Board Matters Quarterly - Issue 14: December 2012
Companies Act reviewed to improve corporate governance
On 3 October 2012, the MOF (http://app.mof.gov.sg/(X(1)S(vd2zvlvuov
&AspxAutoDetectCookieSupport=1) announced that it has completed the review of Companies Act. The MOF has released a report summarizing the feedback received from public and it’s responses (http://app.mof.gov.sg/data/cmsresource/SC_RCA_Final/AnnexA_
SC_RCA.pdf) to the recommendations in the Report of the Steering Committee for Review of the Companies Act (the Steering Committee).
A public consultation on the draft Amendment Bill to the Companies Act (the Act) will be conducted in early 2013. The Amendment Bill is expected to the tabled in Parliament by end of 2013.
We highlight some of the key recommendations that have been accepted and/or modified by the MOF.
- Introduce new “small company” criterion for exemption from statutory audit
Currently, a company must be audited unless it is a dormant company, or it is an exempt private company (EPC) with annual revenue of S$5 million or less (EPC criterion).
A new “small company” criterion is introduced to replace the EPC criterion for audit exemption.
A company qualifies as a “small company” if it is a private company and fulfils two of the following three criteria:
- Total annual revenue of not more than S$10 million.
- Total gross assets of not more than S$10 million.
- Number of employees not more than 50.
- Retain EPC regime for filing of financial information
The MOF decided to retain the concept of the EPC and the exemption from filing financial information for solvent EPCs. The MOF has decided not to accept the Steering Committee’s recommendation to abolish the current EPC concept and will keep the status quo.
- Exempt non-listed dormant companies from financial reporting requirements
Currently, a dormant company is exempted from statutory audit but is required to prepare accounts that are in compliance with FRS.
The MOF decided that non-listed dormant companies (other than subsidiaries of listed companies) which hold total assets of less than S$500,000 during the financial year will be exempted from preparing accounts, subject to the following safeguards:
- Annual declaration of dormancy by the directors of a dormant company.
- The company must be dormant for the entire financial year in question.
- Shareholders and the Accounting and Corporate Regulatory Authority (ACRA) will be empowered to direct a dormant company to prepare its accounts, and to lodge them unless exempted under any other exemption.
- Amend the definition of “subsidiary”
The current Act’s definition of “subsidiary” contains three limbs. A company is considered a subsidiary of another company if the latter company:
- Controls the composition of the board of directors of the first-mentioned company; or
- Controls more than half of the voting power of the first-mentioned company; or
- Holds more than half of the issued share capital in the first-mentioned company (excluding preference shares and treasury shares).
- The third limb of the above definition will be deleted.
- The second limb will be amended to refer to “majority of voting rights” instead of “more than half of the voting power”.
- Allow public companies to issue shares with different voting rights
Currently, only private companies are allowed to issue non-voting shares and shares with multiple votes. There is a restriction on public companies from doing so.
This one-share-one-vote restriction will be removed for public companies. Safeguards will be imposed to protect the rights of existing shareholders and ensure that shareholders know the rights attached to any particular class of shares.
However, the case of a dual class structure for public listed companies is still being considered by the regulators. The SGX, in consultation with MAS, is studying whether listed companies should be allowed to issue non-voting shares and shares with multiple votes, and if so, what safeguards should apply.
- Abolish financial assistance prohibitions for private companies
Currently, the Act prohibits a company from giving financial assistance for the acquisition of its own shares or those of its holding company, unless permitted by certain provisions in the Act.
Under the revised Act,
- The prohibition against financial assistance will be abolished for private companies (other than subsidiaries of public companies).
- A new exception will be introduced to allow a public company or its subsidiary to assist a person to acquire shares in the company or its holding company if giving the assistance does not materially prejudice the interests of the company or its shareholders or the company‘s ability to pay its creditors.
- Extend disclosure requirements for directors to non-director CEOs
The statutory duty to disclose conflict of interests in transactions and shareholdings in the company and related corporations will be extended from directors to CEOs who are not directors. This is consistent with the approach adopted under the Securities and Futures Act (SFA).
- Abolish requirement for a separate directors’ report
Currently, every company’s annual report needs to have a separate directors’ report.
The MOF accepts the Steering Committee's recommendation that the requirement for a separate directors' report should be abolished. The MOF agrees with the Steering Committee that the disclosures in the directors' report could be made elsewhere, e.g., in the accounts, notes to the accounts, or the statement
by the directors. The statement by the directors can be enhanced to include the mandatory disclosures currently required under the directors' report.
In addition, the MOF accepts Steering Committee's recommendation that the disclosure of directors' benefits in the directors' report should be repealed.
- Remove maximum age limit for directors
Currently, the Act prohibits the appointment of a person who is of or over 70 years of age as a director of a public company or a subsidiary of a public company unless his appointment is approved by ordinary resolution passed at an annual general meeting.
The maximum age limit for directors of public companies and subsidiaries of public companies is removed.
- Introduce multiple proxies regime for indirect investors, including CPF investors
Banks and capital markets services license holders providing nominee services and custodial services respectively are registered members of companies in respect of shares held by them on behalf of indirect investors (i.e., institutional and individual investors).
Currently, these indirect investors are prevented from participating in shareholders’ meeting due to the limit of two proxies that may be appointed by the custodian banks or nominee companies (unless the articles of association of the company provide otherwise).
In addition, the Central Provident Fund (CPF) investors are not the registered members of companies in respect of companies which they had purchased shares using the CPF funds. CPF Agent Banks or CPF Board are the registered members.
In the absence of a contrary provision in the articles, a proxy may only vote on a poll.
Under the revised Act,
- Custodian banks and nominee companies will be allowed to appoint more than two proxies so that indirect investors can be appointed as proxies to participate in shareholders’ meetings.
- In line with the change to the multiple proxies regime, CPF investors will be allowed to attend shareholders’ meetings.
- Each proxy will be given the right to vote on a show of hands, in addition to voting on a poll.
- To help companies better plan and manage the logistical challenges of catering to the expected larger turnout at the AGM, the advance period for the filling of proxies prior to the shareholders’ meeting is extended from the current timeline of 48 hours to 72 hours.