Revised sentencing framework sets imprisonment as default punishment for nominee directors breaching duty to exercise reasonable diligence

5 June 2025

In Public Prosecutor v Zheng Jia [2025] SGHC 76, a three-judge coram of the General Division of the High Court (“HC”) imposed an aggregate sentence of 10 months’ imprisonment on a chartered accountant (“Zheng”), who operated a corporate secretarial services business, for his failure to exercise reasonable diligence in his directorial duties for two companies, in breach of section 157(1) of the Companies Act 1967 (“CA”).

In allowing the Prosecution’s appeal, the HC substituted the two fines of S$3,500 and S$5,000 previously imposed by the District Court with an imprisonment sentence. The HC also upheld the District Court’s disqualification order under section 154 of the CA preventing Zheng from acting as director or taking part in management activities.

The HC identified difficulties with the sentencing framework established in the earlier High Court’s decision in Abdul Ghani bin Tahir v Public Prosecutor [2017] 4 SLR 1153 (“Abdul Ghani”) and introduced a revised sentencing framework for nominee directors who breach the duty to exercise reasonable diligence under section 157(1) of the CA, setting imprisonment as the presumptive punishment.

This decision underscores that nominee directors who fail in their duty to exercise reasonable diligence will likely face custodial sentences.

Background

Zheng, through his corporate secretarial services business, assisted foreign clients to incorporate Singapore companies. As part of this service, Zheng would register himself as the director and company secretary of those companies. Investigations revealed that Zheng had incorporated and/or been registered as a director of 384 companies in this manner.

In relation to the first charge, Zheng incorporated Ocean Wave Shela Pte Ltd (“Ocean Wave”) at a client’s request and assisted to open a bank account in Singapore (“Ocean Wave’s Singapore Bank Account”). Subsequently, an American company fell victim to a scam and was deceived into transferring more than S$64,000 to Ocean Wave’s Singapore Bank Account, with the moneys then channelled to a bank account in the People’s Republic of China. Zheng was charged with, and admitted to, failing to exercise reasonable diligence in the discharge of his duties as a director of Ocean Wave, in particular, by failing to exercise any supervision over Ocean Wave’s affairs or the transactions in Ocean Wave’s Singapore Bank Account.

In relation to the second charge, Zheng recruited an individual (“Er”) under a “nominee services” arrangement, whereby Er acted as a locally resident director for companies incorporated on behalf of Zheng’s clients. Er drew a monthly salary of S$1,400 as an employee of one of Zheng’s companies offering accounting and corporate secretarial services, and was appointed as a director of 186 companies in total. Under this arrangement, Er was registered as a director and secretary of Rui Qi Trading Pte Ltd (“Rui Qi”) alongside a foreign director. Rui Qi later opened two bank accounts in Singapore, both of which were eventually used to receive and transmit the proceeds of scams perpetrated against three companies. The proceeds amounted to a total of more than US$2.1 million and more than S$230,000. Er had pleaded guilty to one charge under section 157 of the CA and was fined S$4,000 and disqualified from acting as a director or taking part in management activities pursuant to section 154 of the CA. Among other admissions, Zheng admitted to informing Er that he did not need to do anything other than to sign on the company registration documents and bank account opening documents, and that he did not need to manage or run the company nor check the company’s banking transactions. Ultimately, Zheng was charged with, and admitted to, abetting by intentionally aiding Er’s omission to exercise reasonable diligence in the discharge of his duties as a director of Rui Qi.

Zheng also consented to a third charge to be taken into consideration for the purposes of sentencing (“TIC Charge”). This charge was similar to the second charge save that it involved Er’s directorship of another company. This company’s bank accounts were also used to receive and transmit stolen moneys.

District Court’s decision

The District Court adopted the following sentencing framework which was set out in Abdul Ghani:

• Where there were no weighty aggravating factors, the starting point for “purely negligent breaches” of the duty to exercise reasonable diligence under section 157 of the CA was a fine.
• Custodial sentences are reserved for instances where the director had breached that duty “intentionally, knowingly or recklessly”. The following maximum sentences apply:
  • Dishonesty or intentional/knowing disregard of the director’s duty to exercise reasonable diligence in the discharge of the duties of his office: 12 months’ imprisonment
  • Reckless failure to exercise reasonable diligence: Six months’ imprisonment
  • Negligent failure to exercise reasonable diligence: Three months’ imprisonment

The District Court found that Zheng had only been negligent such that the custodial threshold was not crossed. On the second charge, the District Court relied on the principle of parity and considered the non-custodial sentence imposed on Er. An aggregate fine of S$8,500 and a disqualification order pursuant to section 154 of the CA was thus imposed on Zheng.

Difficulties with the Abdul Ghani approach

The HC explained the difficulties with the approach in Abdul Ghani and disagreed with the view that the preservation of Singapore’s commercial environment should militate against the imposition of custodial sentences, save where the offending director had acted “intentionally, knowingly or recklessly”. The HC was of the view that directors who assume their offices with the intention of abdicating their duty under section 157(1) of the CA present serious risks to their companies specifically and Singapore’s corporate and financial ecosystem generally.

The HC distinguished Zheng’s complete lack of control and supervision over the companies that he was appointed to as a director from a scenario where a director is involved in the company’s affairs but makes a negligent error in discharging his duties.

Given Zheng’s business model, the HC observed that he had the intention to neglect, and did in fact neglect, or abdicate his duty to exercise reasonable diligence from the outset, notwithstanding his knowledge of the risk that the company’s facilities could be abused by other bad actors. This was what made his service attractive to clients such as those whose criminal activities were enabled by Zheng’s services in the charges against him.

Revised sentencing framework

The HC set out the following revised three-step sentencing framework (“Revised Framework”):

• Step 1: Identify the relevant offence-specific factors
• Step 2: Situate the offence within the appropriate sentencing band
• Step 3: Calibrate the indicative sentence for offender-specific factors

Step 1: Identify the relevant offence-specific factors

In the first step, all relevant offence-specific factors are identified, including the nature and extent of the harm caused. The HC provided the following non-exhaustive list of factors:

• The extent of due diligence undertaken by the director in relation to the activities of the company and/or the client;
• Efforts made by the director to monitor or review transactions in the company’s bank account(s);
• The extent to which the director knew - or should have known - that failing to exercise reasonable diligence in overseeing the affairs of the company could (or even would) enable abuse of the corporate structure by others;
• The duration of offending and whether the offending conduct was a one-off breach or part of a wider pattern;
• Whether the offending conduct was pursued as part of a business or other profit-driven scheme and if so, the extent of the profits derived from or attributable to the offending conduct;
• Whether the director made any efforts at concealing his wrongdoing;
• Whether there was a transnational element to the offence (such as the involvement of cross-border criminal syndicates); and
• The nature and extent of the harm that resulted to the company and/or third parties.

Step 2: Situate the offence within the appropriate sentencing band

The second step is to place the offence within the appropriate sentencing band to arrive at an indicative sentence. The HC set out the appropriate sentencing bands as a guideline, stressing that this step should not be approached purely as an exercise in counting the number of offence-specific factors present in the case. Instead, the gravity of each factor must be considered to determine if the offence would be more properly situated in a higher or lower band, as well as where the offence falls within the applicable band.

	Number of offence-specific factors	Indicative starting sentence
Band 1	1 - 3	Up to 4 months’ imprisonment
Band 2	4 - 5	5 - 8 months’ imprisonment
Band 3	> 6	9 - 12 months’ imprisonment

Notably, the HC explained that the custodial threshold will be presumptively crossed for section 157(1) CA offences and the onus will be on the director to explain why that should not operate in his or her case.

Step 3: Calibrate the indicative sentence for offender-specific factors

In the third step, the indicative sentence is adjusted based on offender-specific factors relevant to the case. This includes the following matters:

• Other offences taken in consideration for the purposes of sentencing;
• The offender’s relevant antecedents;
• Remorse (or the lack thereof) on the offender’s part;
• Whether the offender entered into a timeous plea of guilt;
• The extent of voluntary restitution made by the offender; and
• Whether the offender voluntarily cooperated with the authorities in the course of investigations into the offence.

Application

The HC held that the offence in the first charge fell within Band 2 of the Revised Framework with an indicative sentence of five months’ imprisonment. The HC considered the following:

• Zheng was a chartered accountant and plainly contemplated that Ocean Wave and its bank accounts could be used for illegal purposes.

• Zheng took no steps to understand the client’s background or the company’s proposed business activities prior to the incorporation of Ocean Wave. Following the incorporation of Ocean Wave and the opening of the Ocean Wave Singapore Bank Account, Zheng made no effort to monitor the company’s affairs or transactions made in its bank account.

• Zheng’s consistent dereliction of duty in relation to Ocean Wave was representative of his broader business model, which extended to the 384 companies for which he acted as a nominee director without exercising oversight. Zheng’s business model was designed as a scheme that offered his clients a means to evade Singapore’s corporate regulations, such as the need for a locally resident director, which are aimed at preventing abuses.

• Zheng conducted himself in this manner because of the recurring profits he stood to make.

• The harm enabled by the offence was not insubstantial.

On the second charge, the HC found that the offence fell within Band 3 of the Revised Framework with an indicative sentence of 10 months’ imprisonment.

• Zheng recruited Er, who was unfamiliar with the duties of a locally resident director, and instructed him to adopt a hands-off approach as a nominee director of Rui Qi. This profit-driven exploitation of Er’s ignorance was additionally reflected in Er’s very low remuneration in relation to what Zheng was paid by his customers. The HC found that this factor significantly aggravated Zheng’s culpability.
• The harm caused by this second offence was considerably greater than that of the first.

Under the third step of the Revised Framework, the HC calibrated the sentence taking into account Zheng’s guilty plea, the TIC Charge, and that it was appropriate to impose consecutive sentences, imposing three months’ imprisonment for the first charge and seven months’ imprisonment for the second - resulting in an aggregate of 10 months’ imprisonment.

The HC determined that Zheng’s culpability for the second charge was significantly greater than Er’s and found no justification in parity or equivalence to warrant a downward calibration of the sentence.

Conclusion

With the revised sentencing framework establishing imprisonment as the default punishment for breaches of the duty to exercise reasonable diligence under section 157(1) of the CA, the courts have sent a strong signal that nominee directors are expected to be accountable and exercise proper oversight over their companies. Directors who remain uninformed about company operations risk facing severe penalties in the event the company is misused.

Reference materials

The judgment is available on the Singapore Courts website www.judiciary.gov.sg.