Misconduct on the Radar: Directions and Shareholders’ Rights and Obligations to Investigate and to obtain Access?

Corporate fraud and misconduct are recurring risks faced by companies across industries. Survey conducted by PwC in 2024 shows that procurement fraud and corruption are the top three most disruptive economic crimes globally, and such crimes are pervasive and becoming more complex.¹

Such risks are particlarly real for  foresign investors who invested in local company, and apart from appointing nominees to the board of directors, the foreign investors took on a supervisory role and　leave the day-to-day operations of the business to the local management. Over time, these foreign investors begin to suspect that certain irregularities or acts of corporate fraud may be occurring within the company, potentially perpetrated by members of the local management team or senior executives. Faced with these suspicions, the investors are confronted with the dilemma of how best to proceed. The question is, does the investors, as shareholders or through their nominee directors, have the authority or obligation to initiate an investigation, and what rights the shareholders/directors possess to access company records and information in order to verify and address the suspected misconduct.

In this article, we explore the respective duties and rights of directors versus shareholders to investigate suspected misconduct and the right to access company documents for that purpose. A clear understanding of these issues is essential for corporate stakeholders to respond effectively, lawfully, and in a timely manner when red flags occured. 

Under Singapore law, a director’s obligation to investigate misconduct is not a standalone statutory duty. Rather, it flows from the director’s core statutory² and common law duties owed to the company.

These duties require directors to act honestly, in the company’s best interests, and with reasonable care, skill, and diligence in the discharge of their office. Directors are expected to keep themselves informed of the company’s affairs and transactions and, where they become aware of potential illegality or misconduct, are under a positive obligation to inquire into the matter and to take appropriate corrective action. A failure to do so may give rise to personal liability, particularly where losses could have been prevented or mitigated through timely intervention.

In BIT Baltic Investment & Trading Pte Ltd vs Wee See Boon [2023] SGCA 17, the Singapore Court of Appeal held that all directors—executive and non executive— are under the duty to take reasonable steps to place themselves in a position to guide and monitor management, maintain familiarity with the company’s financial status through regular review of financial statements, and make further inquiries where those materials raise concerns. Directors cannot “shut their eyes” to wrongdoing and later plead ignorance; if they become aware of an illegal course of action, they must object and seek correction. This is in line with the principle that “a director is not an ornament but an essential component of corporate governance.”

Access to company documents is therefore integral to the discharge of this investigative duty. Section 199(3) of the Companies Act 1967 expressly provides for a director’s prima facie right “at all times” to inspect the company’s “accounting and other records as will sufficiently explain the transactions and financial position of the company… .” The Singapore courts have consistently affirmed that a director’s right to inspect the accounting and other records of the company under section 199(3) is an “absolute” one, which cannot ordinarily be refused absent clear evidence of an improper purpose.³  In the case of Lim Kok Leong v Seen Joo Company Pte Ltd and others [2014] SGHC 239, the court found that the plaintiff’s right as a director under section 199(3) does not diminish even though he was a sleeping partner, and the director is not required to demonstrate any particular ground to exercise such right.

Under Japanese law, a director’s obligation to investigate misconduct flows from the duty of care of a prudent manager⁴ and the duty of loyalty.⁵ The duty of care encompasses a supervisory function, requiring directors to monitor, with the care of a prudent manager, whether the duties of other directors are being performed lawfully and appropriately. Although issues concerning the scope of this supervisory obligation often arise in relation to executive directors in light of their involvement in day-to-day operations, no legal distinction is drawn between executive directors and outside directors in respect of the existence of this duty.⁶ Even so-called nominal directors are, as a matter of law, directors of the company and are therefore subject to the same supervisory obligations. Where a director becomes aware of facts giving rise to reasonable grounds to suspect misconduct or violations of law by officers or employees, the director is required not only to report the matter to the Company Auditors (kansayaku),⁷ but also to raise questions and state his or her opinion at the board meeting, and to propose that appropriate steps be taken, including the undertaking of a reasonable investigation.⁸ If a director neglects the performance of these duties, the director may incur liability to the company for damages caused as a result.⁹

However, and in contrast to the position in Singapore, Japanese law does not expressly confer on directors a right to inspect the company’s documents and records. Such right remains a matter of debate in both case law and academic discussions. In academic commentary, a leading view supports recognising such investigative authority on the basis that directors, having been appointed by shareholders’ meeting and entrusted with a general duty to supervise the company’s business execution, must be deemed to possess the powers necessary to monitor and oversee the performance of other directors.¹⁰ On the other hand, certain court decisions have taken the view that there is no need to conceptualise an independent right of directors to inspect and copy accounting books and records.¹¹

In any event, in order to discharge their supervisory duties, directors are expected to question executive directors, request disclosure of relevant materials, including accounting books and records where necessary, and, if such requests are refused, to take appropriate action at the board level and report the matter to the kansayaku. ¹²

A distinctive feature of Japanese corporate governance is kansayaku (also known as the “Audit & Supervisory Board Member’”), which is a statutory corporate organ in kabushiki kaisha. Kansayaku is an independent corporate organ separate from the board of directors and are not involved in the day-to-day management of the company.¹³ Kansayaku are elected by shareholders at a general meeting and are tasked with auditing directors’ performance of their duties and overseeing the company’s business and financial affairs.

Kansayaku also owe duties of care and loyalty to the company. Accordingly, where misconduct is suspected, kansayaku are required to conduct appropriate investigations, and, upon discovering misconduct or illegal acts, to take necessary actions to address and remedy such matter. In this regard, kansayaku have robust statutory investigation rights and may, at any time, demand reports from directors, accounting advisers, managers and employees, and inspect the company’s operations and financial status.¹⁴ A Kansayaku must attend board meetings and must state opinions when the kansayaku condisers it necessary.¹⁵ They can require convening a board meeting,¹⁶ demand injunctions to stop unlawful acts by directors,¹⁷ and report the result of their own investigations at the shareholders’ meeting when necessary.¹⁸

The Corporate Governance Code also recognises that kansayaku have legal investigation powers and expects them to use these proactively, with at least half outside and at least one full-time member to balance independence and information-gathering capacity.¹⁹ It also expects directors and kansayaku to proactively collect information and, where necessary, consult external specialists at company expense to support investigations.²⁰

Shareholders, by contrast, stand outside the management of the company, which is entrusted to its directors. As such, shareholders’ information rights are generally confined to those expressly provided for under statute or the company’s constitution, and are correspondingly limited in scope. These typically include the right to receive audited financial statements,²¹ the directors’ statement accompanying those financial statements,²² and to inspect specified statutory registers.²³ Outside these enumerated statutory entitlements, shareholders have no general right to inspect the company’s accounting or other records, which fall within the domain of management rather than ownership.²⁴ For example, in the case of Ezion Holdings Ltd v Teras Cargo Transport Pte Ltd [2016] SGHC 175, the Plaintiff’s request for accounts and financial  statements of the company in which the Plaintiff was a shareholder was rejected, as the court interpreted section 203(1) of the Companies Act 1967 strictly to confer the shareholder the right to inspect only financial statements that already audited and prepared for the purposes of a general meeting.

While shareholders do not have a general right under the Singapore law to access the company records, they are not left without recourse where directors fail or refuse to act in the company’s interests. A shareholder’s ability to intervene remains indirect and is exercised through the legal mechanisms provided under company law.

In particular, shareholders may exercise their rights in general meeting to pass resolutions requiring the board to consider appropriate investigative or remedial steps, such as commissioning an internal investigation, a special audit, or the engagement of external legal counsel or forensic accountants. Where the board is unwilling, conflicted, or has otherwise failed to act, shareholders may also commence a statutory derivative action on behalf of the company to pursue claims arising from the alleged misconduct.²⁵

As in Singapore, Japanese shareholders stand outside day to day management, and their information rights are enumerated by the Companies Act. However, shareholders in Japan enjoy comparatively stronger statutory inspection rights than Singapore’s. In particular, shareholders are entitled to inspect and obtain copies of the company’s accounting books and records, including ledgers and other documents prepared and used in the company pursuant to Article 433 of the Companies Act, subject to satisfying prescribed shareholding thresholds and procedural requirements. Shareholders must disclose the reasons for the request, and in certain circumstances, the company may refuse access —for example, where the request is made for purposes other than investigating matters related to the securing or exercise of shareholders’ rights, or where it is intended to interfere with the company’s operations and prejudice the common interests of shareholders.²⁶ Where disputes arise, access is ultimately subject to court supervision. In practice, shareholders may invoke this statutory inspection right to obtain information in situations where potential misconduct is suspected, particularly where such information is necessary for the securing or exercise of shareholders’ rights.

In addition to document inspection, shareholders may apply to the court for the appointment of an inspector under Article 358 of the Companies Act to investigate the company’s affairs and assets where there are reasonable grounds to suspect misconduct or material violations of laws or the articles of incorporation.²⁷ Further, where directors have breached their duties and the company does not bring such claims, qualifying shareholders²⁸ may, on behalf of the company, commence a statutory derivative action under Article 847 of the Companies Act against the directors.

Suspected misconduct places immediate pressure on a company’s governance framework. While Singapore and Japan adopt different institutional approaches, a common principle applies: directors bear primary responsibility for investigating and responding to wrongdoing, and access to information is critical to discharging that role effectively.

Singapore concentrates this responsibility within the board, supported by strong inspection rights and judicial oversight, while Japan adopts a more layered structure through the additional oversight of kansayaku and broader court-supervised shareholder remedies.

For boards, inaction in the face of red flags carries real legal risk. For shareholders, effective protection lies not in direct control, but in understanding when and how to invoke the procedural mechanisms available when internal governance fails.