The first of the two-phase implementation of the Companies (Amendment) Act 2014 (the “Amendment Act”) previously announced by the Accounting and Corporate Regulatory Authority (the “ACRA”) will come into force on 1 July 2015.
The Companies (Amendment) Act 2014 (Commencement) Notification 2015 was published on 3 June 2015 listing provisions of the Amendment Act that will come into operation on 1 July 2015.
Here are highlights of some of the provisions which include those relating to nominee directors, financial assistance, solvency statements and resignation of auditors:
- Easing conditions for nominee directors to disclose information to nominating shareholders:Currently, nominee directors may disclose to their nominating shareholders information acquired in their capacity as directors/employees only if it is authorised by the board of directors by a specific mandate which specifies details of the persons to whom the disclosure is to be made and particulars of the information to be disclosed. The requirement to specify such details in the mandate will be removed. Nominee directors will be allowed to make such disclosure if the disclosure is authorised by the board of directors by a general mandate in respect of all or any class of information or by a specific mandate, provided that the disclosure is not likely to prejudice the company.
- Extending application of s216A (statutory derivative action) to listed companies and arbitration proceedings: Section 216A will be amended to extend the statutory derivative action to all Singapore-incorporated companies (and not only non-listed companies) and will allow a complainant to apply to the court for leave to commence an arbitration proceeding in the name and on behalf of a company (in addition to an action in a court proceeding).
- Solvency statement to be in the form of a declaration in writing: The solvency statement required under the section 7A solvency test and amalgamation procedures may be made by “declaration in writing signed by every director” instead of by “statutory declaration”.
- Removing solvency requirements for capital reduction in certain circumstances: A company will not need to meet the solvency requirements for a capital reduction exercise if it does not involve a reduction or distribution of the company’s cash or other assets or a release of any liability owed to the company.
- Abolishing prohibition against financial assistance by private companies: The financial assistance prohibition for private companies will be removed. It will however continue to apply to a public company or a subsidiary of a public company.
- New exceptions to financial assistance prohibitions: New exceptions to the financial assistance prohibition will be introduced for a public company or a subsidiary of a public company, e.g. where the giving of the 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).
- Use of share capital to pay brokerage or commissions incurred in issue of new shares: A company will be permitted to use its share capital to pay for expenses (including brokerage or commission) incurred directly in the issue of new shares. Such payments will not be treated as reducing the company’s share capital.
- Extending scheme of arrangement mechanism to foreign companies: The scheme of arrangement mechanism will be extended to foreign companies to facilitate cross-border transactions.
- Financial statements and audit: Relevant provisions in the Companies Act will be revised to be in line with the appropriate terminology used in the Accounting Standards. References to “accounts” and “profit and loss accounts and balance-sheets” are replaced with “financial statements” in line with terminology used in the Accounting Standards.
- Directors’ report replaced by directors’ statement: The requirement for the directors to issue a report to be attached to the financial statements will be replaced with a new requirement for two directors of the company to sign, on behalf of all directors, a statement containing information set out in the new Twelfth Schedule of the Companies Act.
- Audit exemption for “small company” and “small group” introduced: Audit exemption for a company/companies regarded as a “small company”/”small group” will be introduced. A “small company” is a private company which fulfils two of the following criteria for each of the two FYs immediately preceding that particular FY: (i) its revenue for each FY does not exceed S$10 million; (ii) the value of its gross assets at the end of each FY does not exceed S$10 million; or (iii) it has not more than 50 employees at the end of each FY.
- Auditors may resign before the end of the term of office:
- auditor of a non-public interest company (other than a subsidiary of a public interest company) may resign before the end of his term of office upon giving a written notice to the company;
- auditor of a public interest company or subsidiary of a public interest company must seek the ACRA’s consent before he may resign before the end of his term of office and, among other things, the reasons for his resignation must be sent to every member of the company.
A “public interest” company will include a company listed or to be listed on the SGX-ST or such other company as the Minister for Finance may prescribe. A further definition of “public interest company” will be provided for in the Companies Regulations from 1 July 2015.
On 27 May 2015, ACRA issued “Practice Direction 4/2015: Resignation of auditors of public interest companies or their subsidiaries in relation to sections 205AB to 205AF of the Companies Act, Chapter 50” (the “PD”). The PD provides a summary of the requirements under sections 205AB to 205AF of the Companies Act for an auditor to resign before his appointed term of office ends as well as some broad guidelines as to when ACRA may give consent to such applications by auditors to resign. The PD applies to all premature resignations of auditors of public interest companies or their subsidiaries with effect from 1 July 2015.
- Form of company records in hard copy or in electronic form: A company will be allowed to keep company records in hard copy or in electronic form. Where the company records are not kept in hard copy form, the company will be required to take reasonable precautions for ensuring the proper maintenance and authenticity of the records and to guard against falsification. In the case of electronic records, the company will have to provide for the manner in which the records may be authenticated and verified.
For an earlier article about the implementation of the Companies Act changes, please click here to read an article entitled “Companies Act changes: Two-phase implementation, 1 July 2015 and Q1 2016” that was featured in a previous issue of the Allen & Gledhill Legal Bulletin (April 2015)