Your Company Cannot Pay Its Bills: A Singapore Director’s Guide to the Next 90 Days

By Anil Lalwani · DL Law Corporation · Advocate & Solicitor of the Supreme Court of Singapore

In short: When a company cannot pay its debts, a director’s duties shift so that the interests of creditors must be taken into account. The safest course is to get an accurate picture of the numbers, stop making preferential or reckless payments, take advice early, and weigh the restructuring options before the position becomes irreversible.

Financial distress rarely announces itself. It builds quietly — sales soften, customers delay payment, suppliers lose patience, tax liabilities accumulate, and directors begin juggling which creditors to pay first. By the time lawyers get involved, the legal problem is usually just the visible symptom of a commercial one that started months earlier. The decisions a director makes during this period are among the most important they will ever make. This guide explains your duties, the mistakes to avoid, and the practical steps to take when cash runs short.

This is general information, not legal advice. What is right for your company depends on its financial position, its obligations, and the specific decisions in front of you.

Cashflow Problems Do Not Mean Your Business Has Failed

Many successful businesses go through periods of financial stress. Construction firms wait on certification. Technology businesses wait on funding rounds. Trading companies wait on large receivables. Retailers ride out seasonal swings. A temporary cashflow squeeze does not necessarily make a company insolvent.

What matters is telling the two situations apart:

• a temporary liquidity issue that can realistically be resolved; and
• a company that has reached the point where it cannot realistically meet its obligations as they fall due.

That distinction is commercially significant and legally important — because a director’s duties shift as the company’s financial position deteriorates.

One of the Biggest Mistakes Directors Make

When cash is tight, directors often ask, “Who is shouting the loudest?” That is usually the wrong question. The better one is: “Can I justify every significant payment decision if I have to explain it to creditors, shareholders, a liquidator or a court in two years’ time?”

When companies fail, the decisions made during distress are examined closely. Good records, careful deliberation, and documented reasons are what allow those decisions to stand up later.

Hope Is Not a Strategy

A recurring theme in this kind of dispute is hindsight. Directors say, in all sincerity, “I genuinely believed the company would recover.” That may be true. The harder question is what objective evidence supported that belief at the time. Did the company have:

• confirmed contracts?
• realistic financing?
• reliable debtor collections?
• committed investors?
• board discussions supported by proper financial information?

Commercial optimism without objective support can be difficult to defend after the fact.

Practical Steps Every Director Should Take

If your company is under financial pressure, five steps are worth taking immediately.

1. Prepare a rolling cashflow forecast

A 13-week cashflow forecast is one of the most useful tools in financial distress. It shows what money is coming in, what must go out, and where the shortfalls fall. Directors cannot make sound decisions without accurate financial information in front of them.

2. Convene a proper board meeting

Do not make important decisions informally over text messages or in corridor conversations. Meet, and discuss the current financial position, the options available, creditor exposure, financing alternatives, and any restructuring possibilities. Record the discussion carefully — good minutes demonstrate responsible governance.

3. Review outstanding debts honestly

Not every receivable is recoverable. Some customers will promise payment and mean it, some are simply buying time. An honest assessment of what will actually be collected is essential to any reliable forecast.

4. Reduce non-essential expenditure

Preserving cash can buy the business valuable breathing space. Question every significant outgoing.

5. Seek advice early

Many directors hesitate because they think consulting a lawyer or a restructuring professional signals failure. In practice, early advice usually preserves more options. By the time proceedings begin, many commercial opportunities have already been lost.

What the Courts Expect: the Foo Kian Beng Case

The clearest recent guidance on a director’s duties in this situation comes from the Court of Appeal in Foo Kian Beng v OP3 International Pte Ltd (in liquidation) [2024] SGCA 10.

OP3 International was an interior design company that went into liquidation after failing to pay a judgment against it. The case examined payments the director had caused the company to make while the suit was ongoing, in the lead-up to that failure. The question for the court was what duty the director owed in relation to creditors.

The court held that directors do not owe a distinct, separate duty directly to creditors. The duty to creditors is part of the fiduciary duty a director owes to the company — to act in its best interests. What that duty requires changes with the company’s financial health. When a company is solvent, creditors’ interests are usually sufficiently protected, and directors may treat shareholders’ interests as a fair proxy for the company’s. But when the company is insolvent, creditors’ interests come to the forefront — because at that point the directors are effectively running the business with the creditors’ money.

The practical takeaway: as a company’s financial position worsens, the considerations facing directors change with it. A decision that looked commercially reasonable while the business was healthy may need closer scrutiny once it is under financial pressure. The director in this case authorised substantial payments while the company was in litigation that could produce significant liability — and those decisions were scrutinised afterward. Directors should be able to explain the commercial basis for the decisions they make, because those decisions may later have to be justified. Failing to exercise due diligence and competence carries consequences.

The Commercial Reality

One observation deserves repeating. Businesses rarely fail simply because they hit problems — every business hits problems. They fail because difficult conversations are delayed. Directors put off confronting uncomfortable facts. Shareholders avoid addressing disagreements. Creditors are given optimistic assurances instead of realistic plans. Small problems become expensive disputes.

When a business is under financial pressure, litigation sometimes becomes unavoidable. Equally, litigation started too early or without a clear strategy can accelerate the commercial damage. Every dispute should begin with a commercial question: what outcome best protects the business? Sometimes the answer is litigation. Sometimes it is negotiation, restructuring, or a carefully documented settlement. Good litigation begins with good commercial judgment.

How DLLC Helps Directors Under Pressure

We advise businesses, directors, shareholders and entrepreneurs on commercial disputes, director and shareholder conflicts, debt recovery, and litigation in Singapore. We treat litigation as a tool, not an objective — the role is to help you reach the best commercial outcome, whether through negotiation, mediation, or court proceedings.

If your company is facing cashflow pressure and you are weighing decisions that could later be questioned, contact us at (65) 6557 0215 or learn more about our corporate and commercial practice. You can also schedule a consultation. We typically respond within minutes during business hours.

Directors and company debts in Singapore: common questions

What are a director’s duties when the company cannot pay its debts in Singapore?

A director owes a fiduciary duty to act in the company’s best interests. When the company is solvent, that generally aligns with shareholders’ interests. When it becomes insolvent, creditors’ interests move to the forefront — because the business is effectively being run with the creditors’ money. The Court of Appeal confirmed this in Foo Kian Beng v OP3 International [2024] SGCA 10. Directors should be able to justify significant decisions taken during financial distress.

Can a director be personally liable if the company becomes insolvent?

Directors are generally protected by the company’s separate legal personality, but that protection is not absolute. Decisions made while a company is insolvent are examined closely if it later fails, and directors who cannot justify the commercial basis for those decisions — or who did not exercise proper diligence — can face consequences. Taking early advice and keeping proper records is the best protection.

What is a 13-week cashflow forecast and why does it matter?

It is a rolling projection of the money coming in and going out over the next 13 weeks, showing where and when shortfalls arise. It is one of the most useful management tools in financial distress, because it lets directors make decisions on accurate information rather than optimism.

When should a director get legal advice about cashflow problems?

Earlier than most directors do. Seeking advice is not an admission of failure — it usually preserves more options. A useful trigger is any decision that could later be questioned: if a payment or commitment would be hard to justify to a liquidator or a court in two years’ time, get advice before making it.

Does financial distress mean the business has failed?

No. Many healthy businesses go through periods of cashflow stress and recover. The important thing is to tell a temporary liquidity issue apart from genuine insolvency, and to manage each with proper information and documented decisions.