Directors' duties - Chuan Soon Huat

The recent case involving the directors of listed furniture maker Chuan Soon Huat (CSH) highlighted the issue of reasonable diligence in the discharge of the duties of the directors as required by section 157 of the Companies Act.

The executive chairman of the company was seriously ill and was unable to discharge his duties for a period of over 2 years. The board of directors failed to disclose that there had been a change in effective control of CSH between 1 Jan 2004 and 31 October 2006.

This piece of information is often of great importance to investors and to the market generally. The directors of the company failed to inform the Singapore Exchange (SGX) of this material fact. As a result, they were charged under section 157. They were fined the maximum amounts and were disqualified by the District Court for varying lengths of time.

On appeal to the High Court, Justice of Appeal VK Rajah reduced the disqualification periods for all of the accused except for the the managing director whose disqualification of 5 years was left unchanged. It is unclear if written reasons relatig to the appeal will be released publicly. The decisions of the Subordinate Courts are still available at the website www.subcourts.gov.sg. as at late February 2009.

The directors involved were -Mr Lee Thian Soon who was managing director, then-executive directors Lee Siew Hoe and her husband Lim Kiang Soon, and independent director lawyer Peter Moe

This case therefore illustrates the principle that even non-executive directors are expected to carry out their duties under the Companies Act and any breach will be severely dealt with.