On 8 October 2014, Parliament passed the Companies (Amendment) Bill 2014 (the “Amendment Bill”) to approve key changes to the Companies Act (the “Act”) in relation to financial assistance. The changes will further ease the prohibitions on financial assistance in relation to the acquisition of shares in a company. It is expected that this will, in turn, facilitate more acquisition and leveraged finance deals in Singapore.
The Amendment Bill has been passed in Parliament and it is expected to take effect in the second quarter of 2015.
The key changes are as follows:
1. Private Companies – Financial Assistance no longer applicable
Presently, both public and private companies are prohibited from giving any financial assistance for the purpose of, or in connection with, the purchase of their shares or the shares of their holding company, unless one of the “whitewash” procedures prescribed by the Act is complied with or the transaction falls within an exception under the Act.
With the change, only public companies (essentially, companies incorporated as public companies or which have more than fifty shareholders, whether or not listed in Singapore or elsewhere) and their subsidiaries will be subject to the prohibition on financial assistance. Notably, the existing financial assistance prohibitions will no longer apply to private companies.
This change will facilitate acquisition deals involving private companies and also delisting exercises.
2. Public Companies – Introduction of “Material Prejudice Test” as a new exception
For public companies (or their subsidiaries), the giving of financial assistance will no longer be prohibited if:
- the giving of the financial assistance does not materially prejudice (i) the interests of the company or its shareholders or (ii) the company's ability to pay its creditors;
- the board of directors of the company passes a resolution that (i) the company should give the financial assistance and (ii) the terms and conditions under which the financial assistance is proposed to be given are fair and reasonable to the company; and
- the directors’ resolution sets out in full the grounds for the directors' conclusions.
If the above conditions cannot be met, the public company (or its subsidiary) can still provide financial assistance by conducting one of the “full whitewash” procedures. These “whitewash” procedures have also been made slightly less onerous (for instance, solvency statements from directors under the “short method” of whitewash no longer have to be given under oath by way of a statutory declaration).
Please contact us should you require further details on the “full whitewash” procedure.
3. Dividends – no longer Financial Assistance as long as it is “Lawfully Made”
Presently, the payment of dividends by a company will not amount to financial assistance. However, the payment of dividends must be (a) in good faith and (b) in the ordinary course of commercial dealing. It may not be easy to fulfil both of these conditions.
With the change, the distribution of a company’s assets by way of dividends is not financial assistance if it is lawfully made, and it will no longer be necessary to satisfy the two conditions that presently apply.