The concept of a Nominee Director

In some jurisdictions, such as Singapore, Thailand or Malaysia, every company that is registered there must have at least one director who is a resident of the country. If a foreigner wants to incorporate a company in these countries, but does not have a local person who can act as a resident director of the new company, then the foreigner can “hire” a person to act as a non-executive director on the board of directors of the company for a fee. Such person is called a nominee director.

The nominee director must be a citizen or permanent resident of the country and must have a permanent address that is located in the country. These so-called nominee directors usually do not play any role in operating the company but are appointed simply to satisfy local regulatory requirements. They are often in a position where they feel or are expected to feel a loyalty to their nominating shareholders.

However, the loyalty a nominee director may have towards nominating shareholders should not be confused with their legal duty. When one is asked to act as a nominee director, it is important to understand that the duties owed by a nominee director to a company are the same as those owed by an independent director.

At common law, a director owes a fiduciary duty in respect of its position. This means that the director should act honestly and in good faith with a view to the best interests of the company. The director should also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. A nominee director who takes instructions from a shareholder without exercising their ability to exercise their best judgment is likely in breach of their fiduciary duty. The nominee director may also be in breach of their fiduciary duty where the nominee director has signed a non-disclosure agreement in respect of information received that would materially impact the company, and has used this non-disclosure agreement as a shield not to disclose this information the board.

To fulfill its fiduciary duty, a nominee director must take the position that where the interests of the company and the nominating shareholders are not aligned, the interest of the company must at all times prevail, regardless of how this may impact the interests of their appointing shareholder, and especially in situations where minority shareholders may be unfairly impacted.

It is the best interest of the nominee director to monitor the activities of the company in sufficient detail to ensure that the company is not violating any laws, because if the company or its executive directors break a law, the nominee director will also be held liable, despite having no say in the company’s management.

This publication has been prepared for general informational purposes only. Nothing contained herein is legal advice, nor does your use of or reliance upon it create an attorney-client relationship with Semeion Group.