SINGAPORE Law and Practice Contributed by: Jansen Chow and Ang Leong Hao, Rajah & Tann Singapore LLP
In particular, the special rules of attribution oper - ate differently depending on the factual matrix. In the case of fraud, the courts have held that while a company could be bound by the improper acts of the directors at the suit of an innocent third party, that rule of attribution should not apply where the company itself is bringing a claim against the directors for their breach of duties. 3.2 Claims Against Ultimate Beneficial Owners In certain exceptional circumstances, courts can look beyond the separate legal personality of a company and look to those who stand behind the company – eg, shareholders. This is typically referred to as “lifting the corporate veil” . One scenario where the corporate veil can be lift - ed is where the company is used by the relevant person as an instrument of fraud. A fraudster will not be allowed to commit a wrong through a company that they control and then assert that it is the company and not themselves who should bear the responsibility for the wrong. The corporate veil can also be lifted where the company is simply an alter ego of the fraudster – ie, where there is no distinction between the company and the fraudster, and the company is simply carrying on the business of its controller. 3.3 Shareholders’ Claims Against Fraudulent Directors The general rule is that the proper claimant to bring a claim against fraudulent directors is the company itself. Shareholders are typically not allowed to sue on the company’s behalf, but can request the company’s board of directors to take action. The shareholders of the company may also attempt to oust the fraudulent directors by way of a shareholders’ resolution, and then have the company bring claims against them.
However, in the situation where the wrongdoers are themselves in control of the company and do not allow for an action to be brought in the company’s name, the minority shareholders may consider seeking leave from the court to pursue a derivative action, under either common law or statute. Specifically, under Section 216A of the Com - panies Act 1967, the shareholder may apply to court for leave to bring an action in the com - pany’s name. The court would need to be satis - fied that: • the complainant has given 14 days’ notice to the directors of the company of the complain - ant’s intention to apply to the court for leave to commence action if the directors of the company do not bring, diligently prosecute, defend or discontinue the action or arbitra - tion; • the complainant is acting in good faith; and • it is prima facie in the interests of the com - pany that the action should be brought. Under the common law derivative action, the action against the fraudulent director is brought in the shareholder’s name. There are two require - ments that need to be satisfied before the court may grant leave to start a derivative action, namely: • it is prima facie in the interest of the company that the action should be brought; and • the complainant must have standing to bring the action, by showing that there has been “fraud committed against the minority” and the alleged wrongdoers are in control of the company. The idea of “fraud on the minority” is a term of art here and is different from actual fraud under
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