (simple majority). The interested director should not vote if they are also a shareholder (subject to the constitution).
Does Section 168 Apply to Consultancy Payments After Retirement?
Only if the consultancy is a disguised form of compensation for loss of office. A genuine post-retirement consultancy contract on market terms is not caught by section 168, but boards should document the commercial rationale carefully.
Does Section 168 Apply if the Director Resigns Voluntarily?
Yes if a payment is made in connection with the resignation. The reason for departure does not matter; what matters is whether a payment is being made to the director because of the departure.
— The Editorial Team, Raffles Corporate Services