RECENT LEGISLATIVE CHANGES TO THE COMPANIES ACT
The Companies (Amendment) Bill, which was passed by Parliament on 8 Oct 2014, contains
amendments to the Companies Act aimed at reducing the regulatory burden on companies,
providing for greater business flexibility and improving the corporate governance landscape
in Singapore. Several rounds of public consultation exercises were held to gather feedback
on the legislative amendments and proposals from different stakeholder groups, including
members of the Singapore business community.
The legislative changes will be implemented in 2 phases: about 40% of the over 200
legislative amendments will take effect on 1 July 2015, whilst the rest of the legislative
amendments are targeted to take effect in the first quarter of 2016. This article highlights
some of the key amendments in each phase.
Key amendments for Phase 1 (effective 1 Jul 2015)
New “small company” concept for audit exemption
Currently, a company is exempted from having its accounts audited if it is an exempt private
company with annual revenue of $5 million or less. A new small company concept will be
introduced for exemption from statutory audit. This will help to reduce the regulatory
burden on small companies and move further towards a risk-based approach.
To qualify, a company must be a private company that meets at least two of three criteria
for each of the previous two financial years. These are:
(a)
total annual revenue of not more than $10 million;
(b)
total assets of not more than $10 million;
(c)
number of employees not more than 50.
A company belonging to a group can be exempted from statutory audit only if it qualifies as
a small company and the entire group meets at least two of the three quantitative criteria
on a consolidated basis for the previous two consecutive financial years. Transitional
provisions have been provided for new companies incorporated after the effective date of
the amendments, and for existing companies during the first two years after the
amendments in the Act are implemented.
Removal of prohibition against financial assistance by private companies
The Companies Act prohibits a company giving financial assistance to any person (directly or
indirectly) for the purpose of acquiring shares in the company or holding company. This
prohibition will be removed for private companies to give shareholders greater control over
the company’s decision on whether or not to give financial assistance. The shares of such
companies are usually closely held.
The prohibition will, however, continue to apply to public companies and their subsidiaries,
for which there is a greater public interest. The restriction helps to ensure that a company’s
capital is preserved and also prevents market manipulation. A new exemption however has
been introduced which allows a company to give financial assistance if this will not
materially prejudice the interests of the company or its shareholders, or the company’s
ability to pay its creditors, so as to allow a company to enter into potentially beneficial or
innocuous transactions, without infringing the prohibition.
Abolition of share warrants
Companies have been prohibited from issuing share warrants which entitle the bearer to
shares specified in the warrant since 29 December 1967. There is a transitional arrangement
under the Companies Act for bearers of share warrants issued before 29 December 1967 to
convert the warrants to registered shares.
In the interest of greater transparency for companies, the transition arrangement will be
removed, and outstanding share warrants phased out by giving bearers two years to
surrender the warrants for cancellation and have their names entered in the register of
members. Outstanding share warrants that are not surrendered by the end of the two-year
period will be cancelled by the company.
Key amendments for Phase 2 (effective 1Q 2016)
Dormant company financial reporting
A new exemption from the preparation of financial statements will be introduced for
dormant non-listed companies with not more than $500,000 in total assets. Dormant nonlisted companies which do not fulfil the asset criterion will still enjoy an exemption from
audit, but will have to prepare financial statements. There will be no change for dormant
listed companies and their subsidiaries. The new exemption reduces regulatory costs for
dormant companies which have lower public impact.
Use of alternate addresses in ACRA’s records
Individuals are currently required to report particulars such as their residential addresses
with ACRA, and such particulars can be accessed by the public. With the amendments, an
individual will be allowed to reflect an alternate address at which he can be located in
ACRA’s public records, rather than using his residential address. This will accord individuals
greater privacy. Safeguards will be put in place to minimise fraudulent reporting and filing of
invalid addresses.
ACRA’s register of members for private companies/register of directors etc.
All companies are currently required to keep a register of members. Following the changes,
ACRA will maintain the registers of members for private companies in electronic form.
Private companies will be required to file information on share ownership and changes in
share ownership for registration with ACRA, including returns of allotment of shares and
share transfers. The date of filing will be taken as the effective date of entry of a person into
the register as a member or the date of cessation of a person as a member.
All companies are also currently required to maintain registers of directors, secretaries,
auditors and managers. Electronic registers of directors, secretaries, auditors and chief
executive officers will be maintained by ACRA for all companies. Companies should note
that the term “manager” is being replaced by “chief executive officer” (CEO), which will be
similar in definition. The register of managers will therefore be replaced by the register of
chief executive officers, and any current manager of a company in ACRA’s records will be
automatically transferred to the register of CEOs as being the CEO instead. A company that
wishes to change the name or particulars of a CEO so transferred should notify the Registrar.
Merging of memorandum and articles into “constitution”
The memorandum and articles of association of a company will be merged into a single
document called the constitution. A company may choose to adopt a model constitution
either in whole for the type of company to which it belongs, or in part. If a company adopts
the model constitution without amendments, it does not need to file the constitution with
the Registrar and instead indicate the title of the type of constitution chosen during
registration. In addition, the model constitution adopted can be either as at the point of
registration, or the version of the constitution that is in force from time to time. If the
company chooses the latter, there is no need for it to amend its constitution whenever
changes are made to the model constitution.
Statutory duty on disclosure extended to CEOs
Currently, only directors are required under the Companies Act to disclose conflicts of
interest in transactions and shareholdings in the company and related corporations. The
amendments extend such disclosures to CEOs of companies to better reflect the
increasingly importance of their role, and for consistency with the requirements for listed
companies under the Securities and Futures Act, where both directors and CEOs must
provide similar disclosures.
Updating ACRA’s striking off regime
Two key changes will be made to the procedures for striking-off:
(a)
The 3-month period for a company to respond to a notification in the Gazette that it
will be struck off, will be reduced to 60 days.
(b)
An appeal to the court against the striking-off of a company must be done within 6
years compared to the current 15 years.
The amended striking-off provisions will make a clear distinction between the scenario
where a company applies to the Registrar for striking-off, and where striking-off is initiated
by the Registrar. The procedures for the notification, publication and objection to the
striking off, will however, be similar between the two.
A new application to the Registrar will be introduced to allow him to administratively
restore a struck off company for striking-off initiated by him, if no appeal to the Court has
been made. The application must be made within 6 years of the dissolution of the company.
The Registrar will have new powers to restore a company struck off due to his mistake.
Removal of one-share-one-vote restriction for public companies
The Companies Act amendments remove the existing one-share-one-vote restriction for
public companies. Safeguards will be introduced to protect the rights of existing
shareholders and ensure that investors are well-informed:
(i)
Shareholders’ approval must be obtained for the issuance of different classes of
shares with different voting rights.
(ii)
Information on the voting rights of each class of shares must be provided when
the notice of the meeting and proposed resolution is issued.
(iii)
The rights of shares must be specified in the company’s constitution and must be
clearly demarcated.
(iv)
Non-voting shares will carry equal voting rights on resolutions for winding up and
variation of rights of non-voting shares.
The amendment gives non-listed public companies greater flexibility in raising capital and
investors a wider range of investment opportunities. For listed companies, the Singapore
Exchange and Monetary Authority of Singapore are still reviewing whether such companies
should be allowed to issue shares with different voting rights.
Multiple proxies regime to enfranchise indirect investors
At present, unless the articles of a company provide otherwise, a member can appoint up to
two proxies to attend and vote at a meeting, and a proxy so appointed can only vote by poll.
A new multiple-proxies regime will be introduced which would allow specified
intermediaries (such as banks and capital market services licence holders that provide
nominee or custodial services) to appoint more than two proxies. The change will allow
indirect investors to participate in and vote at shareholders’ meetings by being appointed as
proxies, and to allow such proxies to be able to vote on a show of hands. This will help
enhance corporate governance and encourage shareholder participation.
To give companies more time to process proxy submissions and handle administrative
matters, the cut off time for submission of proxy form by the member to the company will
be extended from 48 hours before the meeting to 72 hours before the meeting.
New powers for the Registrar to debar directors and company secretaries
The Registrar will be empowered to debar any director or company secretary of a company
which has failed to lodge documents at least three months after the required deadlines
under the Companies Act. Before issuing a debarment order, the Registrar will give the
director or company secretary an opportunity to make representations as to why the
debarment order should not be made. A debarred person will not be allowed to take on any
new appointments as a director or company secretary, but may continue with his or her
existing appointments. Debarment will be lifted when the defaults have been rectified or on
other grounds which will be set out in regulations. Debarment of irresponsible directors and
companies secretaries is intended to prevent such persons from holding similar positions in
other companies.
For more on the changes to the Companies Act, you can visit ACRA website at
www.acra.gov.sg.
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