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Can you sue a company director for a company’s debts?
Generally, the answer is no. The whole purpose of incorporating a company is to create a new legal entity – if the company owes money or found liable for something, only the company’s assets may be tapped into to repay the debt or pay damages, not the directors’ assets.
However, as shown below, some circumstances exist where you can make a company director personally liable for a company’s debts:
‘Piercing the corporate veil’
A creditor or a group of creditors may apply to court to ‘pierce the corporate veil’ and make a director personally accountable and liable when:
- They can prove to the Court that the director abused the company’s corporate form and its limited liability protection at the creditors’ expense. This normally works in sham transactions where the director quite quickly cashes out the company’s funds to ensure that the creditors do not get hold of it. It also requires a high degree of proof.
- They can prove to the Court that the director used the company’s assets like his own, using it for his own personal use in an arbitrary manner as and when it suited him, sometimes even without passing board resolutions.
Liability under the Companies Act
- Section 145(10) of the Companies Act – if shareholders knew that the company operated without a Singapore-resident director for 6 months or more, they may be made personally liable for company debts incurred after the 6-month period.
- Section 144(2) of the Companies Act – if a director or shareholder signs off on a document creating a payment obligation on the company but the company’s name is not mentioned at all (for example, bills of exchange, promissory notes and other negotiable instruments), and the company fails to make payment, the director or shareholder may be made personally liable for the debts.
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The director is a guarantor or co-borrower of a loan the company took out
- Most loans where there are co-borrowers or guarantors are drafted in such a way that both (or all) of the borrowers are jointly and severally liable in case there are defaults on the loan repayments.
- Similarly, guarantees are drafted in such a way that guarantors become personally liable when the borrower/s default on repayments.
- It also does not matter that the co-borrower was the company, that the director purportedly acted in the best interests of the company in agreeing to be a co-borrower or guarantor – the law still works to place personal liability on the director as a co-borrower or guarantor of the company’s loan.
Need Advice ?
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At Lions Chambers LLC, we pride ourselves on being responsive. We understand that some problems need immediate attention, let us assist you.
How can we help you
Debt Recovery in Singapore is a delicate issue and may be too technical for you to fully understand alone. We understand that going through such an event in your life is difficult. Worry not, at Lions Chambers LLC, and we have experienced lawyers who are well versed in debt recovery in Singapore. We will be able to guide you through the process and explain to you each and every stage the matter.
Or if your company has an errant director who is using the company assets for his own personal gain in violation of his duties to the Company, or you are a director who is now being threatened with legal action for some transactions you may have undertaken on its behalf, do give Lions Chambers LLC a call. We’re here to help.
Lions Chambers LLC is an established law firm in Singapore. Our team of lawyers specialise in various areas of law and will be able to assist you. Our consultations are free. Please call +65 8777 3677 or click here to WhatsApp us today.