The latest proposed changes to legislation governing companies and limited liability partnerships conducting business in Singapore shows the country’s continued reception of international standards and recognition of cross-jurisdictional practices.
The earlier round of Companies Act amendments, which came into force on 3 January 2016, took into account companies legislation from the United Kingdom, Australia and New Zealand to ensure the regulatory framework for setting up and doing business in Singapore remains conducive, effective and efficient.
The Ministry of Finance (MoF), together with the Accounting and Corporate Regulatory Authority (ACRA), and the Ministry of Law (MinLaw) now propose these further changes to the Companies Act
and the Limited Liability Partnerships Act:
- Allowing a foreign entity to transfer its registration from its original jurisdiction to Singapore, i.e. and inward redomiciliation;
- Requiring the beneficial owers of companies and LLPs to declare their identities; and
- Adopting US Chapter 11 restructuring and insolvency measures and abolishing ring fencing protection for distressed companies.
We summarize the first 2 developments below. Please see our Client Alert “Singapore Restructuring & Insolvency Reform Update: A NewHub for Insolvency and Restructuring” for a summary of Singapore’s planned legal reforms to promote itself as a centre for international restructuring and insolvency, and the key points to the amending Companies Act provisions.
Allowing inward re-domiciliation for foreign entities
Although the MoF declined to introduce a transfer of incorporation of foreign entities during the last round of amendments, the MoF and ACRA have now released in draft form the new sections 354A to 354M of the Companies Act, intended to facilitate relocation by foreign corporations of their regional or worldwide headquarters to Singapore or otherwise attract foreign entities likely to make a positive commercial contribution.
We summarize below the new provisions and include our observations:
“Foreign entity”: this new term is defined as “a body corporate that is incorporated outside Singapore”: we note that this term and corresponding new definition differ from the existing, more broadly-formulated definition of “foreign company”, which suggests that inward re-domiciliation may be limited only to foreign corporations and not to foreign unincorporated entities, such as LLPs, which already have an avenue to conduct business in Singapore by setting up a branch.
Qualifying criteria: the foreign entity or a group of foreign companies must satisfy the criteria for small company/small group in the Thirteenth Schedule of the Companies Act (maxima of SGD10 million each in annual revenue and/or in assets and/or maximum of 50 employees).
Bona fides and solvency: the foreign company must provide a solvency statement and there must be no intention to defraud existing creditors. A distressed foreign company must provide proof of a genuine intent to restructure under the Singapore Companies Act. The foreign company will be disqualified if it:
- Is in judicial management or liquidation (or subject to an application made to any court for such an order);
- Has entered into a scheme of arrangement or compromise; or
- Is under external administration, e.g. by a receiver (or subject to an application made to any court for such an order).
Legal compliance: the home country must allow re-domiciliation and the foreign company must be in compliance with its home country’s corporate filing and other regulatory requirements.
Incorporation: the foreign company must be able to adapt its legal structure to a company limited by shares and the re-domiciliation will proceed as if incorporating such a company under the Companies Act, and the foreign company’s local company secretary or director must declare:
- All Companies Act registration requirements have been complied with; and
- The company secretary or director has verified the identities of the shareholders and company officers.
Effects of re-domiciliation: re-domiciliation will not:
- Create a new legal entity;
- Prejudice or affect the identity of the body corporate constituted by the foreign entity or its continuity as a body corporate;
- Affect the obligations, liabilities, property rights or proceedings of the foreign entity; and
- Affect legal proceedings by or against the foreign entity.
Post-re-domiciliation: ACRA has not stated how long re-domiciliation may take, but ACRA will thereafter provide the following periods for the re-domiciled company to:
- De-register in its place of incorporation (30 days);
- Update its registration details in all its business correspondence (90 days);
- Register pre-existing charges (30 days); and
- Complete and deliver share and debenture transfer certificates and void any share warrants issued prior to re-domiciliation (60 days).
Striking out: a breach of any condition of registration or any other condition imposed by ACRA will be a ground for striking off the newly registered company.
Identifying the beneficial owners of companies and limited liability partnerships
In the Financial Action Task Force’s (FATF) latest Mutual Evaluation Report on Singapore, the FATF noted that:
“While Singapore has put CDD measures in place requiring Corporate Service Providers (including lawyers and accountants) and Licensed Trust Companies to collect beneficial ownership information, in practice the collection of beneficial ownership information is not always possible. And, it is not uniformly clear from the private sector in what circumstances new or existing accounts with legal persons and arrangements would be refused when that information is not available.”
The FATF recommended that Singapore “enact and implement measures to mitigate the Money Laundering /Terrorist Financing risk posed by nominee directors and nominee shareholders as well as nominee partners and nominee managers (for LLPs).”
The MoF has stated that it will introduce measures to prevent the “misuse of corporate entities for illicit purposes, particularly by exploiting the anonymity that such corporate entities could provide”.
In her speech on 30 September 2016, the Senior Minister of State for Law and Finance described MOF and ACRA as “working on the details of the proposed obligation which will require amendments to the Companies Act and the Limited Liability Partnerships Act.”
These amendments will include:
- Steps that companies and limited liability partnerships should take in identifying the beneficial owners; and
- The type of information that should be maintained.
The MoF has assured that the proposed legislative amendments will be practical and feasible for companies and limited liability partnerships to implement.
The MoF intends to conduct a public consultation at end 2016 to gather views on the proposed amendments, expected in 2017.