Directors' Right to Inspect Company Accounts clarified

In Hau Tau Khang v Sanur Indonesian Restaurant Pte Ltd and another (Hau Tau Thong, non-party) and another matter [2011] SGHC 97, the Singapore High Court clarified the ambit of a director's right to inspect company accounting records under Section 199(3) of the Companies Act (Cap 50) of Singapore ("Companies Act"). In particular, the Court held that the exercise of such a right to defend against a derivative action would not fall within the scope of the restrictions established by earlier cases.

Brief facts

The case concerned two brothers, Hau Tau Thong (the "appellant") and Hau Tau Khang (the "respondent"), who were co-directors of the companies Sanur Indonesian Restaurant Pte Ltd ("SIRPL") and Sanur Holding Pte Ltd ("SHPL") (collectively, " the Companies"). The Companies ran a chain of restaurants under the trade name of "Sanur", and the appellant at all times assumed the position of Managing Director. Despite a winding-up agreement made in relation to the Companies in 2006 followed by the cessation of operations of all "Sanur" restaurants by 2009, both brothers remained as directors of the Companies. In 2010, the respondent commenced a derivative action against the appellant, alleging that the latter had breached his fiduciary duties in relation to, inter alia, SIRPL's accounts.

In response, the appellant commenced a separate action where he sought to rely on his right to inspect SIRPL's accounts under Section 199(3) of the Companies Act. His claim was dismissed by the Assistant Registrar, who held that such a right was restricted to enabling a director to carry out his duties, and was not for the purpose of defending against a potential derivative action.

Issues in the appeal

The respondent contended that the appellant could not exercise his right under Section 199(3) of the Companies Act as it fell within the scope of the restrictions established by earlier cases. In particular, the respondent alleged that:

The right had to be exercised for the performance of directors' duties pertaining to the accounts of the company. The right should only be exercised for present and prospective directors' duties and could not be used to justify past conduct or performance of directors' duties. The exercise of the right for a purpose other than the discharge of directors' duties was improper and would displace the "absolute" right of inspection. The appellant, on the other hand, argued that his right of inspection could not be curtailed unless the...