Grab Driver Fined $28,000 for Neglecting Duties as Nominee Director for 60 Companies
A Grab driver, Leonard Koh Meng Huat, recently found himself facing a hefty fine of $28,000, all because of a rather unexpected sideline endeavor.
It turns out that Koh decided to sign up as a nominee director for a staggering total of 60 companies, hoping to secure an additional stream of income.
Yes, you read that right—60 companies.
However, what Koh failed to comprehend were the intricate responsibilities and potential legal consequences that came with this role. Here’s what happened.
How Koh Became a Nominee Director and what this Role Entails
Koh applied to become a nominee director at a firm called Osome in 2019 to boost his earnings. Initially, he received a monthly compensation of S$100 for each company where he served as a nominee director.
However, by July 2020, this fee was significantly reduced to $1 a day.
For the unaware, Osome is a firm that offers corporate services to facilitate routine administrative tasks, allowing entrepreneurs to focus on growing their business. Among their services, Osome provide nominee directors in Singapore.
A nominee director essentially serves as a representative for a company, especially for foreign businesses, and provides a local presence to meet Singapore’s regulatory requirements under the Companies Act.
In simpler terms, when a foreigner registers a company in Singapore, they need a local director to ensure compliance with local regulations. This is where Osome steps in, providing companies with a nominee director for a service fee.
Osome explicitly states on their site that a nominee director is legally required to fulfil the same obligations and liabilities as a director. Meaning, while nominee directors do not have executive authority and are not involved in decision-making processes, they are still accountable for the company’s legal compliance and potential breaches of law.
According to TODAY, Koh’s responsibility included conducting due diligence checks on the companies he was affiliated with. These checks involved scrutinizing the foreign director’s passport, verifying proof of address, and screening for any “watch list” results, which are assessments performed by authorities to identify companies susceptible to financial crimes.
However, Koh neglected these duties, assuming that Osome’s checks were sufficient and that foreign directors would ensure their companies adhered to all relevant rules and regulations.
n his role as a nominee director, Koh essentially became a passive participant, logging into Osome’s application only four times to briefly review bank statements of the companies under his purview. He earned a substantial sum of $57,009 for essentially doing “nothing.”
The Result of Negligence
As shiok as earning thousands of dollars with minimal effort may sound, the consequences of negligence far outweigh any monetary gains.
In February 2022, Mr Tan Kwee Sang, deputy general manager of manufacturing and engineering firm Meiden Singapore, transferred $171,000 to a United Overseas Bank account belonging to AAH & Partner, a company in which Koh was a director.
The payment was made in response to a fraudulent business email for a service done by a company that Mr Tan had worked with. Mr Tan only realised that Meiden was scammed months later and filed a police report. Unfortunately, funds were transferred to various bank accounts overseas and was not recovered.
While Koh was not directly involved in the scam itself, his failure to fulfil his due diligence responsibilities as a director led to legal repercussions.
During Koh’s court proceeding, his defence counsel, Jacintha Gopal, sought a fine of $15,000 attributing it to the fact that it was his first time as a nominee director. However, Deputy Public Prosecutor Ang argued that Koh breached his duty as a director by displaying a high level of negligence. Thus, he proposed a fine between S$29,000 to S$30,000.
Koh ultimately pleaded guilty to seven charges of failing to use reasonable diligence in the exercise of his duties as a director under the Companies Act and was fined S$28,000 on 8 December.
Another Similar Case
Does this case ring a bell? You might have heard of a case in 2021 where another nominee director, Gurdev Singh, was fined $4,000 for failure to exercise reasonable diligence and disqualified from being a director for three years.
Singh had been a nominee director for Wimpy Electronic, a company that specialises in wholesale trade. Similarly, this company’s bank account was used to receive and transfer money derived from a scam.
Anyone convicted of this offence under the Companies Act can not only be fined up to S$5000 but also be imprisoned for up to 12 months.
Given these consequences, it might be wise to stick to simpler side hustles like selling second-hand clothes or selling homemade goods, rather than taking up the responsibility of more than 50 companies if you lack the necessary experience and skills.
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