In October 2012, the Ministry of Finance (MOF) released its report containing responses to the Report of the Steering Committee for Review of the Companies Act. The object of the review of the Singapore Companies Act (Act) was to reduce regulatory burden and ease compliance, while retaining an efficient and transparent corporate regulatory framework that supports Singapore’s growth as a global hub for both businesses and investors.
The MOF will seek public feedback on the draft Bill in the earlier part of 2013 and is targeting to table the amendment Bill to Parliament thereafter in the same year.
Set out below is a summary of the key proposed changes:
Extending Directors’ Disclosure Requirements to Chief Executive Officers
Presently, most of the disclosure obligations in the Act are imposed on directors. It is now proposed that Chief Executive Officers will also be required to disclose:
- any conflict of interests in transactions or proposed transactions with the company; as well as
- their shareholdings and interests in shareholdings in the company or related corporation(s) and changes thereof.
Allowing Public Companies to Issue Shares with Different Voting Rights
Under the current regime, public companies may only issue shares carrying one vote per share. Under the proposed changes, public companies will be allowed to issue classes of shares with different voting rights, subject to the following safeguards:
- shareholders must approve the issuance of shares with different voting rights via a special resolution;
- information on the voting rights for each class of shares must accompany the notice of meeting at which a resolution is proposed to be passed;
- companies must specify the rights for different classes of shares in their articles of association and clearly demarcate the different classes of shares so that shareholders know the rights attached to any particular class of shares; and
- holders of non-voting shares will have equal voting rights on resolutions to wind up the company or to vary the rights of the nonvoting shares.
For public listed companies, the Singapore Exchange and the Monetary Authority of Singapore will separately evaluate whether companies with dual class share structures should be permitted to list and whether listed companies should be allowed to issue non-voting shares and shares with multiple votes. The concern here is that by allowing dual class share structures in listed companies, this may lead to entrenchment of control in one class of shares to the exclusion of the other class(es) of shareholders.
Enfranchising Indirect Shareholders and CPF Investors
MOF is proposing that indirect shareholders and retail investors who use their Central Provident Fund (CPF) monies to invest in public listed companies be given the rights to attend general meetings in person, as if they were direct shareholders. This will be done by giving nominee companies, custodians and CPF nominee entities the right to appoint more than 2 proxies (under the current regime, a direct shareholder may only appoint up to 2 proxies) to attend and vote at general meetings of companies. This is being done to allow more active participation in shareholder meetings, and “strengthen the culture of corporate governance”.
Lowering the Threshold for Calling a Poll to 5%
The MOF is proposing that the threshold for shareholders to demand that voting be done by poll be lowered from the present 10% of total voting rights to 5%. This is the same threshold at which a person becomes a substantial shareholder of a company. A lower threshold will enhance corporate governance as a poll vote is more representative of shareholders’ rights and interests.
Abolishment of Prohibition against Financial Assistance for Private Companies
The MOF is proposing that private companies be permitted to give financial assistance for the acquisition of its own shares or those of its holding company, consistent with the position in the United Kingdom and Hong Kong. The MOF expressed the view that private companies are often closely held and shareholders should have greater control over the decision to give financial assistance.
A public company and its subsidiary companies will still be prohibited from giving financial assistance for the acquisition of the public company’s shares. A new exception may be introduced to allow a public company or its subsidiary to assist a person to acquire shares in the company or those of its holding company if giving such assistance does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors.
Additional Audit Exemption for Small Private Companies
It is proposed that private companies which fulfill 2 of the following criteria:
- total annual revenue of not more than S$10 million;
- total gross assets of not more than S$10 million; or
- total number of employees not more than 50,
will not be required to have their accounts audited although they will still need to prepare and file their unaudited financial statements. Presently, only exempt private companies with annual revenue of not more than S$5 million, or companies that are dormant for any given financial year are exempt from audit requirements.
Requirement for Public Company Auditors to Seek ACRA Approval for their Resignation
The auditor of a public-interest company may be required to seek the consent of the Accounting and Corporate Regulatory Authority (ACRA) before he can resign. This is to prevent companies from being unfairly left in the lurch and will alert ACRA to any potential breaches by the company under the Act. A public-interest company is likely to include a company listed on the Singapore Exchange, a company in regulated industries such as banks and insurance companies and any other entity that raises funds from the public, such as charities. In addition, auditors [will be required to disclose the reasons for their resignations if they serve as auditors of public interest companies or their subsidiaries, and the company will be required to disseminate such reasons to its shareholders.
Discretion to Order a Buy-Out Where Just and Equitable
Currently, the Singapore courts may order a company to be wound up if the court is of the opinion that it is just and equitable to do so. The additional remedy of a buy-out will be useful in cases where the company is still viable, and will be a more efficient solution for the majority to buy out the minority (or vice versa).
Solvency Statements in Amalgamations
Under the current regime, the directors of both amalgamating companies are required to make a solvency statement in respect of their respective amalgamating companies’ current solvency, as well as that of the amalgamated company’s solvency within a forward-looking 12-month period from the effective date of the amalgamation. Directors have some difficulty with the current requirement and have consequently been reluctant to make such a solvency statement. Under the current proposals, the MOF recognised this issue and is proposing that the directors of each amalgamating company make a solvency statement regarding their respective amalgamating companies and the amalgamated company, as of the date it is formed.