In October 2014, the Companies (Amendment) Act 2014 (“Amendment Act”) was passed by Parliament to amend the Companies Act (“Companies Act”). The Amendment Act was the result of a series of comprehensive public consultations, including the report of the Steering Committee for Review of the Companies Act (the “Steering Committee” and the report, the “Report”) published in June 2011.
The Singapore Exchange (“SGX”) is now seeking feedback on proposed amendments to the SGX-ST Listing Rules (Mainboard) (“Mainboard Rules”) and the SGX-ST Listing Rules (Catalist) (“Catalist Rules” and together with the Mainboard Rules, the “Listing Rules”) for alignment with the Companies Act as amended by the Amendment Act. SGX is also consulting on policy positions that are highlighted by other recent statutory amendments. The consultation ends on 12 February 2016.
This update takes a look at the proposed amendments to the Listing Rules, which relate to three key areas
– directors, shareholders and shares.
Insurance Coverage and Indemnities for Directors
As stated in the Report, the Steering Committee found that leading jurisdictions allow companies to indemnify their directors against claims brought by third parties, subject to certain conditions.
The Companies Act was thus amended to expressly allow a company to indemnify its officers (including directors) against third party liability, subject to certain liabilities which may not be indemnified. The Companies Act also permits companies to indemnify a director against potential liability by extending loans to him to meet expenditures in defending certain proceedings against him, if done on stipulated terms.
SGX is of the view that insurance coverage and indemnities for directors are not considered to be interested person transactions under the Listing Rules, if the insurance coverage or indemnity is specifically permitted under the Companies Act. This would apply to all issuers, whether incorporated in Singapore or outside Singapore, as long as the insurance coverage or indemnity is in a form allowed under the Companies Act. In addition, foreign-incorporated companies must also comply with their respective company laws. SGX accordingly proposes to make this position clear in the Listing Rules.
Shareholder Consent for Electronic Transmission of Notices and Documents
SGX is proposing to allow listed issuers to send certain types of notices and documents, such as circulars and annual reports, electronically to shareholders if express or deemed consent is first obtained, and subject to certain safeguards.
This follows the amendments to the Companies Act which now allows companies to give notices and send documents to shareholders by way of electronic transmission if the articles of association provide for and specify the manner in which electronic communications is to be used, and there is express, deemed or implied consent in accordance with the constitution of the company.
SGX is supportive of the move towards electronic transmission of documents as there may be cost savings for issuers and faster dissemination of information to shareholders. However, the Listing Rules currently do not prescribe the mode of transmission of notices and documents, including circulars and annual reports.
SGX is thus proposing to allow electronic transmission of notices and documents if express or deemed consent of the shareholders is obtained, subject to certain safeguards. SGX is also seeking suggestions on ways to implement the express consent or deemed consent (where shareholders have the option to receive physical copies of notices or documents) regime. The public is also invited to share their views on their potential concerns with an implied consent regime (where shareholders do not have the option to receive physical copies of notices and documents), whether it should be allowed for listed issuers and suggestions on ways in which shareholders’ interests may be safeguarded (and such safeguards implemented) under an implied consent regime.
An issuer may only use electronic transmission as a mode of communication if the relevant laws and regulations applicable to the issuer (e.g. the laws and regulations of the issuer’s jurisdiction of incorporation) permit the issuer to do so.
Safeguards for Electronic Tranmission of Documents
In connection with the above, SGX is proposing to adopt the safeguards prescribed under the Companies Act subsidiary legislation1, which was issued further to recommendations in the Report. These include:
- For the deemed consent regime, the company must have notified the shareholder directly in writing, on at least one occasion:
- of his right of election whether to receive notices and documents by way of electronic communications or as a physical copy, and the consequence of the failure to elect;
- the manner in which electronic communications will be used is specified in the company’s constitution;
- that the election is a standing election, but the shareholder may make a fresh election at any time; and
- until the shareholder makes a fresh election, the election that is conveyed to the issuer last in time prevails over all previous elections as the shareholder’s valid and subsisting election in relation to all documents and notices to be given sent or served;
- where a company gives notices and documents to its shareholders by way of electronic communications by publishing the said notice or document on the company’s website, the company must separately notify the shareholders by such means as specified in the company’s constitution, that the document is available on the website, and how the document may be accessed; and
- notices and documents such as those relating to take-over offers and rights issues cannot be transmitted by electronic means.
SGX recognises that there are certain documents which should be sent to shareholders by way of physical copies; these may be documents relating to actions that may (a) have a significant dilutive effect on a shareholder’s shareholding interest in the issuer or have a substantial impact on a shareholder’s interest, and which (b) contain important procedural instructions and forms or acceptance letters that shareholders may be required to complete.
Matters which may have a significant dilutive effect on a shareholder’s shareholding interest or a substantial impact on a shareholder’s interest would include those relating to issuances of shares, company warrants and convertible securities, adoption or amendment of the issuer’s memorandum and articles of association, takeover circulars, interested persons transactions (except for renewal of existing interested persons transaction mandate), major transactions, very substantial acquisitions or reverse takeovers, privatisation proposals and merger, reorganisation or winding up proposals.
Matters which may require shareholders to complete documents in accordance with specified procedures would include those relating to takeover offers, rights issues, whether the rights shares are issued pursuant to a general share issue mandate or not, election form(s) for scrip dividend schemes, preferential offerings, and voluntary delistings.
SGX is therefore seeking the public’s views on the categories of documents for which physical copies should be sent to shareholders.
In addition, if issuers choose website publication as the means of electronic transmission, SGX proposes to adopt the UK and Hong Kong approach, where the issuer must notify shareholders as and when documents are available on the website, provide details on how to access the document (including the address of the website and place where the document may be accessed, the date from which the document is available and how to access the document), which may take the form of a notification letter sent by physical means, email or SMS, together with a summary of such documents.
The public may give feedback as to whether they agree with the proposed safeguards for the electronic transmission of documents, and may also suggest other safeguards.
Restraint on Exercise of Voting Rights
SGX is proposing that issuers include an appropriate statement in shareholder circulars where a shareholder is required to abstain from voting pursuant to any court order. Such statement must also set out that the issuer will disregard any votes cast on a resolution by the person required to abstain from voting pursuant to the court order.
This amendment is pursuant to a proposed amendment by the Monetary Authority of Singapore to the Securities and Futures Act (“SFA”) to allow the court to grant an order restraining the exercise of any voting or other rights attached to specified capital markets products in certain situations. In particular, it was proposed that a court may make an order restraining the exercise of voting or other rights if such shareholder has contravened, among others, the SFA or the Listing Rules.
SGX will not adopt these amendments unless the relevant amendments to the SFA are passed.
Treatment of shares held by a Subsidiary in its Holding Company
For a Singapore-incorporated company, while a subsidiary cannot be a shareholder of its holding company, a subsidiary can, subject to certain conditions, continue to be a shareholder of the holding company if it already holds shares in the holding company at the time it becomes a subsidiary.
The Amendment Act treats these shares in a manner similar to the holding company’s treasury shares. However, these shares may still, in certain circumstances, be eligible for the receipt of dividends and other distribution of the holding company’s assets.
SGX is proposing that such shares:
- will be excluded from the calculation of issued share capital where it relates to voting rights (including in the calculation of the limits for share buy-back and share issue mandate, and in the definition of “controlling shareholder”); and (b) will not be excluded from the (i) calculation of issued share capital where it does not relate to voting rights, and (ii) calculation of market capitalisation.
- Foreign-incorporated companies subject to an equivalent regime should follow the treatment of such shares above, unless the applicable laws require otherwise.
The current Listing Rules permit an issuer to issue a summary financial statement in accordance with the Companies Act. However, the Companies Act may not be the correct legislation applicable to issuers which are real estate investment trusts or business trusts.
SGX is therefore proposing to amend the Listing Rules to allow summary financial statements to be issued by an issuer in accordance with any applicable written law, regulation or code.