In a bid to amplify the transparency of ownership and control of business entities in Singapore as well as to enhance the ease of conducting business, the Companies (Amendment) Act 2017 was passed on 10 March 2017 and seeks to implement various new provisions in the Companies Act (Chapter 50) (the "Act").
These amendments will be implemented in phases. The first phase introduces amendments such as the added requirement to maintain various new types of registers as well as alternative means of executing certain types of company documents in lieu of the usage of common seals, while the second phase implements the inward re-domiciliation regime for foreign companies and enhances the existing debt restructuring regime.
The first and second phases have already been effected on 31 March 2017 and 23 May 2017 respectively, and some of the key amendments are highlighted and discussed below.
1. Maintenance of New Registers
Singapore incorporated companies will now be required to maintain and update the following registers, which in our view, will have the overall effect of reducing the risk of misuse of corporate entities for illicit purposes:
(a) Register of Controllers
All local and foreign companies are now required to maintain and update a register of controllers, which must be made available to the Registrar of Companies and public agencies upon request. Such information will not be publicly available.
Under Part XIA, Section 386AB of the Act, a controller refers to an individual with ‘significant interest’ in or ‘significant control’ over the company.
(i) ‘Significant interest’
For the purposes of Part XIA, Section 2(1) of the Sixteenth Schedule of the Act expressly provides that a controller with ‘significant interest’ in a company with share capital may include an individual who has an interest in more than 25% of the shares in the company, or possesses shares representing more than 25% of the total voting power. For companies without share capital, a controller with "significant interest" refers to an individual who holds a right to share in over 25% of the capital or 25% of the company's profits.
(ii) ‘Significant control’
Section 1 of the Sixteenth Schedule of the Act also provides that a controller would have "significant control" if the individual:
- Holds the right to appoint or remove directors who hold a majority of the voting rights at directors’ meetings;
- Holds more than 25% of the rights to vote on matters that are to be decided upon by a vote of the members of the company; or
- Has the right to exercise significant influence or control over the company.
In addition, companies are now required to take reasonable steps to update or correct information on the register if they have sufficient grounds to believe that such particulars have been changed or are erroneous.
(b) Register of Nominee Directors
Pursuant to Section 386AL (8) of the Act, a nominee director is a director that is accustomed or under an obligation, formal or informal, to act in accordance with the directions, instructions and wishes of any other person. These registers must similarly be made available to the Registrar and public authorities upon request.
(c) Public Registers for Foreign Companies
Under Section 379 of the Act, foreign companies registered in Singapore are now required to maintain public registers of its members in Singapore.
2. Usage of Common Seals
The execution of deeds or other documents such as share certificates by way of a Common Seal is now optional, following the footsteps of other jurisdictions such as Australia, Hong Kong and the United Kingdom where they have similarly abolished the mandatory requirement for a Common Seal. Where companies were once required to seal deeds, share certificates and other corporate documents, companies can now execute such documents by obtaining the signatures of two authorised persons of a specified group without the need for a common seal. With reference to Section 41B of the Act, the specified groups are:
- A director and the company secretary of a company;
- Two directors of a company; or
- A director of a company, in the presence of a witness who attests the signature.
This amendment affords companies with additional flexibility and the ease in the execution of company documents and reduces costs for the company in obviating the need to procure a Common Seal.
3. Retention of Records of Liquidated Companies for Five years
In accordance with the international standards set by the Financial Action Task Force (FATF), an inter-governmental body that sets global standards and measures to combat money laundering, terrorist financing as well other activities which threaten the integrity of international financial systems, records of companies which are voluntarily wound-up by their members or creditors, including all books, papers, accounting records and registers of controllers, are now required to be retained for at least five years instead of the previous duration of two years
4. Inward Re-Domiciliation Regime
To explain briefly, re-domiciliation is a process whereby a foreign corporate entity transfers its registration from its original jurisdiction to another jurisdiction. Companies may choose to re-domicile due to strategic reasons such as economic resilience and ease of access to capital markets or finances, or regulatory reasons such as more pro-business legislation, while retaining its heritage and identity in jurisdictions where it has a presence, thus reducing operational disruption.
The recent introduction of an inward re-domiciliation regime in Singapore will allow foreign companies to transfer their registration from their original jurisdiction to Singapore, as opposed to having to set up subsidiaries in Singapore.
To do so, such foreign corporate entities will have to make an application to the Registrar in accordance with the new (yet to come into effect) Section 358 of the Act and comply with the Act like other Singapore incorporated companies.
5. Enhancement of Debt Restructuring Framework in Singapore
Several amendments have been made under the Act to enhance Singapore's current debt restructuring framework. A few of the key amendments are discussed below:
(a) Enhanced Moratoriums Against Creditors
The amendments provide for enhanced moratoriums against creditor action by the courts on an application by a company that has proposed or has intentions to propose a creditor scheme. This would include an automatic 30-day moratorium, with certain safeguards for creditors, that will begin from the date of the application to court.
(b) New Judicial Management Amendments
The lowering of the threshold for companies to be granted a judicial management order will allow judicial management to commence sooner. In addition, judicial management will now be available to foreign companies.
(c) New Provisions For Cross-Border Insolvency
The Act will now adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency which will facilitate the recognition of cross border insolvency processes in Singapore and will also align Singapore's insolvency regime with the Chapter 11 Bankruptcy laws of the United States.
In our view, the abovementioned amendments will not only give a positive boost to Singapore’s viability as a commercial hub but will also ensure that Singapore continues to uphold its stellar reputation as a trusted financial centre for the conduct of business.