Every person who accepts appointment as a director of a Singapore company takes on a set of legal duties that sit at the heart of the Companies Act 1967. The best known of these is Section 157, which sets out the statutory duty to act honestly and to use reasonable diligence. It is a short provision, but it carries real teeth: a director who breaches it can be made personally liable to compensate the company and can also be prosecuted for a criminal offence.
If you are a first-time director of a private limited company, a nominee sitting on a board for a client, or a founder who has never thought hard about what “director’s duties” actually means, this guide explains Section 157 in plain English, how it interacts with the older common law duties, and the practical steps that keep you on the right side of the line.
What Section 157 of the Companies Act says
Section 157 of the Companies Act 1967 imposes two core statutory duties on a director (and, in fact, on any officer of the company):
Section 157(1) — honesty and diligence. A director must at all times act honestly and use reasonable diligence in the discharge of the duties of his office.
Section 157(2) — no misuse of position or information. An officer or agent must not make improper use of his position, or of any information acquired by virtue of his position, to gain an advantage for himself or any other person, or to cause detriment to the company.
These duties are owed to the company — not to individual shareholders, not to creditors in the ordinary course, and not to the public. That distinction matters, because it is usually the company (or a liquidator, or a shareholder bringing a derivative action) that enforces a breach.
The consequences of breaching Section 157
Section 157(3) spells out a two-pronged consequence, and this is what makes the provision so significant for directors:
1. Civil liability to the company
A director in breach is liable to the company for any profit made or any damage suffered by the company as a result of the breach. In practice this means the company can claw back a secret commission, recover a diverted business opportunity, or sue for losses caused by careless decision-making.
2. Criminal liability
A breach of Section 157(1) or (2) is also a criminal offence. On conviction, the director is liable to a fine of up to S$5,000 or to imprisonment for a term of up to 12 months. ACRA and the courts treat dishonest or self-serving conduct by directors seriously, and a conviction is a matter of public record.
Separately, a person who is convicted of certain offences, or whose conduct makes them unfit, can be disqualified from acting as a director under other provisions of the Act — so the reputational and practical fallout can extend well beyond the immediate penalty.
Section 157 is only part of the picture: the common law duties
Section 157(4) makes an important point that many directors miss: the statutory duties are in addition to, and not in derogation of, any other rule of law or equity relating to the duty or liability of directors. In other words, Section 157 does not replace the older fiduciary and common law duties — it sits on top of them.
The main duties a Singapore director owes, drawn from case law and equity, are:
Duty to act in good faith in the interests of the company
A director must act bona fide in what he honestly considers to be the interests of the company as a whole. The test has a subjective element (what the director actually believed) but the courts will scrutinise whether an honest and intelligent person in the director’s position could reasonably have believed the decision was in the company’s interests.
Duty to exercise powers for proper purposes
Powers given to directors — such as the power to issue new shares or to refuse a share transfer — must be used for the purpose for which they were conferred. Issuing shares mainly to dilute a rival shareholder or to entrench control is a classic example of an improper purpose, even if the director genuinely thought it was a good idea.
Duty to avoid conflicts of interest and not to profit
A director must not place himself in a position where his personal interest conflicts with his duty to the company, and must not make an unauthorised profit from his office. This overlaps with the specific disclosure obligation in Section 156, which requires directors to disclose interests in transactions, and with the restrictions on loans to directors under Section 162.
Duty of care, skill and diligence
This mirrors the “reasonable diligence” limb of Section 157(1). A director must bring the care and skill that may reasonably be expected of a person carrying out the same functions, taking into account the director’s own knowledge and experience. A director with accounting expertise, for example, will be held to a higher standard on financial matters than a lay director.
What “reasonable diligence” means in practice
Singapore courts have made clear that a director cannot simply be a passive name on the register. Reasonable diligence generally requires a director to:
- Acquire and maintain a basic understanding of the company’s business and its financial position;
- Attend board meetings and stay informed about what management is doing;
- Read board papers and financial statements, and ask questions when something does not add up;
- Monitor the company’s affairs and not delegate everything blindly to a co-director or manager;
- Take steps to prevent wrongdoing once aware of red flags.
The “I trusted my business partner and never looked at the accounts” defence has repeatedly failed in the Singapore courts. Being a sole director or a nominee director does not lower the standard — if anything, it concentrates the exposure on the one person who holds the office.
Common Section 157 breach scenarios
In our corporate secretarial practice, the situations that most often raise Section 157 questions include:
- Diverting a corporate opportunity — a director quietly takes on a contract or client that came to the company, through a separate vehicle he controls.
- Using company funds for personal purposes — treating the company bank account as a personal account, or making undocumented “loans” to the director.
- Approving related-party transactions without disclosure — contracting with a company owned by the director’s family without declaring the interest to the board.
- Continuing to trade while insolvent — incurring new debts when the director knows, or ought to know, the company cannot pay.
- Failing to keep proper records — which can amount to a lack of reasonable diligence and expose the director to further liability if the company later fails.
How directors can protect themselves
Compliance with Section 157 is mostly about good habits and good documentation. Practical safeguards include:
- Holding regular, minuted board meetings and keeping the minutes at the registered office;
- Declaring any personal interest in a transaction before it is discussed, and recording the declaration;
- Keeping company money strictly separate from personal money;
- Documenting the commercial reasons for significant decisions, so the board can show it acted honestly and with diligence;
- Taking professional advice (legal, tax, accounting) on material or unusual transactions;
- Ensuring the company files its annual returns and financial statements on time.
Where boards are prone to disagreement, it is worth reading our guide on directors’ meeting disputes and when the court will intervene, because unresolved deadlock is often where Section 157 allegations start to fly.
Frequently asked questions
Do these duties apply to non-executive and nominee directors?
Yes. Section 157 applies to every director regardless of title. A non-executive or nominee director owes the same statutory duties; the court simply takes into account the actual functions the director performs when assessing diligence.
Can shareholders release a director from a breach?
The company (through its members) can sometimes ratify certain conduct, but ratification is not available for dishonesty, fraud, or where the company is insolvent and creditors’ interests are engaged. Ratification also does not remove criminal liability under Section 157(3).
Is a director personally liable for the company’s debts because of Section 157?
Not automatically. A company is a separate legal person and directors are generally not liable for its debts. Section 157 makes a director liable to the company for loss caused by his breach — which is different from being liable to creditors for ordinary trading debts.
Does resigning end my exposure?
Resignation stops future duties accruing, but it does not wipe out liability for breaches committed while you were in office. Proper resignation and the timely filing of the change with ACRA are still important — see our guide on adding or removing a director.
The bottom line
Section 157 sets a deliberately practical bar: act honestly, use reasonable diligence, and do not misuse your position or the company’s information. Directors who take the role seriously — who show up, read the papers, ask questions, disclose conflicts, and keep clean records — rarely have anything to fear from it. Those who treat a directorship as a title without responsibility are the ones who end up on the wrong side of Section 157(3).
If you would like help setting up proper board governance, minute-keeping, and conflict-of-interest procedures for your company, our corporate secretarial team can put a compliant framework in place.
— The Editorial Team, Raffles Corporate Services