Company Law

Informatics Holdings Ltd has its key members of the board, including senior management replaced after the aftermath of the prosecution involving its former CEO, Ong Boon Kheng, regarding an earnings management scandal in 2004. Ong was faced with four charges under the SFA (Cap 289) regarding the company’s financial position via improper revenue recognition. This led to Informatics’ profits plummeting and share prices languishing away in the subsequent years. The saga also caused business disruption, reputation loss and thus drastic drop in student enrollment. As such, the new board is keen on taking legal action against the old board and to ratify any remedies available to the company.

The general law states that directors have certain fiduciary duty towards the Company. Such duties include a duty to act honestly and with reasonable diligence in the discharge of the duties of his office as dictated by s157 (1) CA and a duty to keep proper accounts dictated by s199 (1) CA..

Ong was the CEO of Informatics. He is required under s157 (1) to act honestly and use reasonable diligence in the discharge of his office. This can be tested using both the objective test and subjective test to detect any breach. As a director of the company, Ong is expected to exercise care, skill and diligence which would be exercised by a reasonable diligent man in the knowledge, skill and diligence which may reasonably be expected of him as dictate by the objective test. Ong properly will not fail the objective test as the financial report that he churn out was qualified by the audit committee. A reasonable CEO would not have pursue or detect any problem if the audit committee had reviewed and pass the financial statement, as they would rely on this audit for independent opinion. However, Ong failed the subjective test as he had additional knowledge and experience due to his appointment as CEO. This knowledge of AIP and ISR improper revenue recognition, though pointed out to him by his...