Legal and regulatory framework

Types of transaction

What types of transactions are classified as ‘corporate reorganisations’ in your jurisdiction?

The term ‘corporate reorganisations’ for solvent businesses and entities in Singapore can refer to a wide variety of transactions, which would include:

  • an intra-group transfer of shares, business or assets, whether in whole or in part;
  • an amalgamation pursuant to the Companies Act (Cap 50) of Singapore (Companies Act), where two or more Singapore-incorporated companies may amalgamate and continue as one company, the surviving entity being any one of the amalgamating companies or a new Singapore-incorporated company;
  • return of capital, which can be effected through a capital reduction or a share buy-back;
  • payment of dividends, whether in cash or in specie; and
  • intercompany loans, which may be convertible.

Corporate reorganisations may also involve the closing of entities, which may be achieved in Singapore by way of a members’ voluntary liquidation or a striking-off.

Rate of reorganisations

Has the number of corporate reorganisations in your jurisdiction increased or decreased this year compared with previous years? If so, why?

Singapore companies, like other companies around the world, are constantly looking at ways to streamline their operations and increase their profitability. This is driven by factors such as market competition. While demand for corporate reorganisations is typically relatively stable, we note an increase in corporate reorganisation transactions undertaken by way of amalgamations or that involve a return of capital through capital reduction.

Jurisdiction-specific drivers

Are there any jurisdiction-specific drivers for undertaking a corporate reorganisation?

The Companies Act was amended between 2015 and 2017 and wide-ranging amendments were introduced. This included:

  • the removal of the financial assistance prohibition for private Singapore-incorporated companies (unless such private Singapore-incorporated company’s holding company or ultimate holding company is a public company) (see section 76 of the Companies Act);
  • introduction of a ‘small company’ concept for a statutory audit exemption (see section 205C of the Companies Act);
  • amendments to the amalgamation provisions such that a short-form amalgamation can apply to an amalgamation of a group of companies where one of the subsidiaries is the surviving entity (see section 215D of the Companies Act);
  • updates to the striking-off regime to include a clear distinction between an application by a company to strike itself off and a strike-off initiated by the Accounting and Corporate Regulatory Authority of Singapore (ACRA) (see section 344A of the Companies Act); and
  • the introduction of an inward re-domiciliation regime that allows foreign corporate entities to transfer their registration to Singapore (see Part XA of the Companies Act).

These amendments have been made with the aim of, inter alia, reducing the regulatory burden on companies, providing greater business flexibility and boosting Singapore’s competitiveness as a business hub, which may in turn drive demand for corporate reorganisations.

Structure

How are corporate reorganisations typically structured in your jurisdiction?

The structure of corporate reorganisations would depend largely on the specific circumstances leading to the need for reorganisation but would typically take the form of the transactions set out in the response to question 1.

In structuring such transactions, it is prudent to ensure that all proposed steps, including the timelines, are achievable, especially in cross-border corporate reorganisations where multiple jurisdictions are involved, as a step taken in a jurisdiction would affect subsequent steps taken in other jurisdictions.

In undertaking such corporate reorganisations, it would also be important to bear in mind the following:

  • undertaking intra-group transactions on an arm’s-length basis, namely to act independently of each other as if such companies were wholly unrelated to each other;
  • capital should not be returned to members of a company except as permitted under the Companies Act such as by way of a share buy-back, a capital reduction or a dividend distribution. In particular, dividends can only be paid out of profits;
  • due diligence should be conducted on the material agreements and constitutional documents of each company involved to determine whether there are any procedural requirements or restrictions applicable to a particular reorganisation step. Such an exercise can also help flag any encumbrances that might be attached to the assets of a company, as well as any third-party consents required. In particular, the constitution and shareholders’ agreement (if applicable) of each company involved should be reviewed. For example, some companies’ constitutions may require shareholders’ approval for interim dividends that take the form of distributions in specie, while others may need unanimous shareholders’ approval for a particular step, even though the Companies Act only requires majority shareholder approval; and
  • the reorganisation should have the effect of achieving tax efficiency.
Laws and regulations

What are the key laws and regulations to consider when undertaking a corporate reorganisation?

The Companies Act is the key piece of legislation that sets out the requirements and restrictions with respect to corporate reorganisations transactions, such as amalgamations, capital reductions, directors’ statutory duties, dividends and financial assistance. Common law rules may also apply.

Employment, tax, data protection laws and other laws specific to the industry or regulatory status of the company involved should also be considered, particularly where the reorganisation involves a share or asset transfer. For example, the Singapore Code on Takeovers and Mergers (Code) should be considered for corporate reorganisations involving a listed public company, or unlisted public company with more than 50 shareholders and net tangible assets of S$5 million or more. In addition, listed companies would need to adhere to the listing rules of the relevant stock exchange they are listed on.

National authorities

What are the key national authorities to be conscious of when undertaking a corporate reorganisation?

While there is no national authority in Singapore that specifically governs and is automatically involved in a corporate reorganisation, companies should be conscious of the following national authorities.

Accounting and Corporate Regulatory Authority of Singapore

ACRA is the national regulator of business entities, public accountants and corporate service providers in Singapore. Depending on the type of transactions involved in a corporate reorganisation, filings may need to be lodged with ACRA. This may include:

  • share transfers, capital reductions or share buy-backs of a private company, which does not take effect until the electronic register of members of the private company involved is updated by ACRA upon lodgement of the transaction; and
  • amalgamations, which do not take effect until the required documents, together with payment of the prescribed fees, are filed with ACRA. Upon receipt of the relevant documents and fees, ACRA will issue a notice of amalgamation that will state the effective date of amalgamation.
Inland Revenue Authority of Singapore

Inland Revenue Authority of Singapore (IRAS) is the main tax administrator of the Singapore government and would be relevant for all Singapore tax matters arising from a corporate reorganisation. This would include payment of stamp duty arising from share transfers or certain reconstructions and amalgamations, corporate income tax issues and stamp duty relief applications (if applicable).

Ministry of Manpower

The Ministry of Manpower (MOM) would be relevant if, inter alia, the companies involved in the corporate reorganisation employ foreign employees or intend to make employees redundant.

Others

Corporate reorganisations involving companies in heavily regulated industries (such as the banking and insurance sectors) or companies holding licences issued by government agencies may require governmental consents or approvals and the respective government agencies would need to be consulted. New applications for licences and permits may also need to be made.

Further, corporate reorganisations involving companies governed by the Code would also need to be conscious of the Securities Industry Council (SIC), which administers the Code.

Key issues

Preparation

What measures should be taken to best prepare for a corporate reorganisation?

In preparing for a corporate reorganisation, it is important to understand the reasons behind the exercise and set the objectives appropriately. Internal dialogue between business and function leaders would help in understanding the concerns across the group.

A plan should be prepared with the key objectives in mind and input should be sought from various parties, including internal stakeholders, external audit, tax and financial advisers and legal counsels. This should be done prior to finalisation of the plan to determine whether the proposed steps are feasible. This will allow the various stakeholders to raise issues and provide alternatives if the steps proposed are not feasible from their perspective. It would also be advisable to include the responsibilities of all stakeholders involved and the proposed timeline for the relevant steps to occur within such plan for clarity.

Due diligence and information gathering should also be conducted during the early stages of the plan to determine and confirm shareholding structures, identity of directors and officers, and identification of agreements that may need to be transferred, assigned or novated because of the corporate reorganisation. This will also help flag out procedural requirements or restrictions, such as the requirement for any licensing approvals and third-party consents, relating to the assets, liabilities and material agreements of such companies. It is also prudent to check the procedural requirements relating to such transfers, assignments or novations before effecting the same.

Employment issues

What are the main issues relating to employees and employment contracts to consider in a corporate reorganisation?

The issues to be considered in relation to employees and employment contracts may differ depending on the structure of the corporate reorganisation. Broadly, due diligence should be conducted on the employment contracts of the affected employees to determine their employment terms and help ascertain if they fall under the purview of the Employment Act (Cap 91) of Singapore (Employment Act) and in particular, Part IV of the Employment Act (Part IV Employment Act Employees). From 1 April 2019, the Employment Act governs all local and foreign employees working under a contract of service with an employer, but excludes seafarers, domestic workers and any persons gazetted by the National Gazette.

The main issues to consider can be broadly split into the following categories.

Type of transactions

In a corporate reorganisation effected through a share transfer, employees remain with their existing employers and any impact is typically limited. Terms and conditions of employment will likely remain unchanged although situations may arise where amendments are made to align benefits across the group. Depending on the type of amendments, employee consent may be required.

If a corporate reorganisation involves the transfer of an undertaking, this will likely trigger section 18A of the Employment Act. Pursuant to a transfer under section 18A of the Employment Act, the employment contracts of the employees involved in the undertaking and which are covered under the Employment Act are not terminated and will be automatically transferred to the new business owner on the same terms and conditions. The employment contracts of such transferred employees shall have effect after the transfer as if originally made between the transferred employee and the new business owner. Section 18A also prescribes certain requirements, such as the requirement for the current employer to engage in consultations with the relevant employees and their trade unions (if applicable), as soon as reasonable and before the transfer of employment takes place.

In situations, however, where section 18A of the Employment Act does not apply, such as in a pure transfer of assets or outsourcing scenario, there will be no automatic transfer of employees. The transfer of employment will need to be effected either by a tripartite novation agreement or a termination and re-hire by the current employer and the new employer, respectively. Employees who do not wish to consent would need to be terminated and paid termination and retrenchment (if applicable) benefits in accordance with their employment contracts, policies and collective bargaining agreements.

Redundancies

Employers who have at least 10 employees must notify the MOM if five or more employees are made redundant within any six-month period. Failure to comply with this mandatory notification requirement may cause an employer to be liable upon conviction to penalties.

Part IV Employment Act employees have the right to request for redundancy payments if they have worked for at least two years, although the amount of such payments is subject to agreement in the absence of contractual prescriptions. However, the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment sets out areas that companies should consider in a redundancy situation including recommending redundancy payments of two weeks to one month for each year of service. While such tripartite guidelines are technically not legally binding, employers should note that the MOM may take action against employers for non-compliance.

Further, the Commissioner for Labour has the right under the Employment Act to require an employer to furnish information on the redundancy of any employee.

Foreign employees

Companies may need to make applications for new work passes or for transfer of work passes to the MOM for foreign employees. The type of applications made would depend on the type of corporate reorganisation undertaken by the relevant company. In addition, there are quotas in place for certain work passes, and care should be taken to ensure that none of these quotas are breached because of a change in headcount pursuant to a corporate reorganisation.

What are the main issues relating to pensions and other benefits to consider in a corporate reorganisation?

There is no statutory pension scheme in Singapore. However, employers and employees who are Singapore citizens and permanent residents make monthly contributions to the Central Provident Fund (CPF), which is a comprehensive compulsory social security savings scheme. Such contributions to the CPF accounts of eligible employees are made in accordance with the prescribed rates set out in the Central Provident Fund Act (Cap 36) of Singapore.

The Employment Act also provides certain statutory benefits to employees falling under the Employment Act.

Such statutory benefits and CPF contributions will, therefore, remain unaffected despite the corporate reorganisation as the new employer (where applicable) will continue to provide such benefits to the relevant employees.

Financial assistance

Is financial assistance prohibited or restricted in your jurisdiction?

Under the Companies Act, a Singapore-incorporated public company or a Singapore-incorporated private company whose holding company or ultimate holding company is a public company is restricted from providing financial assistance (see section 76(1) of the Companies Act).

This restriction includes direct or indirect financial assistance in the acquisition of shares or units of shares, or shares or units of shares in the holding company or ultimate holding company. In addition, a reference to the provision of financial assistance is broadly defined to include a reference to the provision of financial assistance by means of the making of a loan, the provision of a guarantee, the provision of security, the release of an obligation or the release of a debt or otherwise (see section 76(2) of the Companies Act).

Notwithstanding the restrictions, it is possible to provide financial assistance provided the relevant ‘whitewash’ procedures set out in the Companies Act are complied with or it falls within an exception set out in the Companies Act.

There are no restrictions on provision of financial assistance by private companies (save for those whose holding company or ultimate holding company is a public company).

Common problems

What are the most commonly overlooked issues or frequently asked questions in a corporate reorganisation?

It is not uncommon for corporate reorganisations to include a query as to whether capital can be contributed to a Singapore company either without the issuance of new shares or to a share premium account. Notwithstanding that this may be available in other jurisdictions, this is not possible in Singapore and any increase in share capital would require the issuance of at least one new share. Given that the concept of par value has been abolished in Singapore, the company should also provide the value that should be attributed to each issued share. Such issuances would need to comply with the allotment requirements in the Companies Act and the constitution of the relevant company. When asked to provide estimated execution timelines, it is particularly important to bear in mind that the collation of signatures and completion of relevant filing procedures with the authorities may be challenging, especially in cross-border corporate reorganisations with multiple companies in different jurisdictions with differing time zones and public holidays.

Additionally, it is also common to receive queries on the available options for the return of capital that are typically limited to dividend distributions (subject to the availability of distributable profits), share buy-backs and a capital reduction. As there are specific procedures and timelines involved depending on the option chosen, it is important to understand the company’s target timeline to ensure that the recommended option is appropriate.

For large corporate reorganisations spanning multiple continents and jurisdictions, the decision-making process may be de-centralised. In such instances, the key individuals within the group who are able to provide the required confirmations or to make decisions for each of those jurisdictions should be clearly identified as this will facilitate execution of the various reorganisation steps.

Accounting and tax

Accounting and valuation

How will the corporate reorganisation be treated from an accounting perspective? How are target assets and businesses valued?

While the accounting treatment would depend on the type of transactions undertaken as part of the corporate reorganisation, the Companies Act provides that Singapore-incorporated companies are generally required to prepare financial statements in accordance with the accounting standards issued by the Accounting Standards Council for application by companies incorporated in Singapore. Such accounting standards include the Singapore Financial Reporting Standards. Accordingly, the relevant companies involved should work together with their auditors, tax and financial advisers to review and assess the transactions to be taken to ensure that the relevant steps and the valuations (if any) are in line with the accounting standards.

Tax issues

What tax issues need to be considered? What are the tax implications of carrying out a corporate reorganisation?

The tax implications would depend on the type of transaction being undertaken as part of the corporate reorganisation. Given that corporate reorganisations are typically driven by tax considerations, it is recommended that a company proposing to undertake a corporate reorganisation should seek specific tax advice in relation to the transaction and in particular to review the relevant transaction documents from a tax perspective to ensure that they achieve the desired tax effect. It is also possible that several tax systems may need to be considered depending on where the relevant companies and shareholders are based or incorporated.

Specifically in a Singapore context, the following tax issues would need to be considered.

Stamp duty

Generally, stamp duty is payable on documents that effect a transfer or assignment of interest in any immovable property in Singapore and any stock and shares (see First Schedule of the Stamp Duties Act (Cap 312) of Singapore (Stamp Duties Act)). Under the Stamp Duties Act, it is possible to make an application for stamp duty relief through a formal application to the Commissioner of Stamp Duties on an instrument executed for the purposes or in connection with, inter alia, transfers between associated entities and reconstruction or amalgamation of companies, provided certain prescribed conditions are met (see sections 15 and 15A of the Stamp Duties Act). Conditions for relief include, inter alia, the requirement for the transferee entity to be associated with the transferor entity for two years from the date of execution of the instrument, unless the change is because of a reconstruction or amalgamation, or a liquidation or winding up of the transferor entity or transferee entity provided certain conditions are met.

If any claim for stamp duty relief is deemed to have been disallowed, an amount equal to the duty remitted shall become payable by the transferee entity to the Commissioner of Stamp Duties immediately, and may be recoverable from the said entity as a debt due to the Singapore government, together with interest on the amount at the rate of 6 per cent per annum.

Goods and services tax

Goods and services tax (GST) is chargeable on the supply of goods and services made in Singapore. A transfer of business, assets or liabilities is deemed to be a supply made in the course or furtherance of that business and is likely to be subject to the payment of GST. However, where a business carried on by a taxable person is transferred as a going concern to another person who is also a taxable person together with the assets of such business, the supply of such assets to the taxable person is treated as neither a supply of goods nor a supply of services and such transfer is not subject to GST. It would, therefore, be important for the appropriate language to be included in the business purchase agreement to enable parties to avail themselves of this exemption.

Consent and approvals

External consent and approvals

What external consents and approvals will be required for the corporate reorganisation?

External consents and approvals that will be required are specific to the type of corporate reorganisation transactions being undertaken and the type of corporate transactions a company involved has previously entered into.

As part of due diligence, a review of the company’s licences, any agreements the company has entered into and the assets and liabilities of the company should be conducted to determine whether third-party consents are required. Typically, we would review the following type of documents as part of due diligence:

  • constitutional documents and shareholders’ agreement (if applicable) as these may contain inter alia, transfer restrictions, pre-emption rights or tag-along rights;
  • lease agreements and if the company holds immovable property, title documents;
  • financing or debt arrangements;
  • permits or licences;
  • intellectual property-related documents; and
  • third-party contracts.

In addition, from a regulatory perspective, legislation specific to the industry or regulatory status of the company should be reviewed to determine if any regulatory approvals are required.

While some agreements or government agencies do not require prior consent, it may require the company to notify the counterparty or government agency before or after the transaction is completed.

Specifically in relation to employees, companies should also consider if trade unions are involved and if so, to determine the procedural requirements and any consents and approvals required arising from the plan. Transfer of employees who fall outside the ambit of section 18A of the Employment Act would also require the prior consent of such employees.

For companies that come under the purview of the Code, SIC approval may be required. Listed companies may also require consents as set out in the respective listing rules.

Internal consent and approvals

What internal corporate consents and approvals will be required for the corporate reorganisation?

The internal corporate consents and approvals required for the corporate reorganisation will depend on the transactions undertaken for the reorganisation and the requirements under the Companies Act and constitutional documents of the company.

Generally, board approvals would at least be required and should be passed in accordance with the constitutional documents of the companies involved. Given that directors may sit on the boards of several companies, each director should bear in mind the statutory and fiduciary directors’ duties that they owe to the respective companies of which they are directors. Broadly, they must act in the best interests of each company and should also consider any potential conflicts of interest they may have in relation to the proposed transactions. Assuming the constitution does not restrict the voting by an interested director, any conflicts with their duties or interests should either be declared at a directors’ meeting or a written notice should be sent to the company, accompanied by the relevant details of such transaction (see section 156(1) of the Companies Act). In addition, if it is not clear whether a matter is in the best interests of the company or presents a conflict, directors should consider whether to seek shareholder approval for the relevant matters.

The Companies Act also requires shareholder approval to be obtained for certain transactions, including, inter alia:

  • amalgamations;
  • a disposal of the whole or substantially the whole of a company’s undertaking or property; and
  • capital reduction.

Assets

Shared assets

How are shared assets and services used by the target company or business typically treated?

Such shared assets and services should be flagged during the planning stages to assess the impact a corporate reorganisation may have on such arrangements and determine what is required to ensure continuity of services. Shared assets owned by the group and internally provided services typically cause fewer challenges. Issues are more likely to arise where such services are provided by third-party contractors to the group and the underlying contracts would need to be reviewed to determine whether there will be continuity of services following the reorganisation. If required, third-party consents should be obtained or the relevant notifications should be provided.

Transferring assets

Are there any restrictions on transferring assets to related companies?

While there are generally no restrictions on transferring assets to related companies if the relevant third party or governmental consents are obtained (if applicable), companies should take into consideration certain factors.

Transactions should be on an arm’s-length basis

If a company proposes to transfer assets for less than fair market value, there is a possibility that such transactions could be voided if they are regarded as transactions at an undervalue or as providing an unfair preference under Singapore law. Although the foregoing voidable transactions can only be set aside by a liquidator or a judicial manager, an undervalue transaction can be disputed if it took place within five years prior to the commencement of the winding up or judicial management.

Directors’ duties

As mentioned, a director has statutory and fiduciary directors’ duties towards the company of which he or she is a director. Such duties include the duty to avoid conflicts of interest, and to exercise his or her discretion bona fide in what he or she considers to be in the best interests of the company.

Can assets be transferred for less than their market value?

Please see our response to question 17.

Formalities

Date of reorganisation

Can a corporate reorganisation be backdated or deemed to have already taken place, for example, from the start of the financial year?

We do not recommend backdating of documents (ie, dating a document with an earlier date than that on which it is actually executed). Depending on the type of corporate reorganisation, it may be possible to state in a specific agreement for a step to have an earlier effective date notwithstanding that the agreement is dated as of the current date. However, this may not apply to all types of corporate reorganisations and legal, tax and financial advisers should be consulted prior to implementing the same.

In a share transfer scenario, an earlier effective date is not possible as a transfer of shares in a Singapore company does not take effect until the electronic register of members of such company is updated with the ACRA upon lodgement (see section 126 of the Companies Act). In practical terms, this would mean that lawyers advising on the share transfer would need to stamp the share transfer form and lodge the share transfer with the ACRA on the effective date that the company has in mind.

Documentation

What documentation is required in a corporate reorganisation?

Please see the response to question 7. It is important to plan a corporate reorganisation prior to its commencement. A reorganisation plan should be drafted and reviewed by all stakeholders involved to identify whether the steps proposed are feasible.

Generally, corporate authorisations such as board resolutions and shareholder resolutions (if required) would need to be executed. Depending on the type of corporate reorganisation to be undertaken, common documents prepared include sale and purchase agreements, asset purchase agreements, contribution or assignment agreements, novation agreements, transfer instruments (such as share transfer forms), share application forms, third-party consents and waivers.

Specifically in relation to employees, employee consents and new employment agreements may also need to be drafted. Applications for new licences or permits, if applicable, would also need to be prepared. If the consideration is not in payable in cash, intercompany loan agreements or promissory notes are used to satisfy consideration.

Internally within the group, agreements such as internal service agreements and intellectual property licence agreements may also need to be drafted.

Representations, warranties and indemnities

Should representations, warranties or indemnities be given by the parties in corporate reorganisation?

Representations, warranties or indemnities are typically included in agreements entered into with third parties. For intra-group transaction, we typically do not see extensive representations, warranties or indemnities, although the basic capacity and authority warranties are usually included.

Assets versus going concern

Does it make any difference whether assets or a business as a going concern are transferred?

Yes, this would make a difference in relation to the transfer of employees and whether GST is payable for such transfer of business.

Types of entity

Explain any differences between public, private, government or non-profit entities to consider when undertaking a corporate reorganisation.

Singapore entities may be subject to different legislation depending on their corporate structure and regulatory status.

While the Companies Act generally governs public and private companies, public listed companies are also subject to the listing rules of the stock exchange on which they are listed. Further, public listed companies and unlisted public companies with more than 50 shareholders and net tangible assets of S$5 million or more are required to comply with the provisions of the Code. A particular difference between public and private companies is the ease with which shareholders’ approval for corporate reorganisations can be obtained and this should be factored in during the planning stages.

Considerations relating to non-profit entities would depend on the entity’s structure and the corresponding legislation. The manner in which non-profit entities are typically set up in Singapore is set out as follows:

  • as a public company limited by guarantee, governed by the Companies Act;
  • a society, governed by the Societies Act (Cap 311) of Singapore; or
  • a trust.

In addition, non-profit entities that are registered charities will also need to comply with the Charities Act (Cap 37) of Singapore.

Post-reorganisation steps

Do any filings or other post-reorganisation steps need to be taken after the corporate reorganisation?

Depending on the type of reorganisation transaction undertaken, we would generally anticipate the following steps:

  • stamping of share transfer forms;
  • filing of corporate actions with the ACRA, such as filing of share allotments, share transfers and amalgamations;
  • updating of corporate registers (to the extent not updated by the ACRA);
  • cancellation of old share certificates and issuance of new share certificates; and
  • post-completion notifications to third parties or government authorities as required.

Update and trends

Hot topics

What are your predictions for next year and how will these impact corporate reorganisations in your jurisdiction (for example, expected trends or pending legislation)?

We anticipate continued interest in the elimination of Singapore entities that are dormant or that have limited operations, changes in group shareholding structures by changing the shareholder of a Singapore company for tax reasons, the return of capital to shareholders through capital reductions or distribution of dividends and the redomiciliation of foreign entities to Singapore.

We are not aware of any pending legislation updates at this time.

Disclaimer: DLA Piper is restricted for regulatory reasons from practising local law in Singapore, as are most international law firms. Where advice on Singapore law is required, we will work with a local firm to provide such advice while leveraging our own knowledge and experience as international counsel in international advisory and transactional work.

Law stated date

Correct on

Please state the date on which the law stated here is accurate.