The Companies (Amendment) Act 2014 ("Amendment Act")
was passed by the Singapore Parliament and assented to by President
Tony Tan Keng Yam in 2014. On April 15, 2015, the Accounting and
Corporate Regulatory Authority of Singapore ("ACRA")
announced that the amendments will be implemented in two phases:
the first on July 1, 2015, and the second in the first quarter of
2016.
Whilst the amendments are intended to simplify and modernize
existing law rather than make any significant shift in the
Singapore company law regime, they have nonetheless introduced a
number of changes which may have a wide-ranging impact on various
stakeholders.
Key Amendments in Phase 1
This section highlights certain key amendments which came into
effect on July 1, 2015:
Abolition of Financial Assistance Prohibition for Private
Companies. The 2006 Singapore Companies Act prohibited a
company from giving financial assistance for the acquisition of its
own shares or the shares of its holding company. The largely
accepted basis for this prohibition was the preservation of a
company's capital. This prohibition had in practice restricted
or delayed many transactions due to its wide impact, even though
such transactions arguably did not prejudice the creditors or
adversely affect the capitalization of the company. A
"whitewash" procedure was required before a company could
provide financial assistance.
This prohibition has now been removed altogether for private
companies (other than subsidiaries of public companies). This is in
line with the amendments to the United Kingdom Companies Act, from
which a similar prohibition was removed in 2009. Consequently, an
acquisition of the shares of a private company can now be financed
with loans secured on the company's assets without having to
undertake a "whitewash" procedure.
Exceptions Introduced to the Financial Assistance
Prohibition for Public Companies and their Subsidiaries.
Whilst the prohibition against the financial assistance regime
continues to apply to public companies and subsidiaries of public
companies, the following key new exceptions to this prohibition
have been introduced under the Amendment Act. These exceptions
apply: (i) where the giving of assistance does not materially
prejudice the interests of the company or its shareholders or the
company's ability to pay its creditors (subject to the company
satisfying certain prescribed conditions); (ii) to
distributions made in the course of the company's winding
up; (iii) to the allotment of bonus shares; and (iv) to
the redemption of redeemable shares of a company in accordance with
its constitution.
One of the main drawbacks in a "whitewash" procedure is
the requirement for the directors to make a solvency statement as
this exposes the directors to additional personal liability. Under
the "no material prejudice" exception introduced by the
Amendment Act, directors are not required to give the solvency
statement and will only need to determine whether there is material
prejudice to the interests of the company and if the terms and
conditions of the proposed financial assistance are fair and
reasonable.
Disclosures by Nominee Directors. Nominee
directors owe fiduciary duties to the company, but many such
nominee directors are also employees of their appointer—which
often puts them in a situation of potential conflict of interest.
Previously, a nominee director required approval to disclose
company information to his or her appointer in each instance of
intended disclosure.
Now, as long as there is a general approval mandate in place,
nominee directors are no longer required to obtain specific
approval for each disclosure, subject to the overarching
consideration that there should not be any prejudice caused to the
company. This does not completely address the conflict of interest
issues, but it will make reporting within a corporate group more
streamlined and reduce risk for directors.
Derivative Actions Against Directors. The
statutory derivative action previously introduced under the 2006
Singapore Companies Act provided that only the company (and not its
shareholders) could obtain damages from its directors for breach of
directors' duties. However, the scope of the statutory
derivative action has been expanded to allow a complainant (e.g., a
shareholder) to apply to the court for leave to commence an
arbitration (this was previously limited only to actions in
Singapore Courts). It has also been extended to
Singapore-incorporated companies that are listed for quotation or
quoted on a securities market, whether in Singapore or overseas
(this was previously limited to companies which were not listed on
the Singapore securities exchange). This gives shareholders
increased protection and also additional flexibility, for example,
to bring a derivative action through a confidential arbitration
process.
Buyout Order in Winding-Up Application. The court
hearing a winding-up application is now empowered to order a buyout
by a shareholder of another shareholder's shares in the company
instead of ordering a winding-up of the company. The rationale
behind this amendment is an attempt to avoid "practical
injustice" by conferring the courts with the flexibility to
order a share buyout instead of a winding-up in cases where
companies are still economically viable, notwithstanding the
breakdown in relationship between shareholders.
This is an interesting development which has not been adopted in
other common law jurisdictions and has not been tested. In theory,
this may incentivize shareholders to bring a winding-up application
in hope of the court ordering a buyout remedy—which in itself
may have repercussions on the company. For example, dispositions of
a company's property after the commencement of a winding-up may
be voided by a company. Further, the filing of a winding-up
application can often trigger an event of default under contracts
into which the company may have entered, including financings.
Key Amendments in Phase 2
This section aims to highlight certain key amendments which are
scheduled to be effective in the first quarter of 2016:
CEOs to Disclose Interests in Securities of Company and
Conflict of Interests. A chief executive officer of a
non-listed Singapore-incorporated company will be required to
disclose (i) his or her and his or her family members'
interests in securities of the company, and (ii) any conflicts of
interest in transactions and proposed transactions with the company
or arising from any offices held or properties possessed by
him.
Shareholders Demanding Poll. The shareholding
threshold entitling a shareholder to demand a poll is to be lowered
from 10 percent to 5 percent of the issued share capital of a
company.
Multiple Proxies to Allow Indirect Investors and CPF
Investors to Vote. Companies incorporated in Singapore
will be required to allow certain members to appoint more than two
proxies. This is to enable indirect investors who hold shares
through a nominee company or custodian bank or through capital
markets services licence holders which provide custodial services
to attend and vote at shareholder meetings. This could be
procedurally fairer for shareholders as the specified
intermediaries would no longer have to vote as an entire block,
discounting the individual views of their approving and dissenting
shareholders, as the case may be.
Issuing Shares with Different Voting Rights. The
current restriction on public companies having only one vote for
each equity share will be removed. Subject to prescribed
safeguards, a public company will be allowed to issue shares with
different voting rights (special, limited, conditional or no voting
rights). This should provide greater flexibility for corporate
structuring.
Electronic Registers. Private companies will no
longer be required to keep a register of members, directors, chief
executive officers, secretaries or auditors.
The electronic register maintained by ACRA will be used as the
main and authoritative register of members (previously, the
physical register of members kept by the company was prima
facie evidence of any matters inserted therein). The
electronic register maintained by ACRA will also be used as the
main and authoritative register of directors, chief executive
officers, secretaries and auditors.
Any allotment, buyback, transfer, redemption or consolidation of
shares in a private company will not take effect until the ACRA
electronic register of members is updated.
These changes will affect due diligence sign-offs and completion
steps for mergers and acquisitions transactions.
Conclusion
The changes under the Amendment Act should largely be welcomed by
Singapore companies and directors and investors in Singapore as
they provide greater flexibility. However, given the nascent stage
of the implementation of such amendments, Singapore companies,
officers and auditors should consult their advisers to fully
understand these changes and their possible application to
particular situations
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.