Home Work.

A. Past exam – 8 December 2014

Section B. Question 3
Answer.
a) John, as a director of the Company, has a statutory duty under S157 Company Act
(Chap 50) to use reasonable diligence in the discharge of his duties. The director
must be objective and not negligent in performing of his duty. In this situation, John
only heard the comments from his friends that sports drinks and e-commerce are
very popular with Singaporeans, then he hastily decided to invest heavily in the new
business idea without any study about market and feasibility of the new product. It
shows that he was not diligent in carrying his duty.
Furthermore, with 20 years experience in the supermarket industry, John would
have the knowledge and experience to know what he needs to study before start to
invest and launch a new product or sale channel. But there was no market survey or
feasibility study was done, it apparently shows negligence of John to recommend the
new business idea to his Company. Therefore, John has breach the standard of
reasonable director in relation to Fresh Pte Ltd’s decision to invest in the internet
sports drinks distribution business.
b) As a director of Fresh Pte Ltd, John has to show “subjectively” that he act bona fide
and honestly in the interest of Fresh. When he changed the seafood supplier to his
two brothers’ company, there is a conflict of interest in this transaction. And under
Section 156, he should declare his interest in the transaction to the Board of
Directors and also get approval from them. In this case, John kept secret about his
relationship with the new seafood supplier, so he has breached his duty to avoid
conflict of interest.

B. Specimen Exam applicable from December 2014

Section B. Question 3
Answer.
a) Although John was disqualified, he secretly give instructions for operating of the
business, so he acted as a shadow director.
And Kim is carrying John’s instructions to run the business although he was not
appointed as a director. Since he acts as a director, it makes him a de factor director.
b) Non-executive directors owe fiduciary duties to their company. They include the
duty to act honestly and diligent in the company’s interests S157 CA, the duty to
avoid conflict of interests and declare their interest in any transaction with the
Company S156 (4) CA.