Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

The acquisition of shares or the business and assets of privately owned companies is usually effected by a sale and purchase agreement entered into between the relevant parties. Acquisitions may also be structured as put-and-call arrangements but are less common. While uncommon, the acquisition of privately owned companies can also be structured by way of a ‘contractual offer’, which is followed by a minority squeeze-out (in accordance with section 215 of the Companies Act (Chapter 50 of Singapore) (the Companies Act)), a scheme of arrangement under section 210 of the Companies Act or the statutory amalgamation procedures under section 215A of the Companies Act.

The transaction process depends on the complexity of the issues, the type of business, the number of parties involved, and whether the transaction involves a bilateral negotiation or a formal auction sale process.

Parties would typically enter into a confidentiality or non-disclosure agreement at the outset of the acquisition transaction.

In bilateral acquisition transactions, at the preliminary negotiation phase, it is fairly common for the parties to enter into a preliminary arrangement (eg, heads of agreement, term-sheet, a memorandum of understanding or a letter of intent). Such preliminary arrangement is often stated as ‘subject to contract’ and will set out the parties’ understanding and the principal commercial terms of the transaction. The preliminary arrangement is not usually legally binding except for certain key provisions relating to confidentiality, costs or expenses, exclusivity and governing law. Break-up fees are uncommon in private acquisition transactions. After the preliminary arrangement is signed up, due diligence (typically, legal, financial and tax due diligence) will often take place, and will be followed by drafting, negotiation and execution of the definitive transaction documents (eg, sale and purchase agreement, disclosure letter and, where applicable, shareholders’ agreement).

A formal auction sale process would, at the initial transaction phase, typically involve the preparation of the information memorandum on the company, or the business or assets, legal and financial due diligence reports, and draft transaction documents (eg, sale and purchase agreement, disclosure letter and, where applicable, shareholders’ agreement). The information memorandum will be distributed by the vendor’s financial advisers to potential buyers, with the view to soliciting bids. Potential buyers will be invited to submit a ‘round-one’ non-binding offer or expression of interest, from which selected bidders will be granted access to undertake due diligence (which may be facilitated by the provision of a vendor due diligence report). During the due diligence phase, the draft transaction documents would be provided to the selected bidders. At the end of the due diligence phase, selected bidders would submit their binding offers, together with mark-ups of the transaction documents. Based on these ‘round-two’ offers, one or more bidders will be chosen to continue negotiations until the final transaction documentation is entered into with one party. At the final negotiation phase, the final bidders sometimes undertake confirmatory due diligence on sensitive information (which were not provided in the earlier due diligence phase).

The time required to complete the acquisition depends on, among others, the size or international presence of the target company, business or assets, and the complexity of the transaction. Generally, an acquisition may take three to six months to complete, and may be longer where multi-jurisdictions regulatory approvals (such as antitrust clearance) are required. A bilateral acquisition transaction may take longer to complete due to the lack of a controlled and competitive process (unlike the formal auction sale process for disposals).

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

Parties are generally free to negotiate the terms and conditions of the sale and purchase agreement for private M&A transactions. In doing so, they would need to take into account the Companies Act that is applicable for all companies incorporated, registered or carrying on business in Singapore. Other statutes and regulations, which may be applicable or relevant to private M&A transactions, include those relating to transfer of employees, data protection, ownership and transfer of real estate and competition. Where the buyer or the seller is a company listed on the Singapore Exchange Limited (SGX), the SGX’s listing rules would also be applicable in relation to the acquisitions and disposals.

Parties are free to decide on the governing law of the transaction documents. Most transaction documents for the sale of Singapore companies are governed by Singapore law. The legal formalities and procedures for the transfer of shares, liabilities, business or assets that are subject to Singapore law will have to be complied with.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Under Singapore law, there are no statutorily prescribed terms on the extent or content of the seller’s title to the shares that a buyer acquires. As such, it is common practice for express wording to be included in sale and purchase agreements as contractual assurance to the buyer.

Generally, legal title to shares, a business or assets does not transfer automatically. In the case of the transfer of shares in a company incorporated under the Companies Act, such transfer does not take effect until the electronic register of members (EROM) of the company maintained by the Accounting and Corporate Regulatory Authority of Singapore (ACRA) is updated. The buyer will be registered as the legal owner of such shares only when the EROM of the company is updated.

In the case of a business or assets acquisition, while some title to assets (such as stock, equipment and machinery) can be transferred by simple delivery (in accordance with the terms of the sale and purchase agreement), others such as land must be formally transferred or assigned, registered with the Singapore Land Authority (if necessary) and may require third-party consents.

There are distinctions between legal and beneficial titles under Singapore law. A person registered as holding the legal title to a share in a company incorporated under the Companies Act may be a nominee with a different party having the right to receive the economic benefits of the share. Accordingly, the beneficial interest can be transferred without having to update the EROM of the company. Interests in other assets, such as real estate, can be held in the same way.

Under the Companies Act, persons holding beneficial title to shares in a company may in certain circumstances be registrable as a ‘controller’ in the register of controllers maintained by the company.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

Buyers would typically prefer that all the sellers agree to sign and be bound by the same transaction documents.

If the company’s constitution (or where applicable, the shareholders’ agreement) contains ‘drag-along’ provisions, minority shareholders may be required to sell their shares with the exiting shareholders (if the conditions of the ‘drag-along’ provisions are met).

Additionally, section 215 of the Companies Act contains squeeze-out provisions that are typically used in connection with public takeovers, but can also apply in the context of a share acquisition in a privately owned company. The buyer can make an offer to acquire all the remaining shares (other than those shares already acquired by the buyer) under the squeeze-out provisions. If the buyer obtains acceptance by shareholders of 90 per cent of the total number of shares to which the offer relates, the buyer will be entitled to give notice to the remaining shareholders to compulsorily acquire their shares. However, section 215 does confer on a dissenting shareholder the right to apply to court to object to such a squeeze out.

If the acquisition is structured as a scheme of arrangement under section 210 of the Companies Act, and the scheme is approved by a majority in number representing 75 per cent of the total value of the shareholders present and voting (in person or proxy) at the meeting ordered by the Court, the scheme effecting the acquisition shall be binding on all shareholders (including the minority shareholders).

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

A buyer can generally choose which assets or liabilities it wishes to acquire where the acquisition is structured as a business or assets sale, and this will be set out in the definitive transaction documents. There are, however, obligations relating to certain employees (covered under section 18A of the Employment Act (Chapter 91 of Singapore) (the Employment Act) engaged in the business that will automatically transfer on completion of the sale of the business (see question 33).

The transfer of assets or liabilities may require customary third-party consents; for example, a landlord’s consent to the assignment of a lease, or a counterparty’s consent to the assignment or novation of a contract.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Selling shareholders of a company may be subject to selling or transfer restrictions that are set out in the company’s constitution or a shareholders’ agreement. Such restrictions would typically include a moratorium period where no shares can be sold or transferred, the pre-emptive rights of other existing shareholders to require the selling shareholders to offer their shares to existing shareholders before the shares can be sold to third party, and tag-along rights of other existing shareholders which would restrict the ability of selling shareholders to transfer their shares in a transaction that excludes other shareholders.

There are no general regulatory restrictions on the transfer of shares in a company and in particular there are no general foreign investment notification or approval requirements applicable to such transfers. However:

  • the transfer of shares in companies that operate in certain specified sectors would be subject to foreign ownership restrictions, for example, newspaper and broadcasting companies; and
  • the transfer of shares in companies that operate in certain regulated sectors would be subject to regulatory approval or notification requirements, for example, licensed banks and insurers incorporated in Singapore, capital markets services licence holders, trust companies and certain designated telecommunications and electricity licensees.

In addition, mergers (which include an acquisition of control via a share acquisition) that substantially lessen competition in any market in Singapore are prohibited under Singapore’s Competition Act (Chapter 50B of Singapore). While there is no mandatory requirement for mergers to be notified to the Competition and Consumer Commission of Singapore (the CCCS), merger parties may voluntarily notify their transaction to the CCCS for a decision on whether the transaction will substantially lessen competition in Singapore. The CCCS has also indicated that parties that do not notify mergers that raise competition concerns would risk the CCCS subsequently investigating the transaction on its own initiative. Should the CCCS find that the merger will likely or has led to a substantial lessening of competition in Singapore, the parties could face financial penalties and/or other directions imposed by the CCCS, including divestiture orders.

Are any other third-party consents commonly required?

Existing contractual arrangements of a company (such as those with landlords, lenders, creditors, suppliers and customers) are typically examined to determine if any other third-party consents are required. Existing contractual arrangements may contain ‘change of control’ clauses, which provide that the consent of counterparties must be obtained prior to a share transfer of a certain threshold, or give counterparties a contractual right to terminate if a share transfer results in a change in management of the company.

The constitution of a company or a shareholders’ agreement may also contain restrictions on a share transfer, such as a ‘moratorium period on share transfers’, ‘pre-emption’ rights or ‘tag-along’ rights. The consents of other shareholders will be required to waive such restrictions specified in the company’s constitution or shareholders’ agreement, to allow the selling shareholders to sell their shares to a third party.

Where the business or assets acquisition involves the disposal by a Singapore company of the whole or substantially the whole of its undertaking or property, the prior approval of the shareholders of the Singapore company must be obtained at a general meeting pursuant to section 160 of the Companies Act. The approval required under section 160 is a simple majority vote of the shareholders present and voting at such general meeting.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

A Singapore company must update ACRA (via the lodgement of a notice of transfer of shares) when there is a transfer of its shares (see question 3). ACRA will update the EROM of the Singapore company to register the new holder of shares only if the relevant stamp duty is paid.

For transactions involving a subscription of new shares, a form relating to the return of allotment must be filed with ACRA. Details such as the total number of allotted shares, a description of the shares allotted and a statement of capital that shows the company’s latest capital structure must be included.

In the case of sale and purchase of an immovable property in Singapore, a deed or other written instruments such as the transfer instrument is required to be executed for the transfer of interest in the immovable property. Such document will need to be lodged with the Singapore Land Authority (SLA). There are lodgement fees (which are generally nominal amounts) payable to the SLA for registration of such document. Registration is mandatory to effect the transfer of an estate or interest in land and for the fresh certificate of title to be issued to reflect the new owners.

See question 31 for a discussion on stamp duties.