Directors who fail to oversee firms set up for clients will likely be jailed: High Court

Professional company directors who lend their names to help foreign clients set up companies in Singapore but fail to exercise oversight over these companies will likely be sentenced to jail terms.

The High Court said the custodial threshold would be presumptively crossed for such directors when they are sentenced for failing to exercise reasonable diligence in carrying out their duties.

The onus will be on the offenders to explain why a jail term should not be imposed on them, said a three-judge panel.

The sentencing guideline was issued in a case involving chartered accountant Zheng Jia, who was fined $8,500 by a district judge in April 2024.

Zheng, then 41 and a Singapore permanent resident, was also disqualified from acting as a company director for five years.

On Feb 19, the prosecution appealed to the High Court against the fine.

The High Court panel, led by Chief Justice Sundaresh Menon, allowed the appeal and sentenced Zheng to 10 months’ jail instead.

On April 24, the court issued written grounds for the decision.

It said that Zheng operated a business of incorporating companies in Singapore, primarily at the behest of foreign clients.

As Singapore companies are required to have at least one director who is a local resident, Zheng registered himself as a local resident director of these firms and helped in the opening of bank accounts.

He offered these services through three Singapore companies. In November 2019, he set up a branch office in Shenzhen, China.

His services were priced at between $1,000 and $1,400 annually.

Investigations later revealed that he had incorporated or been registered as a director of 384 companies.

This business model was so successful that Zheng recruited another person, Er Beng Hwa, to act as a local resident director and assist in opening bank accounts for companies set up on behalf of his clients.

Both men did not exercise any oversight over the affairs of those companies. 

In 2020, substantial sums from overseas scams were routed through the bank accounts of three such companies.

One of them was Ocean Wave Shela, which Zheng incorporated in May 2020 at the request of a client and helped the firm open a bank account in Singapore.

In October 2020, an American company was deceived into transferring US$64,630 ($83,900) to the Ocean Wave account.

The funds were then channelled to a bank account in China.

For this, Zheng was charged with failing to exercise reasonable diligence as a director of Ocean Wave.

In August 2020, Er was registered as a director and secretary of a company named Rui Qi Trading, which later opened two bank accounts.

The accounts were used to receive and transmit the proceeds of scams perpetrated against three foreign companies. These proceeds amounted to US$2.18 million and $237,120.

For this, Zheng was charged with intentionally aiding Er’s omission to exercise reasonable diligence as a director of Rui Qi.

Zheng pleaded guilty to the two charges. Under the law, each charge carries a maximum fine of $5,000 or up to a year’s jail.

A third charge was taken into consideration. It involved Er’s directorship of another company, Eastar Holding, whose bank accounts were used to receive and transmit stolen money.

In sentencing Zheng, the district judge relied on the framework laid out in a 2017 case.

However, the High Court said that case should not have been relied on as a precedent.

The judges set out a revised sentencing framework for cases involving professional directors whose business models were premised on providing no, or inadequate, oversight over the affairs of the companies.

Under this framework, the sentencing judge would first identify the factors relevant to the offence, such as the duration of offending and the extent of the harm caused.

Based on the number of factors, the judge would place the offence within three sentencing bands.

At the lowest band – for offences involving one to three factors – the indicative sentence is up to four months’ jail.

At the highest band, offences involving more than six factors could result in nine months’ to a year’s jail.

The sentence would then be adjusted based on factors specific to the offender, such as relevant antecedents and the extent of voluntary restitution.

Applying the framework to Zheng, the court concluded that he should get three months’ jail for the first charge and seven months’ jail for the second charge.

There was no change to the disqualification order.

Er was separately fined $4,000 and disqualified from being a company director for three years.

Selina Lum is senior law correspondent at The Straits Times.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

Public Prosecutor v Zheng Jia [2025] SGHC 76

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